T 

T  ^^: 

1920 


v.| 


THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 

SCHOOL  OF  LAW 


BtNOERY 
224  S.  Soring  St.,    L 
T*l.  MUtoal  443^ 


LAW    LIBRARY 


'1 


LOS  ANGELESXOUNTY 


'••^v- 


A  TREx\TI^j4^ 


LAW  AKI)  PR5cEDUEE  OF 
RECEIVERS 


WITH  FORMS 


BEING  A   GREATLY   ENLARGED,   NEWLY   CLASSIFIED,   AND 
ENTIRELY   RE-WRITTEN 


SECOND  EDITION  OF  SMITH  ON  RECEIVERS 


BY 

HENRY  Ct.  tardy 

OF  THE  CALIFORNIA  BAR  AND  FOR  MANY  YEARS  ASSOCIATE 
EDITOR  OF  THE  AMERICAN  STATE  REPORTS 


VOLUME  ONE 


BENDER-MOSS  COMPANY 

SAN  FEANCISCO,  CALIFORNIA 
1920 


Copyright,  1920, 
By  bender-moss  COMPANY 

T    •  r 


WILLIAMS   PRINTING   COMrANT 


INnBI-KXnBNT    PKEMItOOM 


PREFACE  TO  SECOND  EDITION 


When  the  preparation  of  this  edition  was  commenced, 
it  was  intended  to  make  it  an  ordinary  new  edition  of  the 
work  of  Mr.  John  W.  Smith  on  the  Law  of  Receivers,  but 
it  was  soon  found  that  the  body  of  law  on  the  subject  had 
so  grown  since  the  first  edition  of  Mr.  Smitli's  work  and 
so  many  new  questions  had  arisen  by  reason  of  the  large 
and  complex  commercial  problems  involved  in  receiver- 
ship cases  that  to  treat  the  law  on  the  subject  adequately 
an  entirely  new  work  was  necessary,  using  Mr.  Smith's 
work  as  a  basis  for  the  earlier  decisions.  Hence  the 
entire  text  has  been  re-written  and  the  matter  re-classified 
to  meet  the  needs  of  the  immense  number  of  new  decisions 
rendered  since  the  first  edition  by  Mr.  Smith.  The  law  of 
receivership  is  a  branch  of  equity  jurisprudence  which  is 
a  product  of  American  courts,  although  based  on  original 
principles  derived  from  the  earlier  English  cases.  The 
evolution  of  the  law  of  receivership  as  declared  by  the 
American  courts  is  one  of  the  greatest  achievements  of 
the  equity  courts  of  this  country,  both  federal  and  state, 
and  has  been  applied  to  the  complexities  of  modern  com- 
mercial life,  suiting  the  remedy  to  the  evils  to  be  over- 
come or  the  protection  to  be  afforded  to  the  litigants  and 
the  public. 

The  vast  amount  of  business  conducted  under  corporate 
form  during  the  past  quarter  of  a  century  has  required  a 
statement  of  the  principles  of  receivership  law  as  applied 
to  corporations,  both  private  and  quasi-public,  and  a 
harmonizing  or  distinguishment  of  the  variant  decisions 
on  many  of  the  problems  presented  to  the  courts.  In  our 
treatment  of  the  subject  we  have  deemed  it  essential  to  a 

(hi) 


iv  PREFACE    TO    SECOND    EDITION. 

clear  statement  of  the  law  to  give  the  reasons  for  the  law, 
and  especially  so  when  the  decisions  are  variant.  This 
task  has  involved  an  immense  amount  of  work  by  the 
;\'riter,  especially  in  view  of  the  large  number  of  decisions 
on  the  subject.  It  has  been  the  aim  to  make  the  footnotes 
sufficiently  ample  to  show^  their  support  of  the  text  and 
their  application  to  the  concrete  problems  presented  to 
the  practitioner  in  his  use  of  the  work.  The  profession 
will  appreciate  the  broad-mindedness  of  the  publishers  in 
not  limiting  the  writer  to  any  specific  number  of  pages  in 
treating  this  big  subject.  Accordingly  the  treatment  has 
not  been  curtailed  in  order  to  conform  the  book  to  a 
limited  size,  and  those  topics  requiring  an  extended  dis- 
cussion have  been  treated  with  such  length  as  their 
importance  deserves.  The  writer  has  not  shirked  the 
consideration  of  the  vast  number  of  difficult  problems  by 
glossing  them  over  with  generalities,  which  would  not  be 
useful  to  the  practitioner,  nor  has  he  failed  to  criticize 
decisions  which  he  has  deemed  unsound,  but  always  giving 
his  reasons  for  so  doing.  And  where  the  decisions  have 
been  variant  the  writer  has  suggested  what,  in  view  of  the 
large  bird's-eye  view  which  has  been  afforded  him  of  the 
whole  subject,  lie  has  deemed  the  sounder  rule,  with  his 
reasons  therefor. 

The  topics  have  been  so  sectioned  as  to  give  a  quick 
idea  of  the  general  contents  of  the  section  and  the  index 
lias  been  prepared  with  a  view  to  not  overburden  the  user 
with  useless  cross-references  or  non-essential  titles. 

The  writer  desires  to  acknowledge  gratefully  the  valu- 
able assistance  rendered  him  by  Mr.  Francis  Dunn  of  the 
San  Francisco  Bar  in  the  preparation  of  a  number  of 
important  chapters. 

It  is  hoped  that  this  book  will  be  found  as  useful  to  the 
profession  as  the  amount  of  work  put  upon  it  should 

justify-  Henry  G.  Tardy. 

Oakland,  Cal.,  .Tuly,  1920. 


CONTENTS. 


CHAPTER  I. 

ORIGIN  AND  GENERAL  NATURE  OF   THE  LAW  OF  RECEIVERS 
AND   ITS    GROWTH. 

§  1.  General  Origin  of  Receiverships. 

§  2.  Receiver  Defined. 

§  3.  Different  Kinds  of  Receivers. 

§  4.  Receivership  as  Distinguished  from  Other  Remedies. 

§  5.  Necessity  to  Resort  to  the  Code  Provisions  of  Each  State. 


CHAPTER  II. 

GENERAL     GROUNDS     AND     CIRCUMSTANCES      IN     WHICH     A 
RECEIVER  IS  APPOINTED. 

§  6.  General  Principles  Applicable. 

§  7.  General  Class  of  Cases  in  Which  a  Receiver  Is  Appointed. 
§  8.  Applicability  of  General  Rules  of  Equity. 
§  9.  Necessity  for  Danger  of  an  Irreparable  Injury. 
§  10.  Caution  and  Discretion  to  Be  Exercised  by  Courts. 
§  11.  Character  of  Title  to  Be  Shown  by  Plaintiff. 
§  12.  Receivership  Where  Recovery  Is  Doubtful. 
§  13.  Whether  Existence  of  Property  Must  Be  Shown. 
§  14.  Necessity  for  Pendency  of  a  Suit. 
\  §  15.  Right  of  Court  to  Refuse  Appointment  on  Condition  of  Defendant 

Furnishing  a  Bond. 
-§  16.  Effect  Where  an  Injunction  Would  Serve  Same  Purpose. 
§  17.  Insolvency  as  a  Ground  for  Receivership. 
§  18.  What  Constitutes  a  Bar  to  Relief  by  Receivership. 
§  19.  Right  of  Court  to  Exact  Security  for  Receivership  Expenses. 
§  20.  Appointment  of  Receiver  with  Consent  of  Parties. 
§  21.  Effect  of  Statutory  Provisions  on  the  Subject. 
§  22.  Effect  of  Combining  Legal  and  Equitable  Powers  in  One  Court. 
§  23.  Appointment  of  Receiver  by  Executive  Officers. 
§  24.  Right  to  Appoint  Receiver  Without  Resorting  to  a  Court. 
§  25.  Effect    of    Defendant    Offering    to    Furnish    Security    to    Protect 
Plaintiff. 

(V) 


VX  CONTENTS. 

CHAPTER  III. 

GENERAL    EFFECT    OF    THE    APPOINTMENT    OF    A    RECEIVER 
AND  THE  DUTIES  THEREUNDER. 

§  26.  Status  of  the  Receiver  Respecting  Receivership  Property. 

§  27.  Relation  of  the  Receiver  to  Pending  Litigation. 

§  28.  Relation    of    the    Receiver    to    Garnishments,    Attachments,    and 

Other   Liens. 
§  29.  Effect  of  Judgments  on  the  Receivership. 
§  30.  Right  Obtained  by  Levy  of  Writ  of  Execution. 
§  31.  Time  of  Vesting  of  Possession  of  Receiver. 
§  32.  Effect  of  Receiver  Being  Required  to  Furnish  Bond. 
§  33.  Effect  of  Order  of  Appointment  Being  Stayed. 
§  34.  General    Rule    as    to    Liability    of    Receiver    on    Contracts    of 

Defendant. 
§  35.  Performance  by  Receiver  of  Executory  Contracts. 
§  36.  Effect  of  Receiver  Adopting  Prior  Contracts. 
§  37.  Conditional  Sales,  Consignments,  and  Purchases  with  Knowledge 

of  Insolvency. 
§  38.  General  Liability  of  Receiver  on  His  Own  Contracts. 
§  39.  Binding  Force  of  Contracts  of  One  Receiver  on  His  Successor. 
§  40.  Effect  of  Order  of  Appointment  as  Res  Judicata. 
§  41.  Source  and  Extent  of  the  Possessory  Rights  of  a  Receiver, 
§  42.  Manner  of  Determining  Extent  of  a  Receiver's  Powers. 
§  43.  General  Duties  and  Care  Required  of  a  Receiver. 
§  44.  Liability  of  Receiver  for  Funds  on  Deposit  in  Bank. 
§  45.  Right  of  Receiver  to  Borrow  Money. 
§  46.  Right  of  Receiver  to  Loan  Receivership  Fimds. 
§  47.  Liability  of  Receiver  for  Interest  on  Funds. 
§  48.  Liability  of  Receiver  for  Violations  of  His  Trust. 
§  49.  Duty  of  Receiver  Not  to  Profit  from  Receivership  Transactions. 
§  50.  Duty  of  Employees  and  Others  in  Intimate  Control. 
§  51.  Liability  of  Person  Improperly  Assuming  to  Act  as  Receiver. 
§  52.  Order  of  Appointment  as  Protection  of  Receiver. 
§  53.  Rights  of  Claimants  to  Property  in  the  Possession  of  Receiver. 
§  54.  Rights     of     Receiver     Respecting     Property     in     Possession     of 

Claimants. 
§  55.  Necessity  of  Order  of  Court  to  Pay  Money. 
§  56.  Power  of  Receivers  to  Make  Settlements  and  Compromises. 
§  57.  Appointment  of  Receiver  as  Constituting  an  Act  of  Bankruptcy. 
§  58.  General  Liability  of  the  Receivership  for  Torts  and  Negligence. 
§  59.  Right  of  Receiver  to  Make  Repairs. 
§  CO.   ^Expenditures  for  Ru))plies,  Labor,  and  the  Like. 
§  61.  Conducting  the  Receivership  as  a  Going  Business. 


CONTEMTS.  ^'^^ 

CHAPTER  IV. 

GENERAL  RULE  AS   TO  WHO   MAY  BE  APPOINTED  RECEIVER. 

§  62.  The  General  Rule. 

§  63.   Eligibility  of  Parties,  Owners,  and  Other  Interested  Parties. 

§  64.  Eligibility  of  Attorneys,  Trustees,  and  the  Like. 

§  65.  Eligibility  of  Court  or  Other  Officials. 

§  66.  Effect  of  Relationship  to  Judge  or  Parties. 

§  67.  Whether  Candidate  for  Receiver  May  Be  a  Non-resident. 

§  68.  Eligibility  of  Corporation  to  Act  as  Receiver. 

§  69.  Method  Used  by  the  Court  in  Making  the  Selection. 

CHAPTER  V. 

TRUST  ESTATES  AND  FIDUCIARY  RELATIONS. 
1.  Trusts  and  Trust  Relations. 

§  70.  General  Principles  Applicable. 

§  71.  Various  circumstances  in  Which  Receiver  Appointed  in  Lieu  of 
Trustee. 

§  72.  Receivership  in  Case  of  Trustee  Ex  Maleficio. 

§  73.  Receivership  in  Case  of  Trustee  Ex  Officio. 

§  74.  Receivership  Over  Trustee  of  Person  Interested  in  Public  Con- 
tract. 

§  75.  Receivership  Over  Trustees  Who  Are  Charged  with  Fraud. 

§  76.  Effect  of  Appointment  of  Receiver  on  the  Trust  Property. 

§  77.  Whether  Trustees  Can  Declare  Default  in  Collateral  Trust  Agree- 
ment After  Receivership. 

§  78.  Whether  Receivership  Deprives  Trustees  of  Availing  Themselves 
of  Their  Ordinary  Remedies. 

§  79.  Right  of  Trustee  to  Bind  His  Beneficiaries  by  His  Acts. 

2.  Estates  of  Decedents. 

§  80.  General  Principles  Applicable. 

§  81.  Receivership  Pending  Institutions  of  Probate  Proceedings. 

§  82.  Receivership  Pending  Will  Contest. 

§  83.  Whether  Receivership  After  Judgment  in  Will  Contest. 

§  84.  Receivership  Where  Executor  or  Administrator  Is  Charged  with 
Fraud,  Mismanagement  or  Waste. 

§  85.  Effect  Where  Mismanagement  Based  on  Account  Approved  by 
Probate  Court. 

§  86.  Mere  Disagreement  Between  Several  Executors  as  to  Manage- 
ment. 

§  87.  Receivership  on  Failure  to  Obey  Orders  of  Court  or   Directions 

in  Will. 
5  88.  Effect  of  Insolvent  Character  of  Executor  or  Administrator. 


X  CONTENTS. 

7.  Relating  to  the  Procedure  of  the  Appointment. 
§  155.  Nature  of  Pleading  and  Notice  Necessary. 
§  156.  Effect  of  Answer  Admitting  Allegations  of  Complaint. 
§  157.  Effect  of  Allegations  of  Complaint  Being  Fully  Denied. 
§  158.  Right  of  Creditors  to  Intervene  in  Partnership  Litigations. 
§  159.  Determination  of  Disputed  Questions  of  Fact  by  Jury. 
§  160.  What  Will  Be  Determined  in  the  Order  of  Appointment. 
§  161.  How  the  Partnership  Property  Is  Described  in  the  Order. 
§  162.  Furnishing  of  Bond  by  the  Receiver. 

§  163.  Denial  of  Application  for  Receiver  as  Bar  to  Subsequent  Appli- 
cation. 
§  164.  Allowance  of  Costs  and  Fees. 
§  165.  Venue  of  the  Suit  to  Appoint  a  Receiver. 

8.  Powers  and   Duties  of  the   Receiver. 

§  166.  General  Effect  of  the  Appointment. 

§  167.  General  Powers  and  Duties  of  the  Receiver. 

§  168.  Duties  of  the  Receiver  Respecting  the  Collection  of  the  Partner- 
ship Assets. 

§  169.  Rights  of  Receiver  of  Individual  Partner. 

§  170.  Effect  of  One  of  the  Partners  Being  Appointed  Receiver. 

§  171.  Suing  and  Being  Sued. 

§  172.  Binding  Force  of  Previous  Orders  or  Judgments  Upon  Receiver. 

§  173.  Receiver  Is  Bound  by  Equities  Against  Partnership. 

§  174.  Conducting  of  the  Partnership  Business  by  the  Receiver. 

§  175.  Whether  the  Receiver  of  a  Law  Firm  May  Continue  the  Practice 
of  the  Firm. 

§  176.  Joint  Operation  of  Two  Railroads  by  Receiver  of  One  of  Them 
Constitutes  No  Partnership. 

§  177.  Liability  of  Receiver  for  Torts. 

§  178.  Sale  of  the  Partnership  Assets  by  the  Receiver. 

§  179.  Right  to  Sell  Partnership  Assets  Outside  of  State. 

§  180.  Duty  of  Receiver  to  Pay  the  Debts  and  Account  Therefor. 

§  181.  Disposition  of  Earnings  and  Meeting  Losses  in  Operations  by 
Receiver. 

§  182.  Vacation  of  the  Appointment. 

CHAPTER  VIII. 
RECEIVER  IN  RELATION  TO  JOINT  ADVENTURES. 
§  183.  When  Receiver  Will  Be  Appointed. 

CHAPTER  IX. 

RECEIVERS  IN  PARTITION  PROCEEDINGS. 

§  184.  In  General. 

§  185.  Effect  of  Hostile  Feelings  or  Disagreements  Between  Cotenants. 

§  186.  Effect  of  Ouster  or  Refusal  to  Account  for  Profits. 


CONTENTS.  XI 

§  187.  Effect  of  Property  to  Be  Partitioned  Being  Used  in  Partnership 
Capacity. 

§  188.  Effect  of  Insolvency  of  Tenant  in  Possession. 

§  189.  Effect  Where  Party  in  Possession  Is  Solvent  and  Offers  Indem- 
nification. 

§  190.  Receivership  Where  Care  of  Subject  Matter  Involves  Heavy 
Expense. 

§  191.  Effect  Where  One  Party  Claims  as  Tenant  by  the  Curtesy. 

§  192.  Receiver  in  Aid  of  Final  Judgment  of  Partition. 

§  193.  Partition  Proceedings  Relative  to  Personal  Property. 

§  194.  Matters  Relating  to  the  Procedure  of  the  Appointment. 

§  195.  Rights  and  Duties  of  the  Receiver. 


CHAPTER  X. 

INTERESTS  IN  REAL  ESTATE. 

1.  Over  What  Interests  in   Real   Property  Receivers 
Are   Appointed. 

§  196.  In  General. 

§  197.  As  Between  Tenants  in  Common. 

§  198.  Tenants  in  Common  Using  the  Property  as  a  Business. 

2.  Actions   for   the    Recovery   of   Real    Property. 

§  199.  Settlements  of  Disputes  as  to  Title. 

§  200.  Actions  in  Ejectment. 

§  201.  Rule  in  England  under  Judicature  Act. 

§  202.  Receiver  to  Collect  the  Rents  and  Profits. 

§  203.  Receiver  to  Gather  Crops. 

§  204.  Receiver  of  Homestead. 

§  205.  Receiver  May  Be  Appointed  at  Instance  of  Defendant. 

§  206.  Of  Rents  and  Profits  Outside  of  Jurisdiction  of  Court. 

§  207.  Receivership  Over  Annuities. 

§  208.  Effect  of  Statutory  Provisions  Upon  Appointment  in  Ejectment 

and  the  Like. 
§  209.  Questions  Relating  to  the  Procedure. 
§  210.  Appointment  of  Receiver  Pending  Appeal. 
§  211.  Effect    of    Termination    of    Receivership    Upon    Real    Property 

Covered  by  It. 
§  212.  Whether    the    Appointment    of    Receiver    Prevents    Running    of 

Statute  of  Limitations. 
§  213.  On  Breach  of  Covenants. 

3.   Receiverships  in  Actions   Between  Vendors  and 
Purchasers. 
§  214.  In  Suits  to  Set  Aside  Conveyances  on  Ground  of  Fraud. 
§  215.  As  Between  Vendor  and  Purchaser  in  General. 
§  216.  Effect  Where  Insolvency  of  Purchaser  Alleged. 


Sll  CONTENTS. 

§  217.  Vexatious  Legal  Proceedings  for  Purpose  of  Delay. 

§  218.  Upon  Disagreement  Between  Vendors  Upon  Partition  Between 

Them. 
§  219.  Upon  Enforcement  of  Vendor's  Lien. 

§  220.  Receiver  Takes  Property  Subject  to  Existing  Vendor's  Lien. 
§  221.  Receivership  in  Suits  for  Specific  Performance. 
§  222.  Receivership  in  Aid  of  Judicial  Sales. 
§  223.  Receivership  Over  the  Rents  and  Profits. 
§  224.  The  Rule  as  Applied  to  Personal  Property. 
§  225.  Equitable  Lien  for  Purchase  of  Personalty. 

4.   Receivership   at    Instance    of    Landlord   or   Tenant. 

§  226.  Circumstances  in  Which  Receiver  Appointed. 

§  227.  Receivership  Over  Growing  Crops. 

§  228.  Combined  Lease  and  Sale  Contract. 

§  229.  Deed  of  Trust  to  Secure  Advances  to  Tenant. 

§  230.  Breach  of  Covenants  of  Lease. 

§  231.  Status  of  Receiver  of  Landlord  in  Relation  to  the  Property. 

§  232.  Receivership    Determined    Upon   Conditions    at    Time    of   Appli- 
cation. 

§  233.  Duration  of  the  Receivership. 

5.  Receiverships  Affecting   Leases. 
§  234.  Receivers  to  Collect  Rent. 
§  235.  Receiver  of  a  Lessee. 
§  236.  Receiver  of  a  Lessor. 
§  237.  Receiver  as  Lessor  or  Lessee. 

CHAPTER  XI. 

MORTGAGES,   PLEDGES,    MECHANICS'   AND   OTHER   LIENS. 
1.   Mortgages   on    Real    Property, 
(a)   General  View  of  the  Subject. 

§  238.  Scope  of  Treatment  of  Subject. 
I  239.  Roceivers  Under  Common  Law. 

(b)    Receivership  on   Behalf  of  First  Mortgages  in 
Foreclosure  of  Equitable  Mortgages. 
§  240.  General  Principles  Applicable. 
§  241.  Preservation    of    the    Property    as    Security    as    an    Essential 

Ground. 
§  242.  Indispensable    Grounds    or   Conditions    for    the   Appointment    of 

a  Receiver. 
§  243.  Necessity  for  Showing  Conditions  or  Grounds  Additional  to  the 

Indispensable  Grounds. 
§  244.  Effect  of  Statutory  Provisions  on  the  Subject. 
§  245.  Effect  of  Stipulations  in  the  Mortgage. 
§  246.  Discretion  of  the  Court. 


CONTENTS.  XIU 

§  247.  Property  Affected  by  the  Receivership. 

§  2-48.  Persons  Other  Than  Mortgagor  Affected  by  Receivership. 

§  249.  Time  for  Applying  and  Duration  of  Receivership. 

§  250.  Duties,  Powers,  and  Liabilities  of  the  Receiver. 

§  251.  Appointment  Before  Maturity  of  the  Debt. 

§  252.  Questions  Relating  to  the  Procedure. 

(c)    Receiverships  on   Behalf  of  Junior   Mortgagees. 
§  253.  Right    of    a   Junior    Mortgagee    to    a    Receiver    as    Against    the 

Mortgagor. 
§  254.  Right  of  a  Junior  Mortgagee  as  Against  a  Senior  Mortgagee. 

(d)    Receiverships  Affecting   IVIortgaged   Property. 
§  255.  Receiverships  in  Actions  for  Benefit  of  Others  Than  the  Mort- 
gagee. 
§  256.  Receivership  as  Against  Mortgagee  in  Possession. 
§  257.  General  Receivership  Over  the  Affairs  of  Insolvent  Creditor. 
§  258.  Receiverships  Created  at  Instance  of  Others  Than  Mortgagees. 
2.   Receiverships  Affecting   Mortgaged   Chattels, 
(a)   Common  Law  and  Equitable  View  of  Chattel  Mortgage 
and   Right  to  a   Receiver  on   Foreclosure. 
§  259.  Common  Law  View. 
§  260.  Equitable  View. 

(b)    General   Principles  Governing   Receiverships  in  Actions 
to  Foreclose  Chattel  Mortgages. 
§  261.  Discretion  of  Court. 
§  262.  Necessity  for  Pending  Suit. 
§  263.  Property  Affected  by  Receivership. 
§  264.  The  Court's  General  Control  Over  the  Receivership. 
§  265.  Grounds  for  Appointing  a  Receiver. 

3.   Receivership   Affecting    Pledges. 
§  266.  General  Rules  Applicable. 

4.  Receivership  Affecting  Mechanic's  Liens. 
§  267.  Receiverships  on  Foreclosure  of  Mechanic's  Liens. 
§  268.  Receiverships  Affecting  Property  Covered  by  Mechanic's  Liens. 

5.   Receiverships   Respecting  Statutory   Labor  Liens. 
§  269.  Rules  Governing  the  Subject. 

6.  Receiverships  Affecting  Equitable  Liens. 
§270.  General  View  of  the  Subject. 

CHAPTER  XII. 

PROCEEDINGS  IN  AID   OF   GENERAL   CREDITORS. 
1.   In   General. 

§  271.  Scope  of  Treatment  of  Subject. 

§  272.  Right  of  Contract  Creditors  to  Have  Receiver  Appointed. 


XIV  CONTENTS. 

2.  Creditors'  Equity  Suits  to  Set  Aside  Fraudulent 
Conveyances. 
§  273.  General  Nature  of  the  Action. 
§  274.  Conditions  for  Appointment  of  Receiver. 
§  275.  Grounds  for  Appointment  of  a  Receiver. 
§  276.  Effect  of  Assignment  for  Benefit  of  Creditors, 

3.  Creditors'  Equity  Suits  to  Reach  Assets  not  Accessible 
Under   Law   Process. 

§  277.  Nature  of  the  Action. 

§  278.  Conditions  for  Appointing  a  Receiver. 

§  279.  Grounds  for  the  Appointment  of  a  Receiver. 

§  280.  Necessity  for  Shov/ing  Existence  of  Property  of  Debtor. 

§  281.  Property  Affected  by  the  Receivership. 

§  282.  Effect  of  an  Assignment  for  Benefit  of  Creditors. 

§  283.  Lien  and  Priority  Acquired  by  the  Complainant. 

§  284.  Duties  and  Powers  of  Receivers. 

§  285.  Effect  of  Statutory  Provisions. 

4.  Proceedings  Supplementary  to    Execution. 
§  286.  General    Character    of    Such    Proceedings    with    Reference    to 

Receiverships. 
§  287.  Conditions  for  Appointment  of  Receiver. 
§  288.  Necessity     for     Showing     Existence     of     Property     Subject     to 

Receivership. 
§  289.  Lien  Acquired  by  Creditor. 

§  290.  Powers  of  Receiver  in  Supplementary  Proceedings. 
§  291.  Power  Over  Property  in  a  Foreign  Jurisdiction. 

5.   Receivership  in   Respect  to  Bulk  Sales. 
§  292.  General  Discussion  of  the  Subject. 


CHAPTER  XIII. 

PRIVATE  CORPORATIONS. 

1.  General    Rules   Respecting   Corporation    Receivership. 
§  293.  General  Nature  of  Receivership  of  Corporations. 

§  294.  Receiverships    at    the    Instance    of   a    Corporation    or   with    Its 

Consent. 
§  295.  Discretion  of  Court  in  Making  the  Appointment. 

2.  Inherent  Jurisdiction   of  Courts  of   Equity  to  Appoint 

Corporation   Receivers. 
§  296.  Grounds  of  Equity  Jurisdiction. 
§  297.  Recognition  of  Equity  Powers  by  Statutory  Provisions. 

3.  Appointment  by  Equity  Courts  at  Instance  of  Stockholders. 
§  298.  Circumstances  and  Conditions  Essential  to  Proceeding. 
§  299.  Necessity  for  Existence  of  an  Independent  Cause  of  Action. 


CONTENTS.  2i^V 

fi  300.  General  Rule  Respecting  Circumstances  Under  Which  the 
Appointment   Is   Made. 

§  301.  Cessation  of  Corporate  Business  or  Failure  to  Maintain  Active 
Officers. 

§  302.  Inability  to  Attain  the  Business  Purposes  of  the  Corporation. 

§  303.  Disastrous  Dissensions  or  Deadlock  Among  Officers  or  Stock- 
holders. 

§  304.  Mismanagement  on  Part  of  Majority  Stockholders. 

§  305.  Insolvency  as  a  Ground  for  the  Appointment. 

4.  Appointment  by  Equity  Courts  at  Instance  of  Creditors. 
§  306.  What  Status  of  Creditors  Is  a  Necessary  Condition. 
§  307.  Circumstances  Necessary  to  Warrant  the  Appointment. 
§  308.  Insolvency  as  a  Controlling  Circumstance. 

5.   Duration  and   Extent  of  Equity  Corporation 
Receiversliip. 
§  309.  General  Rule  Respecting  the  Matter. 

6.  Appointment  of  Corporation  Receiver  Under  Statutory 
Autliority. 

§  310.  General  Discussion  of  the  Subject. 

§  311.  Equity  Character  of  the  Statutory  Power. 

§  312.  Effect  of  the  State  Statutes  on  the  Jurisdiction  of  the  Federal 

Courts. 
§  313.  Constitutionality  of  Receivership  Statutes. 

7.   Receiversiilps  on   Dissolution   of  Corporation. 

§  314.  General  Review  of  the  Subject. 

§  315.  Effect  of  Statutes  Providing  for  Dissolution  Proceedings. 

§  316.  When  Liquidating  Trustees  Are  Favored  Rather  Than  Liquidat- 
ing Receivers. 

§  317.  Court's  Method  of  Making  a  Choice  Between  Liquidating  Trus- 
tees and  Liquidating  Receivers. 

§  318.  Displacement  of  Liquidating  Trustees  by  Receivers. 

8.  Status  of  Statutory  Receivers  Appointed  on  Account 

of  Insolvency. 
§  319.  General  Rule  in  Respect  to  the  Subject. 

9.  Receivership  on  Account  of  Corporation   Maintaining 

a  Monopoly  or   Engaged   in   Illegal  Transactions. 

§  320.  Circumstances  when  Receiver  Appointed  in  Proceedings  for 
Maintaining  a  Monopoly  Under  Sherman  Anti-Trust  Law. 

§  321.  Right  of  Receiver  of  Corporation  Injured  by  Violation  of  Anti- 
Trust  to  Recover  Treble  Damages. 

§  322.  Whether  the  Cause  of  Action  for  Treble  Damages  May  Be 
Asserted  by  Receiver  After  Dissolution  of  Corporation. 

§  323.  Right  to  Sell  Plant  to  Sole  Competitor  in  Business. 


XVI  CONTENTS. 

§  32-1.  Circumstances  When  Receiver  Appointed  Under  State  Anti- 
Trust  Laws. 

§  325.  Receiverships  Where  Corporation  Is  Engaged  in  an  Illegal  Busi- 
ness, such  as  Racing,  Gambling,  or  Prize-flghting. 

10.   Receivers  Over  Foreign  Corporations. 

§  326.  Receivers  Over  Foreign  Corporations  for  Special  Purposes. 

§  327.  Ancillary  Corporation  Receiver  of  Foreign  Corporations. 

§  328.  Independent  Corporation  Receivers  of  Foreign  Corporations. 

§  329.  General  Circumstances  and  Conditions  for  Appointment. 

§  330.  When  Receivership  in  Ancillary  Jurisdiction  May  Be  Considered 
a  Primary  One. 

§331.  Necessity  for  the  Existence  of  Property  in  the  Ancillary  Juris- 
diction. 

I  332  Federal  Courts  Not  Affected  by  Diversity  Citizenship  Rule. 

§  333.  General  Status  and  Rights  of  the  Primary  Receiver  in  Another 
Jurisdiction. 

§  334.  General  Povi^ers  and  Purposes  of  the  Ancillary  Receivership. 

§  335.  Exclusive  Character  of  Jurisdiction  of  Primary  Receivership 
Created  in  Place  Outside  of  Domiciliary. 

§  336.  What  Showing  Is  Necessary  to  Obtain  Appointment  of  an 
Ancillary  Receiver. 

11.  Administration   of  the   Estate. 

(a)    Relation  of  Receivers  and  Officers  of  the  Corporation 
to  the    Estate. 

§  337.  General  Relation  of  the  Receiver  to  the  Estate  and  Court. 

§  338.  Difference  in  Relation  to  Estate  of  Equity  and  Statutory 
Receivers. 

§  339.  Effect  Where  Receivership  Does  Not  Involve  All  of  the  Corpo- 
rate Property. 

§  340.  General  Rules  Respecting  Maintenance  of  Litigation  by  or 
Against  the  Receiver. 

§  341.  Relation  of  Directors  and  Officers  of  the  Corporation  to  the 
Estate. 

§  342.  Status  of  the  Corporation  Pending  the  Receivership. 

(b)    Who  Will   Be  Appointed  Corporation   Receiver. 

?  '43.  Who  Will  Be  Selected  as  the  Receiver  and  Qualifications  He 
Should  Possess. 

\cj    General  Duti^s  of  the  Receiver  Respecting  the  Property 
p*  the    E-tate. 

A.  In    General. 
§  244.  General    Duty    of    Reducing    to    Possession    the    Assets    of    the 

§  345.  Compe--;n?  Qflflrprs  of  Corporation  to  Testify  Regarding  Aisats 
and  Turn  lis  Books  Over  to  Receiver. 


CONTENTS.  XVli 

§  346.  Extent  to  Which  Receiver  Is  Affected  by  Right  of  Corporation 

to  Recover  Property — Doctrine  of  Estoppel. 
§  347.   Sale  in  Lieu  of  Litigation  Attempting  to  Reduce  to  Possession. 

B.  Suits   by   Receiver  to   Recover  Corporate   Assets   Recov- 
erable  by   Corporation    if   No    Receivership. 

§  348.  Suits  Against  Strangers  to  the  Corporation. 

§  349.  Actions  Against  Trustees,  Directors,  or  Officers  for  Malfeasance, 

Misfeasance,  or  Negligence. 
§  350.  Actions     Against     Stockholders     for    Unpaid     Subscriptions     to 

Stock. 
§  351.  Matters  Relating  to  the  Procedui-e  of  Such  Actions. 
§  352.  Effect  Where  the  Statutory  Liability  Is  Directly  to  the  Creditor 

Instead  of  Corporation. 

0.   Right  of  Receiver  to  Sue  for  Assets  in  Cases  Where 
Corporation   Itself  Is  Estopped  to  Sue. 

§  353.  Receiver's  Right  to  Sue  for  Assets  as  to  Which  the  Corporation 

Is  Estopped  to  Sue. 
§  354.  Actions  on  Behalf  of  Creditors  to  Recover  Corporate  Property 

from  Strangers,  Where  Corporation  Itself  Estopped. 
§  355.  Actions   on  Behalf  of  Creditors  Against  Directors   and   Officers 

in  Cases  Where  Corporation  Itself  Estopped. 
§  356.  Action   to  Recover   Illegal   Transfers   of  Property  or   Dividends 

Paid  to  Stockholders. 
§  357.  Actions  on  Behalf  of  Creditors  Respecting  Unpaid  Stock,  Bonus 

Stock,  and  Statutory  Liabilities  in  Cases  Where  the  Corpora- 
tion Is  Estopped. 
§  358.  General  Defenses  to  Actions  by  Receiver  on  Behalf  of  Corporate 

Creditors. 

D.   Duty  of  Receiver  Towards  Contracts  of  Corporation 
and  of  Himself. 

§  359.  Litigation  Concerning  the  Receiver's  Own  Transactions. 

§  359a.  Duty  of  Receiver  Respecting  Executory  Contracts. 

§  360.  Position  of  Receiver  Toward  Leases  of  the  Corporation. 

E.   Management  of  the  Property  as  a  Going  Concern. 

§  361.  Conducting  the  Property  or  Business  as  a  Going  Concern. 

§  362.  Duty  of  Receiver  Regarding  Pending  Contracts  of  Employment. 

§  363.  Right  of  Receiver  to  Employ  and  Discharge  Employees  Con- 
nected with  the  Receivership. 

§  364.  Rights  of  Employees  in  Case  of  Grievances. 

§  365.  Rights  of  Employees  of  Receivers  to  Belong  to  Trade  Unions. 

§  366.  Payment  of  Wages  to  Persons  Employed  by  the  Receiver. 

§  367.  Payment  of  Wages  Earned  Immediately  Prior  to  the  Receiver- 
ship. 


xviii  CONTENTS. 

F.   Rights  of  Receivers  in  Foreign  Jurisdiction  Respecting 
Property  of  tlie  Corporation. 

§  368.  Assets    Located    in    a    Jurisdiction    Other    Than    That    of    the 
Domicile  of  the  Corporation. 

§  369.  Right  of  Foreign  Jurisdiction  to  Protect  Its  Resident  Creditors. 

§  370.  Effect  of  Having  Ancillary  Receivers  Appointed. 

§  371.  Effect    of   Various    Statutes    Making   Receiver    an    Assignee    or 
Quasi  Assignee  of  Estate. 

§  372.   Effect   of   Conveyances    of    Property   to    Receiver   by    Insolvent 
Corporation. 

§  373.  Creditor   of  Foreign   State   Suing   Corporation    Under   Receiver- 
ship in  Another  Foreign  State. 

§  374.  Whether    Residents    of   Jurisdiction    of    Receivership    Are    Pre- 
cluded from  Suing  Elsewhere. 

§  375.  Whether  Foreign   Creditors   Can  Attach   Receivership  Property 
Temporarily  Brought  in  His  Jurisdiction  by  Receiver. 

§  376.  Independent  Foreign  Receiver  of  a  Foreign  Corporation. 

§  377.  Marshaling  of  Assets  in   a  Foreign  Jurisdiction  and  Creditor's 
Right  of  General  Participation. 


CHAPTER  XIV. 

RAILROADS  AND  OTHER  PUBLIC  UTILITY  CORPORATIONS. 

1.  General  Scope  of  the  Subject  and   Principles  Applicable. 
§  378.  The   Peculiar  and  Distinguishing   Features   Pertaining  to   Such 

Receiverships. 
§  379.  Receiverships  for  Purposes  Common  to  Individuals  and  Ordinary 

Corporations. 
§  380.  Receiverships  in  Cases  of  Violation  of  Anti-Trust  Law. 
§  381.  Effect  of  War-time  Government  Control  of  Public  Utilities. 
§  382.  Who  Will  Be  Selected  as  Receiver. 
§  383.  Appointment  of  Ancillary  Receivers. 

2.  Disposition  of  the  Operative  Property  Through 
a  Receivership. 

§  384.  Usual  Methods  of  Disposing  of  the  Property  During  the 
Receivership. 

§  385.  Whether  Receivers  Should  Continue  Operations  When  Done  at 
a  Financial  Loss. 

§  386.  General  Attitude  of  Receivership  Toward  Large  Financial  Trans- 
actions Made  in  Course  of  Business. 

3.   Powers  and  Duties  of  the  Receiver. 

§  387.  General  Statement  as  to  the  Extent  of  Powers  of  the  Receiver. 
§  388.  Respecting  the  Operation  of  the  Business  of  the  Public  Utility. 
§  389.  Indebtedness  for  Operation  Incurred  by  the  Receiver. 


CONTENTS.  XIX 

§  390.  Issuance  of  Receivers'  Certificates. 

§  391.  Executory  Contracts  of  the  Public  Utility  Itself. 

§  392.  What  Constitutes  an  Adoption  or  Rejection  of  Executory  Con- 
tracts. 

§  393.  Liability  Created  by  Adoption  of  Executory  Contract, 

§  394.  Liability  Created  by  Rejection  of  Executory  Contract. 

§  395.  Status  of  the  Public  Utility  Operative  Property. 

§  396.  Duty  of  Receiver  Respecting  Wages  of  Operating  Employees. 

§  397.  Extent  of  Protection  Given  by  Court  to  Receiver  in  Operating 
Railroad. 

§  308.  Adjustment  of  Labor  Grievances  by  the  Court  Itself. 

§  399.  Right  of  Employees  to  Quit  Employment. 

§  400.  Right  of  Employees  to  Organize  and  Extent  of  Their  Right  to 
Strike. 

§  401.  Right  of  Strikers  to  Reinstatement  by  Receivers. 

§  402.  Right  of  Receiver  to  Recover  Treble  Damages  Under  Anti-Trust 
Act  Against  Unincorporated  Labor  Unions. 

4.   Amenability  of  Public  Utility  Receivers  to  Governmental 
Control. 

§  403.  General  Statement. 

§  404.  Amenability  of  Federal  Receivers  to  State  Laws  and  Regula- 
tions. 

§  405.  Amenability  of  Receivers  to  the  Authority  of  Public  Service 
Commissions. 

§  406,  Amenability  of  Receivers  to  the  Remedial  Laws  of  Civil  or 
Penal  Character. 

5.  Liability  of  the  Receivership  Estate  for  Injuries  Duo 
Negligence. 

§  407.  General  Statement. 

§  408.  Liability  of  the  Company. 

§  409.  Liability  of  the  Receiver. 

§  410.  Liability  of  the  Purchaser  at  a  Receivership  Sale. 

§  411.  Liability  of  the  Company  if  the  Property  Is  Returned, 

6.   Presentation  and  Allowance  of  Claims  and  TheiP 
Priorities, 

§  412.  General  Rules  Governing  Presentation  and  Allowance, 

§  413.  General  Liability  of  Receivership  for  Preferred  Claims. 

§  414.  General  Rule  as  to  What  Constitutes  a  Preferred  Claim. 

§  415.  Characteristics  and  Qualities  Essential  to  Preferentiality. 

§416.  The  Consideration -as  an  Essential  Characteristic. 

§  417.  The  Source  of  Payment  as  an  Essential  Characteristic. 

§  418.  Time  of  Accrual  of  Claim  as  an  Essential  Condition  to  Its  Pref- 
erence— The  "Six  Months  Rule." 

§  419.  Funds  to  Which  Preferred  Claims  Attach. 

§  420.  Unmortgaged  Assets,  Including  Current  Income  Not  Covered  by 
Mortgage,  as  a  Payment  Fund, 


XX  CONTENTS. 

§  421.  What  Constitutes  Mortgaged  Assets. 

§  422.  Status  of  Current  Income  from  Operation  of  the  Receivership 
Property. 

§  423.  Resort  to  the  Corpus  of  the  Mortgaged  Property  to  Replace 
Diversions  from  Current  Income. 

§  424.  Resort  to  the  Corpus  of  the  Property  to  an  Amount  Greater 
Than  That  of  Diversions. 

§  425.  Discussion  of  the  Gregg  Case  and  Its  Results. 

§  426.  Equitable  Ground  of  the  Doctrine  of  Preferred  Claims. 

§  427.  Status  of  Preference  as  Dependent  Upon  Estoppel  Against  Mort- 
gagee. 

§  428.  Interest  Upon  Preferred  Claims. 

§  429.  Effect  of  Provisions  Concerning  Payment  of  Preferred  Claims 
in  Order  Appointing  the  Receiver. 

7.  Receivers  of  Public  Utility  Corporations  Appointed  by 

State   Courts. 

§  430.  General  Extent  of  the  Powers  and  Duties  of  Receivers  Appointed 

by  State  Courts. 
§  431.  Operation  of  Public  Utility  by  Receiver. 
§  432.  Preferred  Claims  Under  State  Statutes  or  in  State  Receivership 

Cases. 
§  433.  Status  of  the  Executory  Contracts  Belonging  to  Receivership. 


CHAPTER  XV. 
BANKS   AND   BANKING    MATTERS. 

1.-  Matters   Relating   to  the   Appointment. 

(a)    General  Nature  and  Effect  of  Receiverships  of  Banking 

Institutions. 

§  434.  Public  Character  of  Such  Institutions  as  Affecting  Receiverships. 

§  435.  What  Receiverships  Do  Not  Affect  the  Corporate  Entity. 

§  436.  Effect  of  Appointment  of  a  General  Receiver  Over  a  Banking? 

Institution. 

(b)  Powers  of  Equity  Courts  Over   Banking   Institutions. 

§  437.  General  Extent  of  Powers  of  Equity  Courts  Over  Such  Institu- 
tions. 

(c)  Nature  and   Effect  of  Special  Statutory   Regulations. 

§  438.  General  Character  of  Statutes  Relating  to  Banks. 

§  439.  Effect  of  Changes  in  Banking  Law  Pending  Proceedings. 

§  440.  Impairment  of  Capital  and  Insolvency  Under  Statutory  Provi- 
sions. 

§  441.  Whether  Regulatory  Banking  Act  Excludes  Application  of  Gen- 
eral Corporation  Laws, 


COisTTENTS.  ^^^ 

§  442.  Effect   of  Dissolution   Proceedings   in   State   Court   Upon    Prior 

Equity  Receivership  in  Federal  Court. 
§  443.  Reopening   of   Bank   Under    Temporary   Receiver    Appointed   at 
Instance  of  Bank  Superintendent. 

(d)    Receivership  Over  Private  Banks. 
§  444.  Status  of  the  Bank  in  Connection  With  Other  Assets  of  Private 
Banker. 

(e)    Receiverships  Over  National   Banks. 
§  445.  Nature  of  Receiverships  of  National  Banks. 

(f)    General   Causes  for  Appointment  of   Receiver. 
§  446.  Usual  Grounds  for  Receivership. 

(g)    Appointment   and    Removal. 

§  447.  Who  Will  Be  Appointed. 

§  448.  Right  to  Remove  the  Receiver. 

2.  Powers  and  Duties  of  the  Receiver, 
(a)    Reducing    Assets   to    Possession. 
§  449    Nature  of  Title  to  Bank  Assets  Acquired  by  Receiver. 
§  450.  General  Duties  of  the  Receiver  and  Effect  of  His  Appointment. 
§  451.  General  Powers  of  Receivers  of  National  Banks. 
§  452.  Embezzlements  by  Receivers  of  National  Banks. 
§453    Lltigation'by  Receivers  to  Collect  Assets. 

§  454.  Right  of  Receiver  in  Respect  to  Pledges  and  Collateral  Agree- 
ments. 
§  455.  Right  of  Receiver  to  Recover  on  Notes  Given  or  Held  for  Pur- 
poses of  Deceiving  Bank  Examiners. 
§  456.  Whether  Leave  of  Court  Necessary  to  Sue  Receiver  Appointed 

by  Bank  Commissioner  or  Like  Official. 
§  457.  Suit  by  Receiver  to  Recover  Treble  Damages  Under  Anti-Trust 
Law. 

(b)    Relation  of  Receiver  to  Trust  Funds  and  Property 
of  the  Bank. 
§  458    Duty  of  Receiver  Respecting  Trust  Funds  of  Bank. 
§  459.  Status  of  Bonds  Deposited  by  National  Bank  Under  Statute  on 
Organization. 

(c)    Relation  of  Receiver  to   Deposits. 
§  460.  General  Relation  to  Deposits  of  the  Bank. 
§  461    Special  and  Fiduciary  Deposits. 

§  462.  Status  of  Deposits  by  Public  Officials  or  Governmental  Bodies, 
(d)    Enforcement  of  Liabilities  of  Directors  for  Negligence 
and  the  Like. 
§  463    Right  of  Receiver  to  Sue  Directors  of  Bank  for  Negligence. 
§  464.  Right    to    Sue    Directors    for    Wrongful    Diversions    of    Bank's 
Property. 


xxii  CONTENTS. 

§  465    Application  of  Statutes  of  Limitations  to  Such  Actions. 
§  466.  Liability  of  National  Bank  Director  Under  Either  Common  Law 
or  Statutory  Provisions. 

(e)    Enforcement  of  Liabilities  of  Stockholders. 
§  467    Recovery  of  Illegal  Preferences  and  Dividends. 
§  468.  Recovery  of  Liabilities  of  Stockholders  for  Unpaid  Stock. 
§  469.  Right  of  Stockholder  to  Rescind  Contract  of  Subscription. 
§  470.  Recovery  of  Statutory  Liabilities  from  Stockholders. 
§471.  Conditions  Precedent  to  Stockholders'  Liability  Suit. 
§  472.  Form,  Character,  and  General  Nature  of  the  Suit. 
§  473.  Purchase  of  Stock  at  Above  Par  Constitutes   No   Payment   on 

Stockholders'  Liability. 
§  474.  Enforcement  of  Statutory  Liabilities  of  Stockholders  in  National 

Banks. 
§  475.  Suits    Against    Stockholders    for    Illegal    Preferences    and    Divi- 
dends, 
(f)    Payment  of  Claims  and  Allowance  of  Priorities. 
§  476.  Presentation,  Allowance,  and  Payment  of  Claims. 
§  477.  Allowance  of  Priorities. 
§  478.  Allowance    of    Interest    Upon    Claims    in    Favor    of    or    Against 

Receivership. 
§  479.  Whether  Attorney's  Fees  Stipulated  in  a  Note  Are  Recoverable 
Against  Receiver. 

(g)   Application  of  the  Right  of  Set-off. 
§  480.  Right  of  Set-off  in  Bank  Receiverships. 
§  481.  Right  of  Set-off  by  Borrower  Who  Is  Also  a   Depositor. 
§  482.  Right  of  Set-off  by  Endorser  Who  Is  a  Depositor. 
§  483.  Right  of  Set-off  by  Stockholders. 

(h)    Right  of  Receiver  to  Sue  Outside  of  Jurisdiction. 
§  484.  General  Discussion  of  the  Subject. 


CHAPTER  XVI. 

INSURANCE  COMPANIES,  BENEFICIAL,  FRATERNAL  SOCIETIES, 
AND  BUILDING  AND  LOAN  ASSOCIATIONS  AND  THE   LIKE. 

1.  Appointment  of  the  Receiver. 

§  485.  General  Purpose  and  Effect  of  Such  Receiverships. 

§  486.  Appointment  Under  Special  Statutes  Relating  to  Such  Organi- 
zations. 

§  487.  Whether  Such  Statutory  Systems  Are  Exclusive. 

§  488.  Appointments  Not  Made  Under  Special  Statutory  Authority. 

§  489.  Appointment  on  Account  of  Futility  of  Continuing  Business 
Under  Existing  Plan— Opportunity  to  Reorganize, 


CONTENTS.  xxiii 

§  4D0.  Rec-^iver  of  Incorporated  Beneficial  Association  Based  on  Fail- 
ing Operations. 

§  491.  Federal  Court  Will  Assume  Constitutionality  of  State  Statute 
Regarding  Insurance  Societies. 

§  492.  Whether  a  Federal  Equity  Court  May  Appoint  a  Receiver  After 
Preliminary  Steps  by  State  Officials  Under  Statutory  System. 

§  493.  Corporation  Merely  Engaged  as  Agent  for  Insurance  Companies. 

§  494.  Effect  of  Receiver  Being  Appointed  Over  the  Insured. 

§  495.  Discretion  of  the  Court  Respecting  the  Appointment. 

§  496.  How  Insolvency  or  Inability  to  Continue  Operations  Is  Ascer- 
tained. 

§  497.  What  Facts  Generally  Necessary  as  a  Basis  for  Appointment. 

2.  Administration  of  the  Estate. 

§  498.  Who  Will  Be  Appointed  Receiver. 

§  499.  General  Statement  of  Principles  Applicable. 

§  500.  Reducing  the  Assets  to  Possession. 

§  501.  Status  of  Special  Funds  of  Such  Organization  on  Deposit  with 
Officials. 

§  502.  Effect  of  the  Appointment  of  a  Receiver  on  the  Policies  or 
Executory  Contracts  of  the  Corporation. 

§  503.  Effect  of  Appointment  of  Receiver  on  Matured  Rights  Respect- 
ing Policies  or  Contracts. 

§  504.  Rights  of  Borrowing  and  Non-Borrowing  Members  of  Building 
and  Loan  Associations. 

§  505.  Assessment  of  Members  of  Mutual  Companies  or  Associations 
by  Receivers. 

§  506.  Suits  to  Enforce  Such  Assessments  Levied  by  the  Receiver. 

§  507.  Application  of  Statutes  of  Limitation  to  Suits  Upon  Assess- 
ments. 


CHAPTER  XVII. 

PROPERTY  OF  A  SPECIAL  CHARACTER. 

1.   Mining   Properties. 

§  508.  General  Rule  Regarding  Receivership  for  Mines,  and   Reasons 

Therefor. 

§  509.  Rule  in  Regard  to  Placer  Deposits. 

§  510.  Receiverships  in  Litigation  Between  Tenants  in  Common. 

§  511.  Receiverships  in  Litigation  Between  Vendor  and  Purchaser, 

§  512.  Receiverships  in  Foreclosure  Proceedings. 

§  513.  Receiverships  Between  Mining  Partners. 

§  514.  Extent  to  Which  the  Receiver  Should  Operate  the  Mine. 

?  515.  Receivership  Over  Mining  Corporations. 


Xxiv  CONTENTS. 

2.  Oil  and  Gas  Properties. 
§  516.  General  Rule  Regarding  Receivership  for  Oil  and  Gas  Proircrties. 
§  517.  Effect  of  Persons  in  Possession  Furnishing  Indemnity  Bond  in 

Lieu  of  Receivership. 
§  518.  Between  What  Parties  and  What  Kinds  of  Actions  Receiverships 

Generally  Sought. 
§  519.  Receiverships  in  Suits  by  Government  to  Quiet  Title  or  Cancel 

Mineral  Locations. 
§  520.  Receivership  Over  Oil  Lands  in  Indian  Reservations. 
§  521.  Receiver   for   Purpose   of    Drilling   Well   as    Protection    Against 

Drainage. 
§  522.  Limiting    Purposes    of    the    Rectivership    to    Assessment   Work, 

Collection  of  Royalty,  and  the  Like. 
§  523.  Operation  of  Oil  Wells  and  Payment  of  Expenses  Thereof. 
§  524.  Extent    of    Right    of    Receiver    to    Reduce    the    Property    Into 

Possession. 
§  525.  Receivership  for  a  Pipe  Line  Company. 

3.  Patents,  Trade-Marks,  Trade-Secret  Processes,  and 
Trade  Names. 

§  526.  Respecting  Patent  Rights. 

§  527.  Respecting  Trade  Secrets,  Trade-Marks,  and  Secret  Processes. 

4.  Sliips  and  Actions   in   Admiralty. 

§  528.  Whether    Receiverships    Must    Be    Incidental    to    an    Admiralty 

Action. 
§  529.  Appointment  of  Receivers  Over  Ships. 

5.  Pensions  and  Licenses^ 

§  530.  Receiverships  Over  Pensions. 

§  531.  Receiverships  Involving  Licenses. 


CHAPTER  XVIII. 

MISCEIvLANEOUS    INTERESTS    IN    PROPERTY   AND   RIGHTS 
ARISING   THEREFROM. 

1.   Property  Rights  and  Interests  of  Various  Kinds. 

§  532.  In  General. 

§  533.  Receiver    Over    Property    of    Absentees    or    in    Procesdings    to 

Escheat. 
§  534.  Receiverships  as  Between  Joint  Adventurers. 

2.  Clubs,  Churches,  and   Unincorporated   Bodies. 

§  535.  Receivership  of  Clubs  and  Churches. 

§  536.  Receivership  Over  Unincorporated  Bodies. 


CONTENTS.  XXV 

3.   Municipalities   and   Other   Public   Bodies. 

§  537.  Receivers  of  Municipal  Corporations. 

§  538.  Receivers  of  Boards  or  Quasi-Public  Corporations. 

§  539.  Receivers  of  Public  Officers  or  Fees  Earned  by  Them. 

§  540.  Receivers  for  Contractors  of  Public  Work. 


CHAPTER  XIX. 

RECEIVERS'  CERTIFICATES. 

1.  General   Principles   Regarding  the  Subject. 
§  541.  Nature  and  General  Purposes  of  Receivers'  Certificates. 

2.  Rule  Regarding  issuance  of  Certificates  in  Public  Utility 
Receiverships. 
§  542.  Tbe  General  Rule  and  Reasons  Therefor. 
§  543.  Whether   Rule   Applicable    to   Railroads    Is    Also    Applicable    to 

Other  Public  Utilities. 
§  544.  General  Purposes  for  Which  Certificates  May  Be  Issued. 
§  545.  For  Purposes  of  Paying  Taxes. 

§  546.  For  Funds  with  Which  to  Recover  Assets  by  Litigation. 
§  547.  For  Purposes  of  Preserving  Property  Outside  of  Jurisdiction  of 

Receivership  Court. 
§  548.  For  Purposes  of  Paying  Labor  Material  Claims. 
§  549.  For  Repairs,    Supplies,    Betterments,    and     General    Operating 

Expenses. 
§  550.  For  Purposes  of  Completing  Railroad  or  Other  Improvements. 
§  551.  For  Payment  of  Interest  on  Bonds  or  Other  Secured  Debts. 
§  552.  Effect  Where  Certificates  Are  Issued  to  Replace  Other  Securities. 

3.  Rule  Regarding  Issuance  of  Certificates  in  Receiverships 
of  Private  Corporations. 

§  553.  The  General  Rule. 

§  554.  Effect  of  Statutory  Provisions  on  the  Subject. 

§  555.  Effect   of   Obtaining    Consent    of    Lien    Holders    to    Issuance   of 

Certificates. 
§  556.  What  Constitutes  Purposes  of  Preservation  Sufficient  to  Support 

Issuance  of  Certificates. 
§  557.  For  Purposes  of  Preventing  Loss  Through  Forfeiture,  Reversion, 

or  Other  Disastrous  Default. 
§  558.  Effect  of  Peculiar  Character  of  Oil  and  Mining  Properties. 
§  559.  For  What  Ordinary  Debts  Certificates  May  Be  Issued. 
§  560.  In  Receivership  Over  an  Estate  of  a  Decedent. 

4.  General  Requirements  for  Issuance  and  Sale. 
§  561.  Nature  of  Discretionary  Power  of  Courts  in  Issuing  Certificates. 
§  562.  Necessity  of  Showing  Need  of  Certificates  Before  Issuance. 
§  563.  Necessity  for  Notice  to  Lien  Holders  Affected  by  Issuance. 


XXVI  CONTENTS. 

§  564.  What  Constitutes  Sufficient  Notice  to  Lien  Holders. 

§  565.  Necessity  for  a  Consideration. 

§  566.  Necessity  for  a  Valid  Order  Directing  Issuance  of  Certificates. 

§  567.  Effect  of  Void  Order  of  Appointment  on  Certificates. 

§  568.  Effect  Upon  Certificates  Issued  in  Excess  of  Order  of  Court. 

§  569.  Form  and  General  Contents  of  the  Certificates. 

§  570.  Successive  Issues  of  Receivers'  Certificates. 

§  571.  Securing  Certificates  by  Deeds  of  Trust  or  Collateral  Securities. 

§  572.  Certificates     Requiring     Plaintiff     to     Become     Liable     for   Any 

Deficiency. 
§  573.  What  Rate  of  Interest  May  Be  Allowed. 

5.   Priorities  and   Liabilities  Which   May  Be  Created  by 
Issuance  of  Certificates. 

§  574.  Creation  of  Priorities. 

§  575.  Extent  and  Effect  of  Priorities  Created  by  Receivers'  Certifi- 
cates. 

§  576.  Over  What  Other  Claims  and  Expenditures  Priorities  Have 
Been  Declared. 

§  577.  Whether  Priority  of  Certificates  Exists  Over  Other  Receivership 
Expenses. 

§  578.  To  What  Extent  Rights  of  Certificate  Holder  May  Be  Said  to 
Be  Vested. 

6.  Sale,  Transferability,  and  General   Rights  of  Holders. 

§  579.  Right  to  Sell  Certificates  Below  Par  Value. 

§  580.  Whether  Certificate  Buyer  Bound  to  Inquire  Into  Application  of 

Proceeds. 
§  581.  Assignability  of  the  Certificates. 

§  582.  Non-Negotiable  Instrument  Character  of  the  Certificates. 
§  583.  Extent  of  Notice  Imputed  to  Holders  of  Certificates. 
§  584.  Waiver  or  Loss  of  Right  to  Question  Certificates  by  Reason  of 

Estoppel. 
§  585.  Effect  Where  Question  of  Priority  or  Validity  Arises  in  a  Court 

Other  Than  the  Receivership. 

7.   Payment  or  Redemption  of  Certificates. 

§  586.  How  and  When  Paid. 

§  587.  Sale  of  Receivership  Property  Subject  to  or  Free  of  Certificates. 

§  588.  Extent  to  Which  Receivership  Property  Can  Be  Sold  for  Bonds 

and  Effect  on  Certificates. 
§  589.  Acceptance    of   Receivers'    Certificates    in    Payment    at    Sale    of 

Receivership  Property. 
§  5D0.  Personal  Liability  of  Receiver  in  Respect  to  Sales  of  Certificates, 


CONTENTS.  XXvii 

CHAPTER  XX. 

PRESENTATION   AND    ADJUDICATION    OP    CLAIMS    AND 
ACCOUNTING   BY   RECEIVER. 

1.  Presentation  and  Allowance  of  Claims. 

§  591.  General  Duties  of  Receiver  Regarding  Claims  and  Accounting. 

§  592.  General  Statement  of  the  Rules  Governing  Disposition  of  Claims. 

§  593.  Presentation  of  Claims  in  Receivership. 

§  594.  What  Constitutes  Provable  Claims. 

§  595.  Time  for  Presentation  of  Claims  Arising  Prior  to  the  Receiver- 
ship. 

§  596.  Time  for  Presentation  of  Claims  Arising  During  the  Receiver- 
ship. 

§  597.  Allowance  of  Set-offs. 

§  598.  Allowance  of  Interest  on  Claims. 

2.  Distribution  of  Receivership  Assets. 

§  599.  General  Statement  of  the  Matter. 

§  600.  Vested  Rights  of  Creditors. 

§  601.  Claims  Against  the  Receiver. 

§  602.  Rights  of  General  Creditors. 

§  603.  Rights  of  Creditors  to  Participate  in  General  Funds. 

§  604.  Rank  of  Stockholders  in  Distribution  of  Corporate  Property. 

§  605.  Stockholders  and  Officers  of  Corporation  Participating  as 
Creditors. 

§  606.  Right  of  Original  Owner  to  Create  Lien  on  Residue  After  Pay- 
ment of  Receivership  Claims. 

3.  Accounting  by  Receiver. 

§  607.  Necessity  for  an  Accounting. 

§  608.  Power  of  Court  to  Require  an  Accounting  by  Legal  Represent- 
atives of  Receiver. 

§  609.  Form  of  the  Account. 

§  610.  Objections  to  the  Account. 

§  611.  Duty  of  the  Receivership  Court  to  Pass  on  the  Receiver's 
Account. 

§  612.  The  Practice  of  Referring  Account  to  a  Master  or  Auditor. 

§  613.  Surcharging  the  Receiver's  Account, 

§  614.  How  and  Where  Surcharges  Are  to  Be  Determined. 

CHAPTER  XXI. 

FEES    AND    EXPENSES    OF    RECEIVERSHIP. 

1.   Fees  and   Expenses  of  the   Receiver. 

§  615.  General  Right  of  Receiver  to  Compensation. 
§  616.  Effect   Where   Receivership   Fund    Insufficient  to   Pay   Compen- 
sation. 


Xxviii  CONTENTS.  ' 

§  617.  Allowance  of  Disbursements. 

§  618.   Nature  of  the   Compensation   as   Costs   and  Judicial   Character 

of  Duty  of  Fixing  Them. 
§  619.  When  to  Be  Paid— Right  of  Court  to  Award  Partial  Allowances 

on  Account. 
§  620.  Amount  of  Receiver's  Fee  Largely  a  Matter  of  Discretion. 
§  621.  Controlling  Elements  in  Fixing  the  Receiver's  Compensation. 
§  622.  Statutory   Regulations  of  Receiver's   Fees. 
§  623.  Fees  by  Agreement  with  Parties  to  Litigation. 
§  624.  Amount  Allowed  to  Receiver  Is  Necessarily  Variable. 
§  625.  Apportionment  of  Fees  Among  Different  Classes  of  Creditors. 
§  626.  Loss    or    Forfeiture    of    Fees    or    Non-Payment    by    Reason    of 

Receiver  Being  a  Litigant. 
§  627.  Fees  of  Receivers  in  Case  of  Void  or  Wrongful  Receiverships. 

2.   Fees  for  the  Attorney  for  Receiver  and  Other 
Attorneys  Connected  with   Receivership. 

§  628.  Right  of  Attorney  for  Receiver  to  Compensation. 

§  629.  Status  of  the  Attorney's  Compensation  in  Receivership. 

§  630.  Necessity  for  Authorization  of  Court  to  Employ  an  Attorney. 

§  631.  Selection  of  Attorney  for  Receiver. 

§  632.  Whether  a  Receiver  Who   Is   a  Lawyer   May  Be   Compensated 
for  His  Legal  Services. 

§  633.  Right  of  Attorney  Acting  in  Official  Capacity  to  Be  Paid  Fees 
Out  of  Estate. 

§  634.  Control  of  Receivership  Court  Over  Allowance  of  the  Fees  to 
Attorney. 

§  635.  Rule  of  Attorneys'  Liens  on  Judgment  Not  Applicable  to  Attor- 
ney for  Receiver. 

§  636.  Fixing    Amount    of    Attorney's    Compensation    and    Principles 
Applicable. 

§  637.  Effect   Where    Appointment   of   Receiver   Is   Held    Void   or    Set 
Aside  for  Error. 

§  638.  Particular  Amounts  and  How  Paid. 

§  639.  Compensation  of  Attorneys  Other  Than  Attorney  for  Receiver. 


CHAPTER  XXII. 

SALES  AND  REORGANIZATIONS  OF  RECEIVERSHIP  PROPERTY. 

1.  Sale  Proceedings  and  General  Effect. 
§  640.  General  Nature  of  the  Sale. 
§  641.  Necessity  for  and  Scope  of  Order  of  the  Sale. 
§  642.   Necessity  and  Sufficiency  of  the  Notice  of  Sale, 
§  643.  General  Manner  of  Conducting  the  Sale. 
§  644.  What  Property  May  Be  Sold  Under  the  Order  of  Court. 
§  645.  Inclusion  of  Good  Will  and  Trade  in  Sale. 
§  646.  What  Is  Included  in  Corporate  Assets, 


CONTENTS.  XXIX 

§  G47.  Effect  Where  Receiver  Sells  the  Property,  Retaining  a  Secret 

Personal  Trust  Therein. 
§  648.  Executions  of  the  Deeds  or  Other  Instruments  of  Conveyance. 
§  649.  Application   of  the  Doctrine   of  Caveat   Emptor   and   Nature  of 

Title  Passing. 

2.  Who  May  Purchase  at  the  Sale. 
§  650.  Receiver  or  His  Business  Associates  as  Purchaser. 
§  651.  Stockholders   or   Officers   of   Receivership    Corporation    as    Pur- 
Chasers. 

3.  Necessity  for  Confirmation  of  Sale  by  Court  and 
Extent  of   Right  to  Set   It  Aside. 
§  652.  General  Necessity  for  Confirmation. 
§  653.  Extent  and  Scope  of  Confirmation. 
§  654.  Effect  of  Inadequate  Price  on  Motion  to  Confirm. 
§  655.  Effect  of  Defective  Title  on  Motion  to  Confirm. 
§  656.  Effect  of  Misrepresentations  by  Receiver  on  Motion  to  Confirm. 
§  657.  Proceedings  to  Compel  Purchaser  to  Complete  Sale. 
§  658.  Proceedings  to  Set  Sale  Aside. 

§  659.  Attack  Upon  the  Sale  by  Separate  Action  or  Collaterally. 
§  660.   Effect  Where  the  Receiver's  Sale  Is  Void. 
§  661.  Estoppel  to  Object  to  Sale  or  Its  Effects. 

4.  Payment  of  Purchase  Price, 
§  662.  When  and  How  Price  to  Be  Paid. 
§  663.  Effect  of  Rescission  by  Receiver. 

5.  Sales  of  Public  Utilities. 
§  664.  General  Rules  Regarding  Sales  of  Public  Utility  Properties. 
§  665.  Returning  the  Property  to  Owners. 
§  666.  Power  of  Court  Over  Terms  and  Conditions  of  Sale. 
§  667.  Whether  Purchaser  Should  Be  Required  to  Operate  the  Public 

Utility. 
§  668.  What  Passes  at  the  Sale. 

§  669.  Rights  and  Obligations  of  the  Purchaser  at  the  Sale. 
§  670.  Confirmation  or  Setting  Aside  of  the  Sale. 

6.   Reorganization  of   Public   Utilities. 
§  671.  Attitude  of  the  Receivership  Court  to  Reorganization  Plans. 
§  672.  General  Plans  of  Reorganization  Available. 
§  673.  Duty  and  Function  of  the  Court  in  Passing  on  Reorganization 

Plan. 
§  674.  Relation  of  State  Railroad  Commissions  to  Reorganizations. 
§  675.  Expenses  of  the  Reorganization. 

7.  Reorganization  of  Private  Corporations. 
§  676.  Application  of  Reorganization  Plans  to  Private  Corporations. 
§  677.  Reorganization   of  Corporation  Which  Has   Become  Prosperous 
While  in  Receivership — Extent  of  Court  Control. 


XXX  CONTENTS. 

CHAPTER  XXIIl. 
TAXATION   OF   PROPERTY   UNDER   RECEIVERSHIP. 

§  678.  General  Rule  Concerning  the  Taxation  of  Property  Under  a 
Receivership. 

§  GTf).  Distinction  Between  Taxation  of  Personal  Property  and  Realty. 

§  GSO.  General  Rule  Regarding  Corporation  Franchise  Taxes. 

§  681.  Franchise  Taxes  Where  Receiver  Does  Not  Conduct  the  Busi- 
ness of  the  Corporation. 

§  682.  Franchise  Tax  Where  Receiver  Conducts  the  Business. 

§  683.  Franchise  Taxes  as  a  Charge  Against  a  Foreign  Receiver. 

§  684.  Liability  of  Receiver  for  Gross  Earnings  Tax. 

§  685.  Liability  for  Income  Taxes. 

§  686.  Payment  of  Penalties  for  Delinquency  in  Payment  of  Taxes. 

§  687.  Receivership  Courts  Control  of  Payment  of  Taxes  and  Enforce- 
ment of  Lien. 

§  688.  Effect  of  Taxes  on  Receivership  Sales. 

§  689.  Appointment  of  a  Receiver  to  Collect  or  Pay  Taxes. 


CHAPTER  XXIV. 

JURISDICTION   AND    CONFLICT    OF    DIFFERENT    COURTS. 

1.  General  Extent  of  Jurisdiction  in  Receivership  Cases. 

§  690.  General  Scope  and  Character  of  the  Jurisdiction. 

§  691.  How  the  Jurisdiction  Is  Ascertained. 

§  692.  Effect  of  the  Court  Being  Without  Jurisdiction. 

§  693.  General  Powers  of  Courts  of  Co-ordinate  Jurisdiction. 

§  694.  Effect    Where    Two    Receivers    Appointed    on    Same    Day    by 

Different  Courts. 
§  695.  Jurisdiction  of  Particular  Courts  to  Appoint  Receivers. 
§  696.  Jurisdiction  of  Appellate  Courts  to  Appoint  Receivers, 

2.  Receivership  Jurisdiction  of  the   Federal  Courts. 
§  697.  Equity  Jurisdiction  of  Federal  Courts  in  Receiverships. 
§  698.  Jurisdiction  as  Dependent  Upon  Judicial  District. 
§  699.  Jurisdiction  of  Suits  Ancillary  to  the  Receivership. 
§  700.  Right  of  Federal  Receiver  to  Sue  in  State  Court  in  the  Federal 

District. 
§  701.  Right  of  Federal   Court  to  Proceed  Under  State  Statutes. 

3.  Conflicts   of  Jurisdiction    Between    State   and 
Federal  Courts. 
§  702.  General  Rule  of  Priority  of  Jurisdiction  in  Receiverships. 
§  703.  Status   of   Federal  Receiver   as   Against  Receivership   by   State 
Cou.t. 


CONTENTS.  XXXI 

§  704.  Status    of    State    Court    Receiver    as    Against    Receivership    in 

Federal  Court. 
§  705.  How  Determination  of  Conflict  Is  Ascertained. 
§  706.  Litigation  in   State   Court   Relative   to    Matters   Not  Interfering 

with  Federal  Receivership. 
§  707.  Litigation  in   State  Court  Relative  to  Matters   Interfering  with 

Federal  Receivership. 
§  708.  Litigation  in  Federal  Court  Relative  to  Matters  Not  Interfering 

with  State  Receivership. 
§  709.  Litigation  in  Federal  Court  Relative  to  Matters  Interfering  with 

State  Receivership. 
§  710.  Ouster  of  Receivership  by  Bankruptcy  Proceedings. 

4.   Extra-Territorial  Jurisdiction  of  Receivership  Courts. 

§  711.  Origin  of  the  Power  of  Receivers  to  Sue  in  Foreign  Juris- 
dictions. 

§  712.  Extent  of  Power  of  Receivership  Court  Over  Property  Outside 
of  Jurisdiction. 

§  713.  Extra-Territorial  Jurisdiction  by  Comity. 

§  714.  Extra-Territorial  Jurisdiction  by  Reason  of  Legal  Title. 

§  715.  Extra-Territorial  Jurisdiction  Where  Receiver  Enters  It  with 
Receivership  Property. 

§  716.  Extra-Territorial  Jurisdiction  by  Means  of  Ancillary  Receiver- 
ships. 


CHAPTER  XXY. 

MATTERS  RELATING  TO  THE  PROCEDURE  OF  RECEIVERSHIPS. 

1.  Scope  of  Chapter  and  General   Requirements  of 
Receivership    Actions. 

§  717.  Scope  of  Chapter  on  Procedure. 

§  718.  Nature  of  the  Action  in  Which  a  Receiver  Is  Appointed. 

§  719.  Effect  of  Statutory  Requirements. 

§  720.  Necessity  for  Existence  of  Pending  Suit. 

§  721.  Discretionary  Nature  of  the  Power  of  Appointment. 

2.  Venue,    Parties,    and    Pleadings. 

§  722.  Venue  of  the  Receivership  Action. 
§  723.  Parties  to  the  Receivership  Action. 
§  724.  Allowing  Parties  to  Intervene  in  the  Receivership. 
§  725.  Nature  and  Contents  of  Complaint  or  Bill  in  Receivership  Action. 
§  726.  Necessity  for  Prayer  and  Verification. 

§  727.  Defensive  Pleadings  or  Waiver  Thereof  by  Default  or  Consent. 
§  72P.  Whether    Plaintiff   Can  Agree   to  Withhold   Filing   of  Receiver- 
ship Suit  for  a  Consideration. 


XXxii  CONTENTS. 

3.  Service  of  Process  and  Notice  of  Application 

for   Receiver. 

§  729.  Service  of  Process  in  Receivership  Suits. 
§  730.  Necessity  for  Notice  of  Application  for  a  Receiver. 
§  731.  Rule  in  Regard  to  Ex   Parte  Appointments  in   Cases   of  Emer- 
gency. 
§  732.  Effect  of  Statutory  Provisions  on  Ex  Parte  Appointments. 
§  733.  Character  of  Showing  Necessary  for  Ex  Parte  Appointment. 
§  734.  Waiver  of  Notice  by  Appearance  or  Otherwise. 

4.  Questions   Preliminary  to   or   Relative   to   the 

Appointment. 

§  735.  By  Whom  the  Application  Is  Made. 

§  736.  At  What  Stage  of  the  Suit  a  Receiver  May  Be  Appointed. 

§  737.  Disqualification  of  Jud.ge  to  Preside  in  Receivership  Case.         ' 

§  738.  Evidence  to  Be  Produced  at  Hearing  for  Appointment. 

§  739.  Abatement    of   Action    and    Receivership    on    Account    of   Alien 

Enemy  Litigants. 
§  740.  The  Order  Appointing  Receiver  and  Its  Effect. 
§  741.  Interlocutory  Proceedings  in  the  Receivership. 

5.  Removal    of   Cause   to    Federal    Court. 

§  742.  Removal  of  Main  Cause  of  Action. 

§  743.  Removal  of  Suit  by  or  Against  a  Receiver. 

6.  General   Procedure  of  Suits  by  or  Against  Receiver. 

§  744.  General  Nature  of  Such  Suits  and  Right  to  Maintain  Them. 

§  745.  What  Receiver  Must  Show  in  Order  to  Maintain  Suit. 

§  746.  Court  in  Which  Receiver  May  Be  Sued. 

§  747.  General  Necessity  for  Leave  to  Sue. 

§  748.  Nature  of  Leave  to  Sue  as  to  Whether  Jurisdictional  or  Not. 

§  749.  Statutes  Bearing  on  Right  to  Sue  Receiver. 

§  750.  Effect  of  Suit  Without  Leave  to  Sue. 

§  751.  Waiver  of  Objection  to  Suit  Without  Leave. 

§  752.  Circumstances  Under  Which  no  Leave  Necessary. 

§  753.  Proceedings  to  Obtain  Leave  to  Sue. 

§  754.  Discretionary  Power  of  Court  in  Granting  Leave  to  Sue. 

§  755.  Revocation  of  Leave  to  Sue. 

§  756.  In  W'hose  Name  Receiver  Should  Sue. 

§  757.  Parties  to  Suit  by  or  Against  Receiver. 

§  758.  Pleading  Capacity  of  Receiver  to  Sue  or  Be  Sued. 

S  759.  Pleading  Cause  of  Action. 

§  760.  Issuance  and  Service  of  Process. 

§  761.  Interlocutory  and  Trial  Proceedings. 

g  762.  The  Judgment  Rendered  in  Such  Cases. 


CONTENTS.  XXXm 

CHAPTER  XXVI. 

RECEIVERSHIP   BONDS   AND   WRONGFUL  RECEIVERSHIPS. 

§  763.  Necessity  for   Furnishiug  of  Bond  on  Appointment  of  Receiver. 

§  764.  Formal  Matters  Relating  to  the  Execution  and  Filing  of  the  Bond. 

§  765.  Liability  on  Plaintiff's  Bond  Preliminary  to  Appointment. 

§  766.  Duration  of  Liability  on  Receiver's  Bond. 

§  767.  General  Liability  on  Receiver's  Bond. 

§  768.  Manner  of  Enforcing  Receiver's  Bond. 

§  769.  Application  of  Statutes  of  Limitation. 

§  770.  Right  of  Surety  on  Receiver's  Bond  to  Protect  Himself. 

§  771.  Personal  Liability  of  Receiver. 

§  772.  Liability  Upon  Bond  Given  in  Lieu  of  Appointment  of  Receiver. 


CHAPTER  XXVII. 

INTERFERENCE    WITH    POSSESSION    OF    RECEIVER    AND    HIS 
CRIMINAL  RESPONSIBILITY  FOR  HIS  ACTS. 

§  773.  Interference  with  Possession  of  Receiver. 

§  774.  Civil  and  Criminal  Contempt  Distinguished. 

§  775.  Criminal  Contempt  in  Receivership  Cases. 

§  776.  Civil  Contempt  in  Receivership  Cases. 

§  777.  Perjury  as  the  Basis  for  Punishment  of  Contempt. 

§  778.  Contempt  on  Part  of  the  Receiver. 

§  779.  Collateral  Attack  in  Contempt  Proceedings  on  Orders  Made  in 

Receivership  Cases. 
§  780.  Procedure  in  Contempt  Cases  Arising  Out  of  Receiverships, 
b  781.  Criminal   Responsibility   of  the   Receiver  or   Others   in   Connec- 
tion with  the  Receivership. 


CHAPTER  XXVIII. 

REMOVAL  AND  DISCHARGE  OF  RECEIVER  AND  EFFECTS 
THEREOF  ON  RECEIVERSHIP  PROPERTY. 

1.  Removal  and  Discharge  of  Receiver. 

§  782.  Distinguishment  Between  Removal  and  Discharge. 

§  783.  Removal  of  the  Receiver. 

§  784.  Appointment  of  Successor  on  Vacation  or  Resignation. 

§  785.  Effect  of  Removal  on  Claims  Against  the  Receiver  Personally. 

1.  Termination  of  Receivership   by  Vacation  of  Order 
Appointing   Receiver. 
?  786.  Vacation  of  Order  of  Appointment  by  Appointing  Court. 
§  787.  Termination  by  a  Court  Other  Than  the  Appointing  Court. 


XXXiv  CONTENTS. 

8  7SS    LOSS  of  Right  to  Move  for  Vacation  on  Account  of  Laches 
§  789.  Effect  of  the  Order  Vacating  Receiveiship  as  a  Discharge  of  the 
Receiver. 

3.  Termination  of  the  Receivership  as  to  Property  Other- 
wise  Than   by  Order  of  Vacation. 
§  790.  General  Rule  as  to  Duration  of  the  Receivership. 
§  791.  Release  by  Bond  Furnished  by  Defendant. 
§  792    Return  of  Property  to  Owner  as  Termination. 
§  793.  Adjustment    of    Obligations    Existing    at    Time    of    Return    of 

Property. 
§  794.  Termination  by  Dismissal  of  Suit. 
§  795    Technical   Discharge   of  the  Receiver. 

§  796.  Termination  of  Receivership  by  Federal  Bankruptcy  Proceedings. 
§  797.  Receivership  Proceedings  as  an  Act  of  Bankruptcy. 


CHAPTER  XXIX. 

APPEALS  IN  RECEIVERSHIP  MATTERS  AND  THEIR  EFFECT. 

1.   Reviewability  as  Affected   by   Parties  or  Nature 
of    Decision. 

§  798.  Scope  of  Chapter  and  General  Rules  Applicable  to  Appeals. 

§  799.  Appealability  as  Dependent  Upon  Finality  and  Judicial  Char- 
acter of  Order. 

§  800.  Ri.i^ht  to  Appeal  from  Orders  Appointing  or  Refusing  to  Appoint 
Receivers. 

§  801.  General  Right  of  Receiver  to  Appeal. 

§  802.  Right  to  Appeal  from  Order  Discharging  or  Removing  Receiver 
or  Refusing  to  Do  So. 

§  803.  Right  to  Appeal  from  Matters  Respecting  Leave  to  Sue. 

§  804.  Right  to  Appeal  from  General  Administrative  Orders. 

§  805.  Right  to  Appeal  from  Order  Issuing  Receiver's  Certificates. 

§  806.  Right  to  Appeal  from  Orders  Respecting  Sales  of  Receivership 
Property. 

§  807.  Right  to  Appeal  from  Orders  Allowing  Compensation  of  Receiver 
or  His  Attorney. 

§  808.  Right  to  Appeal  from  Orders  Respecting  Accounts  of  Receiver. 

2.   Proceedings  Transferring  Cause  to  Appellate  Court 
and  Effect  Thereof. 

§  809.  Parties  to  the  Appeal. 

§  810.  Court  to  Which  Appeal  Should  Be  Taken. 

§  811.  Requirements  of  and  Service  of  Notice  of  Appeal. 

§S12.  Appeal  and  Supersedeas  Bonds. 

I  818.  Record  on  Appeal. 


CONSENTS. 


izxv 


3.  Presentation   of   Grounds   of   Review. 
§814.  Necessity  for  Objection  or  Exception  in  Lower  Court 
§  815.  Assignments  of  Error  in  Appellate  Court. 

4.  Scope   of   Review  and    Determination. 

§  816.  Reviewability  as  Dependent  upon   Nature  of  Appeal  or  Condi- 
tion of  Record. 
§  817.  Effect  of  Estoppels  and  Harmless  Error  on  Review. 
§  818.  Presumptions  on  Appeal. 
§  819.  Review  of  Discretionary  Orders. 
§  820.  Rehearing  by  Appellate  Court. 
§  821    Effect  of  Decision  of  Appellate  Court. 

§  822.  Appointment  of  Receiver  by  Appellate  Court  Pending  Appeal. 
§  823.  Effect  of  Appeal  on  Action  by  Court  Below. 
§  824.  Appointment  of  Receiver  by  Lower  Court  Pending  AppeaL 

5.  Review  by  IVleans  of  Extraordinary  Writs. 

§  825.  Review   by    Certiorari  or   Mandamus. 
§  826.  Review  by  Writ  of  Prohibitiori. 


CHAPTER  XXX. 

FORMS. 

§  827.  Regarding  Forms  Appended. 

§  828.  Complaint  in  Federal  Court  for  Receiver  of  Insolvent  Corpora- 
tion. 

§  829.  Creditors  Bill  Seeking  Appointment  of  Receiver. 

§  830.  Stipulation  of  Parties  for  Appointment  of  Receiver. 

§  831.  Answers  Admitting  or  Denying  Necessity  for  Receiver. 

§  832.  Notice  of  Motion  for  Appointment  of  Receiver. 

§  833.  Order  to  Show  Cause  Why  Receiver  Should  Not  Be  Appointed. 

§  834.  Order  Appointing  a  Receiver. 

§  835.  Order  of  Appointment  Directing  Operation  of  Business. 

§  836.  Order  for  Receiver  De  Bonis  Non. 

§  837.  Order  Appointing  Non-Resident  Receiver. 

§  838.  Order  Substituting  New  Receiver. 

§  839.  Order  Granting  Receiver  Leave  to  Sue. 

§840.  Petition    by   Receiver   for    Leave    to    Sue    Directors    and    Stock- 
holders of  Receivership  Corporation  for  Unpaid   Stock. 

§  841.  Order  Granting  Petition  to  Sue  Directors  and  Stockholders  for 
Unpaid  Stock. 

§  842.  Petition  by  Receiver  for  His  Discharge. 

§  843.  Order  Discharging  Receiver. 

§  844.  Order  Removing  Receiver. 

§  845.  Order  Turning  Receivership  Property  Over  to  Bankruptcy  Court. 


CHAPTER  L 

ORIGIN  AND  GENERAL  NATURE  OF  THE  LAW  OF  RECEIVERS 
AND  ITS  GROWTH. 

§  1.    General  Origin  of  Receiverships. 

The  power  to  appoint  receivers  is  one  referable  solely 
to  the  powers  exercised  by  courts  of  chancery.  Courts  ot 
law,  as  such,  do  not  have  or  exercise  such  powers  unless 
spekally  conferred  upon  them.-    The  power  to  appoin 
a  receiver  ve»dente  lite  has  been  exercised  by  co-^t^  «' 
chancery  as  incidental  to  their  jurisdiction.    It  has  not 
been  deemed  to  depend  upon  statute.-    It  is  a  power 
which  the  Court  of  Chancery  of  England  freq"f>«y  exer- 
cised long  before  the  establishment  of  the  United  State., 
and  the  leading  principles  in  relation  to  it  were  estab- 
lished in  that  court  in  ancient  times  and  have  always  beou 
considered  as   powers   of  great  utility  and   necessity 
The  earlier  English  cases  concerning  receivers  generalh 
relate  to  real  estate,   and   the  office  and   duty  of  the 
receiver  were  not  extended  further  than  to  exclude  tres- 
passers, to  make  such  repairs  as  were  indispensably  nec- 
essary, and  to  collect  and  account  for  the  rents  and  profi  s. 
But  where  the  preservation  of  personal  property  was  the 
object  of  the  appointment,  the  receiver  was,  m  many 
re  pects,  invested  with  the  authority  of  a  ^-r-torho^. 
of  the  Roman  law.   Following  the  rules  of  the  English 
Chancery  Court  the  remedy  of  receiverships  has  been 
applied  by  the  chancery  courts  of  this  country  from  early 
days.  In  one  of   the  early   leading  cases,*   Chancellor 

,  FoUom  V.  Evan,.  5  Minn.  418;  =  PeacocU   v.   Peacock.   16  Ve, 

X,    1  •        ^r.A  lUf^    fi^q    ^5  49-    Harding    v.    (jlover,    i»    ves. 

Miller  v.  Perkins,  154  Mo.  b^y,  dd  i^. 

281 

^■^■^'^^-         ^     ^   ..    104  N    Y  4  Williamson   V.   Wilson,    1 

2  Decker  v.  Gardner,  124  N.    Y.  vv  n 

334,  11  L.  R.  A.  480.  26  N.  E.  814.  Bland's  Ch.  (Md.)  418. 


I  Rec— 1 


2  LAW    OF   RECEIVERS. 

Bland,  in  ansAvering  the  argument  tliat  tlie  remedy  might 
be  used  for  the  most  pernicious  purposes,  said:  ''That 
this  court  should  have  the  power  in  unusual  and  press- 
ing emergencies,  at  the  instance  of  a  party  interested, 
effectually  and  without  delay  to  put  its  hand  upon  prop- 
erty, so  far  as  to  prevent  waste,  inextricable  confusion, 
or  total  destruction,  seems  to  be  admitted  by  all  to  be 
clearly  right,  or  at  least  highly  beneficial." 

The  growth  of  the  law  of  receivership  has  been  along 
the  lines  of  evolution.  Receivers  are  regarded  as  instru- 
mentalities of  the  court  and  hence  the  law  in  respect 
to  receiverships  has  kept  pace  with  the  extension  and 
development  of  the  general  rules  of  law  in  respect  to 
the  complex  conditions  arising  out  of  modern  business 
methods  and  having  for  its  purpose  the  protection  and 
preservation  of  the  property  which  forms  the  subject 
matter  of  the  litigation  until  the  final  adjudication  of 
the  rights  of  the  litigating  parties.  In  its  original  exer- 
cise the  appointment  of  a  receiver  was  purely  an  inci- 
dental power  of  the  Court  of  Chancery,  put  into  operation 
as  part  and  parcel  of  the  great  body  of  equitable  juris- 
prudence, intended  to  secure  justice  by  more  complete 
and  adequate  remedies  M^here  the  strict  and  unelastic 
rules  and  practice  prevailing  in  the  common  law  courts 
were  insufficient.^ 

5  Chancellor  Bland  in  1826  says:  pear  very  evident  from,  a  review 

"It   is    a   power   of   the    court   of  of  the  nature  and  the  variety  of 

chancery    of    England    which    ap-  the    exigencies    in    which    it    has 

pears    to    have    been    frequently  been  called  into  action,  either  to 

called    into    action    during    more  prevent    fraud,    to   save    the    sub- 

than  a  century  past.   All  the  lead-  ject  of  litigation  from  material  in- 

ing    principles    in    relation    to    it  jury,    or  to   rescue   it   from    inev- 

were  well  established  there  long  itable      destruction."     Williamson 

before  our  revolution;  and  it  was  v.  Wilson,  1  Bland  Ch.  (Md.)  418. 

then,  and  has  ever  since  been  con-  See  also  Myers  v.  Estell,  48  Miss, 

sidered,    there    and    here,     as    a  401;   Beverley  v.  Brooke,  4  Gratt. 

power  of  as  great  utility  as  any  (Va.)    187    (208).    Vice  Chancellor 

which  belongs  to  a  court  of  chan-  Giffard,  in   Hopkins  v.  Worcester 

eery.    And  that  it  is   so   will   ap-  &  B.  Canal  Co.,  L.  R.  6  Eq.  437, 


ORIGIN  OF   THE  LAW  OF   RECEIVERS.  3 

Much  of  the  modern  hiw  relative  to  receiverships  has 
been  the  result  of  the  extraordinary  growth  of  corpora- 
tions and  of  the  innnense  railway  systems  of  the  country 
during  the  past  quarter  of  a  century.  Following  the  prin- 
ciple that  a  mortgagee  in  possession  will  be  allowed  his 
expenses  for  making  such  repairs  as  are  necessary  for  the 
maintenance  of  the  mortgaged  property  and  for  the  doing 
of  such  things  as  are  necessary  for  the  protection  of  the 
mortgagor's  title,*^  and  in  accordance  with  the  principle 
that  a  court  deems  it  to  be  part  of  its  duty  to  protect 
and  preserve  trust  funds  in  its  possession,'  the  courts  of 
this  country  have  developed  to  its  greatest  efficiency  the 
issuance  of  receivers'  certificates  by  means  of  which 
insolvent  properties,  especially  those  concerned  with  pub- 
lic utilities,  have  been  enabled  to  recuperate  and  re-estab- 
lish themselves  as  going  concerns.  It  must,  however,  be 
admitted  that  in  some  cases  it  may  be  questioned  whether 
the  rehabilitation  of  a  public  utility  b}"  means  of  a  receiv-^ 
ership  proceeding  is  a  proper  proceeding,  although  in 
most  cases  receiversliips  as  a  method  of  refinancing 
defunct  or  failing  corporations  have  proved  advantageous 
in  the  long  run  to  both  stockholders  and  creditors, 
whether  secured  or  unsecured.  It  is,  however,  a  power 
which  must  be  exercised  with  great  caution  on  account 
of  the  liability  of  its  being  abused.^ 

Recognizing  the  dangers  of  using  receivership  proceed- 

447,    says    in    regard    to    the    ap-  "But  it  is  a  power  to  be  spar- 

pointment  of  receivers:    "That  is  ingly    exercised.     It    is    liable    to 

one  of  the  oldest  remedies  in  this  great     abuse,     and     while     it     is 

court,"  and  is  a  remedy  which  a  usually  resorted  to  under  the  pre- 

court    of    chancery     will    always  text  that  it  will  enhance   the  se- 

grant  ex    debito  justitis,   upon   a  curity   of  the  bondholders,   it  not 

proper  showing.  infrequently  results  in  taking  from 

c  Sandon  V.  Hooper,  6  Beav.  246;  them    the    security    they    already 

2  Jones  on  Mortgages,  §  1126.  have  and  appropriating  it  to  pay 

7  Wallace    v.    Loomis,    97    U.    S.  debts    contracted    by    the    court." 

146,  24  L.  ed.  895.  Credit  Company  v.  Arkansas  Cen- 

■^  Meyer  v.  Johnston,  53  Ala.  237,  tral    Ry.    Co.,    15    Fed.    46,    5    Mc- 

349.  Crary  23. 


4  LAW    OF    RECEIVERS. 

ings  for  purposes  of  refinancing  private  corporations  tlie 
tendency  of  the  courts  has  been  to  limit  such  use  of 
receiverships  to  transportation  and  other  quasi  public 
corporations.'^  The  general  attitude  now  maintained  by 
our  courts  of  last  resort  toward  using  a  receivership  as  a 
means  of  rehabilitating  a  failing  public  utility  and  run- 
ning it  as  a  going  concern  through  a  receiver,  was  shown 
by  Mr.  Justice  Peckham  in  a  leading  case^*^  in  which,  in 
ujjholding  the  right  of  a  simple  contract  creditor  to  have 
a  receiver  appointed  over  a  street  railway  company  in  a 
case  in  which  the  defendant  company  admitted  the  alle- 
gations in  the  petition  and  consented  to  the  appointment, 
he  said:  ''Wliile  so  holding  we  are  not  unmindful  of  the 
fact  that  a  court  is  a  very  unsatisfactory  body  to  admin- 
ister the  affairs  of  a  railroad  as  a  going  concern,  and 
we  feel  that  the  possession  of  such  property  by  the  court 
through  its  receivers  should  not  be  unnecessarily  pro- 
longed. There  are  cases — and  the  one  in  question  seems 
a  very  strong  instance — where,  in  order  to  preserve  the 
property  for  all  interests,  it  is  a  necessity  to  resort  to 

9  American  Brake  etc.  Co.  v.  has  been  attempted  in  this  case, 
Pere  Marquette  Ry.,  205  Fed.  14,  every  private  corporation  operat- 
123  CCA    322  i°S    ^    sawmill,    gristmill,    mine, 

.,_,,                ..          ,  .      ;„  .,„  f^„  factory,  hotel,  elevator,  irrigating 
The  cessation  of  business  for 

, ,    ,                .  ,.      .    •  ditches,  or  carrying  on  any  busi- 
a  day  would   be  a  public  injury. 

ness  pursuit,  would  speedily  seek 

A  railroad  is  authorized  to  be  con-  ^^.^     protection     of     a     chancery 

structed  more  for  the  public  good  ^^^^^^    ^^^     ^^^^^    ^^^^^    ^^^,^ 

to  be  subserved  than  for  private  ^^^^  ^^  conducting  the  business 

gain.     As    a    highway    for    public  of   all    the   insolvent   private    cor- 

transportation    it   is    a   matter   of  porations  in  the  country."    Hanna 

public  concern,   and   its   construe-  y    g^ate  Trust  Co.,  70  Fed.  2,  30 

tion  and  management  belong  pri-  l_  r_  a.  201,  16  C.  C.  A.  586. 

marily  to  the  commonwealth,  and  jn  this  connection  see  the  excel- 

are   only    put   into   private   hands  jent  article  of  Thomas  A.  Thacher, 

to    subserve    this    public    conven-  ggq.,    on     "Some    Tendencies     of 

ience    and    economy."     Barton    v.  Modern  Receiverships"  in  Vol.  IV, 

Barbour,  104  U.  S.  126,  26  L.  ed.  California  Law  Review,  p.  32. 

672.  10  Matter  of  Reisenberg  (Metro- 

"If  the  junior  creditors  of  an  in-  politan  St.  R.  R.  Case),  208  U.  S. 

solvent  corporation,  could  do  what  90,  52  L.  ed.  403,  28  Sup.  Ct.  219. 


ORIGIN   OF   THE   LAW   OF   RECEIVERS.  » 

such  a  remedy.  A  refusal  to  appoint  a  receiver  would 
have  led  in  this  instance  almost  inevitably  to  a  very  largo 
and  useless  sacrifice  in  value  of  a  great  property,  oper- 
ated as  one  system  through  the  various  streets  of  a  popu- 
lous city,  and  such  a  refusal  would  also  have  led  to  endless 
confusion  among  the  various  creditors  in  their  efforts  to 
enforce  their  claims,  and  to  very  great  inconvenience 
to  the  many  thousands  of  people  who  necessarily  use  the 
road  every  day  of  their  lives." 

The  main  purposes  of  receivership  proceedings,  how^- 
ever,  remains  that  of  preserving  and  protecting  property 
which  is  the  subject  of  litigation  until  the  final  deter- 
mination of  the  litigation. 

§  2.    Receiver  Defined, 

A  receiver  is  a  person  appointed  by  the  court,  as  its 
representative,  for  the  purpose  of  taking  into  his  control, 
custody,  and  management  property  which  is  the  subject 
matter  of  or  involved  in  litigation  for  the  purpose  of 
preserving  it  pending  the  ultimate  determination  of  such 
litigation,  when  it  appears  to  the  court  to  be  unreason- 
able that  it  should  remain  in  possession  of  the  litigants.^ 

1  Wilkinson  V.  Lehman-Durr  Co.,  Dickinson,      21     How.     Pr.      275; 

136  Ala    463    34   So.   216;    Hall  v.  Waters  v.  Carroll,  9  Yerg.  (Tenn.) 

Stulb,  126  Ga.   521,   55  S.  E.   172;  102;    Beverley  v.  Brooke,  4^  Gratt. 

'  .     \        ,„     ,  (Va)  187,  208;  Harman  V.  McMul- 

Baker  v.  Administrator  of  Backus  ^.^    ^^  ^^   ^^^^  ^  ^    ^    3^^.  ^^^^^^ 

32   111.   79;    Wiswall   v.   Kunz.   1<3  ^    ^^^^.^^  ^^  ^    ^    ^^^  ^^^  ^   33^^ 

111.   110,    50   N.    E.    184;    Nevitt  v.  ^^   ^    ^^    ^g^.    j^^^^j^  ^    j^^j.^  ^f 

Woodburn,   190   111.  283,   60   N.   E.  Marlborough,   2    Swanst.   125;    Ex 

500;  Hay  v.  McDaniel,  26  Ind.  App.  p^rte  Jay,  L.  R.  9  Cb.  133. 

683,  60  N.  E.  729 ;  Hunter  v.  Peaks,  a    "receiver"    is    a    person    ap- 

74    Me.    363;    State    v.    Ross,    122  pointed  by  a  court  or  judicial  offi- 

Mo.  435,  23  L.  R.  A.  534,  25  S.  W.  cer    to    take    charge    of    property 

947;     St.    Louis    etc.    Ry.    Co.    v.  pending    a    civil    action,    suit,    or 

Holladay,  131  Mo.  440,  33  S.  W.  49;  proceeding,  or  upon  the  entry  of 

Gardner  v.  Caldwell,  16  Mont.  221,  a     judgment,     decree,     or     other 

40    Pac.    590;    Lattimer    v.    Lord,  order,    and    to    manage    and    dis- 

4  E.  D.  Smith  183;  Libby  v.  Rose-  pose  of  it  in  accordance  with  the 

krans,  55  Barb.  202;   Devendorf  v.  directions  of  the   court.    Egan   v. 


LAW   OP   RECEIVERS. 


He  is  regarded  as  an  officer  of  the  court  appointing  liim 
and  whatever  he  does  under  the  orders  of  the  court  in 


North  American  Loan  Co.,  45  Or. 
131,  76  Pac.  774,  775. 

A  "receiver"  is  a  person  ap- 
pointed by  a  court  to  take  into 
his  custody,  control,  and  manage- 
ment the  property  or  funds  of  an- 
other pending  judicial  action  con- 
cerning them.  John  C.  Orr  Co.  v. 
Cushman,  54  Misc.  Rep.  121,  104 
N.  Y.  S.  510. 

"The  conception  of  a  receiver 
is  some  one  to  take  manual  pos- 
session, for  the  court,  of  prop- 
erty, to  take  it  out  from  the  pos- 
session of  others,  and  hold  it  for 
the  better  security  of  those  who 
may  be  ultimately  entitled 
thereto."  Harrigan  v.  Gilbert,  121 
Wis.  127,  99  N.  W.  909. 

A  receiver  is  an  officer  of  the 
court,  and  its  representative  in 
administering  trust  estates.  He 
acts  by  order  of  the  court.  His 
powers  come  from  the  court.  He 
has  no  Individual  status.  His 
duty  is  to  bring  all  the  property 
belonging  to  his  trust  into  pos- 
session, familiarize  himself  with 
the  details  of  the  estate  and  its 
business,  keep  accurate  accounts, 
and  make  detailed  reports  with 
his  recommendations  to  the  court, 
so  that  the  estate  may  be  closed 
by  the  court  as  soon  as  the  best 
interests  of  the  owner  and  cred- 
itors will  justify.  Decker  Bros.  v. 
Berners  Bay  Min.  &  Mill.  Co.,  2 
Alas.  504. 

A  receiver  is  a  person  author- 
ized to  take  possession  of  prop- 
erty in  litigation  for  the  purpose 
of  preserving  it  for  whichever  of 
the  litigants  the  court  may  finally 
determine  is  entitled  to  it.    Cook 


v.    Terry,    19    Cal.    App.    765,    127 
Pac.  816,  817. 

"The  'receiver'  is  the  represen- 
tative   of    the    court    and    of    all 
parties     in     interest,      and     can 
neither    surrender    to    others    nor 
divide    with    them    the    manage- 
ment   of    the    prosecution    or    de- 
fense   of    such    suits    or    the    re- 
sponsibility therefor."    A  receiver 
is   appointed   upon  a  principle  of 
justice  for  the  benefit  of  all  con- 
cerned.   He   is   virtually   a   repre- 
sentative of  the  court,  and  of  all 
the  parties  in  interest  in  the  liti- 
gation   wherein    he    is    appointed. 
Atlantic  Trust  Co.  v.  Dana,  128  F. 
209,  22.3,  62  C.  C.  A.  657   (quoting 
and    adopting    Davis   v.    Gray,    16 
Wall.    (83  U.  S.)  203,  217,  21  L.  Ed. 
447;    citing  and  adopting  Doggett 
V.  Florida  R.  Co.,  99  U.  S.  72,  78, 
25  L.  Ed.  301;    Southern  Exp.  Co. 
V.  Western  North  Carolina  R.  Co., 
99  U.  S.  191,  199,  25   L.   Ed.  319; 
Porter   v.    Sabin,    149    U.    S.    473, 
13    Sup.   Ct.   1008,   37   L.    Ed.  815; 
Gray   v.   Davis,    1   Woods    420,    10 
Fed.    Cas.    1006,    1009;     Ames    v. 
Union    Pac.    Ry.    Co.,    60    F.    966; 
High,  Rec.  (3d  ed.),  sees.  134,  135, 
650;     Jones,    Railroad    Securities, 
sec.  495). 

A  receiver  is  "the  officer  of  the 
court,  appointed  on  behalf  of  all 
parties,  to  take  the  possession 
and  hold  (the  property)  for  the 
benefit  of  the  party  ultimately  en- 
titled." Town  of  Vandalia  v.  St. 
Louis  etc.  Co.,  209  111.  73,  70  N.  E. 
662. 

Where  property  is  the  subject 
of  litigation  and  is  liable  to  clear 
equities  in  a  party  out  of  posses- 


ORIGIN  OF  THE  LAW  OF  RECEIVERS.  7 

respect  to   the  property   over   which   he   is   appointed 
receiver  is  the  act  of  the  court  itself.  His  custody  is  that 


sion  the  court  may  appoint  a  re- 
ceiver for  it  when  it  seems  just 
and  necessary  to  keep  the  prop- 
erty in  dispute  from  the  control 
of  either  party  until  the  contro- 
versy is  decided.  Skinner  v.  Max- 
well, 66  N.  C.  45. 

A  "receiver"  is  an  indifferent 
person  between  parties,  appointed 
by  the  court  to  receive  the  rents, 
issues,  and  profits  of  land  or  other 
thing  in  question,  pending  the 
suit,  where  it  does  not  seem  rea- 
sonable to  the  court  that  either 
party  should  do  it.  He  is  an  offi- 
cer of  the  court;  his  appointment 
is  provisional.  He  is  appointed 
in  behalf  of  all  parties,  and  not  of 
the  complainant,  or  of  the  defen- 
dant only.  He  is  appointed  for 
the  benefit  of  all  parties  who  may 
establish  rights  in  the  cause. 
The  money  in  his  hands  is  in 
custodia  legis  for  whoever  can 
make  out  a  title  to  it.  It  is  the 
court  itself  which  has  the  care  of 
the  property  In  dispute.  The  re- 
ceiver is  but  he  creature  of  the 
court.  He  has  no  powers  except 
such  as  are  conferred  upon  him 
by  the  order  of  his  appointment 
and  the  course  and  practice  of  the 
court.  When  a  court  exercising 
jurisdiction  in  equity  appoints  a 
receiver  of  all  the  property  of  a 
corporation,  the  court  assumes 
the  administration  of  the  estate; 
the  possession  of  the  receiver  is 
the  possession  of  the  court;  and 
the  court  itself  holds  and  admin- 
isters the  estate,  through  the  re- 
ceiver as  its  officer,  for  the  bene- 
fit of  those  whom  the  court  shall 


ultimately  adjudge  to  be  entitled 
to  it.  The  trustee  in  a  mortgage 
of  the  property  of  a  canal  and  ir- 
rigation company,  who  brings  a 
suit  for  foreclosure  and  sale,  and 
obtains  the  appointment  of  a  re- 
ceiver to  take  charge  of  and  man- 
age the  property  pendente  lite, 
does  not,  by  reason  of  such  ac- 
tion, become  personally  liable  for 
money  borrowed,  expenses  in- 
curred, and  certificates  issued  by 
the  I'eceiver  under  orders  of  the 
court,  in  keeping  the  corporation 
on  its  feet  as  a  going  concern, 
which  the  proceeds  of  the  sale 
proved  insufficient  to  pay.  Atlan- 
tic Trust  Co.  V.  Chapman,  28  Sup. 
Ct.  406,  409,  208  U.  S.  360,  52 
L.  Ed.  528,  13  Ann.  Gas.  1155 
(citing  Booth  v.  Clark,  58  U.  S. 
(17  How.)  221,  322,  15  L.  Ed.  164, 
167;  Porter  v.  Sabin,  13  Sup.  Ct. 
1008,  1010,  149  U.  S.  473,  479,  37 
L.  Ed.  815,  818). 

Under  Ballinger's  Ann.  Codes  & 
St.,  sec.  5455,  defining  a  "receiver" 
as  a  person  appointed  by  a  court 
to  take  charge  of  property  pend- 
ing a  civil  action  or  proceeding, 
and  to  manage  and  dispose  of  it 
as  the  court  may  direct,  a  person 
appointed  by  the  court  to  take 
charge  of  mortgaged  chattels  and 
retain  them  pending  foreclosure 
proceedings  is  a  "receiver,"  re- 
gardless of  whether  he  be  ap- 
pointed under  section  5486,  pro- 
viding generally  when  receivers 
may  be  appointed,  or  under  sec- 
tions 5877  and  5878,  relating  to 
the  case  of  a  chattel  mortgagee 
having  reasonable  cause  to  be- 
lieve   the    debt    to    be    insecure. 


LAW    OF   RECEIVERS. 


of  the  court  and  lie  can  not  act  save  as  he  is  directed 


Libert  v.   Unfried,   47  Wash.    182, 
91  Pac.   774. 

One  of  the  main  objects  of  a  re- 
ceivership is  to  conserve  the  prop- 
erty for  the  benefit  of  creditors 
and  owners,  and  it  should  not  be 
dissipated  by  fees  and  expenses. 
Goodman  v.  Wilder,  234  111.  362, 
84  N.  E.  1025. 

A  receiver  is  an  officer  of  the 
court  which  appoints  him  and  is 
its  immediate  representative  in 
the  custody  and  administration  of 
the  property  which  it  has  taken 
into  possession.  Ridge  v.  Manker, 
132  Fed.  599,  67  C.  C.  A.  596. 

Inasmuch  as  the  main  purpose 
of  a  receiver  is  to  preserve  the 
property  which  is  the  subject  of 
the  litigation,  danger  of  its  loss 
or  injury  is  one  of  the  principal 
grounds  for  his  appointment. 
Hastings  v.  Tousey,  121  App.  Div. 
815,  106  N.  Y.  S.  639. 

A  receiver  pendente  lite  is  ap- 
pointed to  prevent  injury  to  the 
property  or  thing  in  controversy, 
and  to  preserve  it  for  the  secu- 
rity of  all  parties  in  interest,  for 
the  purpose  of  disposition  as  the 
court  may  finally  direct.  Gray  v. 
Council  of  Town  of  Newark  (Del. 
Ch.),  79  Atl.  739. 

A  "receiver"  is  an  officer  of  the 
court  from  which  he  receives  his 
appointment.  He  is  sometimes  de- 
scribed as  an  impartial  and  indif- 
ferent person  between  the  parties 
to  a  cause,  appointed  by  the  court 
to  receive  and  preserve  the  prop- 
erty or  funds  in  litigation  pen- 
dente lite,  when  it  does  not  seem 
reasonable  to  the  court  that  either 
party  should  hold  it.  He  is  in  no 
sense  an  agent  or  representative 
of  any   party   to  the   action.     He 


exercises  his  function  in  the  in- 
terests of  no  individual  interested 
in  the  litigation,  but  for  the  com- 
mon benefit  of  all  concerned.  He 
is  frequently  spoken  of  as  the 
"hand  of  the  court,"  and  has  been 
called  the  "executive  hand  of  the 
court"  (citing  High,  Rec.  sec.  2; 
Beach,  Rec.  sec.  2).  Hence  the 
compensation  of  a  receiver  and 
the  party  or  parties  to  be  charged 
with  the  payment  of  the  same  are 
matters  to  be  determined  by  the 
court  from  which  the  receiver  de- 
rives his  appointment.  Hall  v. 
Stulb,  126  Ga.  521,  55  S.  E.  172. 

A  receiver  in  an  action  is  an  im- 
partial person  appointed  by  the 
court  to  collect  and  receive,  pend- 
ing the  proceedings,  the  rents,  is- 
sues, and  profits  of  land,  or  the 
produce  of  personal  estate  or 
things  in  question,  which  it  does 
not  seem  reasonable  to  the  court 
that  either  party  should  collect  or 
receive,  or  where  a  party  is  in- 
competent to  do  so,  as  in  the  case 
of  an  infant.  A  receiver  can  only 
be  properly  granted  for  the  pur- 
pose of  getting  in  and  holding  or 
securing  funds  or  other  property, 
which  the  court  at  the  trial,  or  in 
the  course  of  the  action,  will  have 
the  means  of  distributing  amongst, 
or  making  over  to,  the  person  or 
persons  entitled  thereto.  Evans  v. 
Coventry,  3  Drew.  80. 

Receiver,  in  English  law,  an  oflS- 
cer  or  manager  appointed  by  a 
court  to  administer  property  for 
its  protection,  to  receive  rent  or 
other  income  and  to  pay  author- 
ized outgoings.  Receivers  may  be 
either  appointed  pendente  lite  or 
by  way  of  equitable  execution, 
e.  g.,  for  the  purpose  of  enabling 


ORIGIN  OF   THE  LAW  OF   RECEIVERS. 


by  the  court.-    He  is  very  frequently  characterized  as 


a  judgment  creditor  to  obtain  pay- 
ment of  his  debt,  when  the  posi- 
tion of  the  real  estate  is  such 
that  ordinary  execution  will  not 
reach  it.  Formerly  receivers  were 
appointed  by  the  court  of  chan- 
cery, but  by  the  Judicature  Act 
1873  it  is  now  within  the  power 
of  all  divisions  of  the  High  Court 
to  appoint  receivers.  Their  powers 
and  duties  are  exhaustively  set 
forth  by  Kerr  on  Receivers  (5th 
ed.,  1905),  who  classifies  the  cases 
in  which  they  may  be  appointed 
under  the  following  heads:  (a)  In- 
fants, (b)  executors  and  trustees, 
(c)  pending  litigation  as  to  pro- 
bate, (d)  mortgagor  and  mortga- 
gee, (e)  debtor  and  creditor,  (f) 
public  companies,  (g)  vendor  and 
purchaser,  (h)  covenanter  and  cov- 
enantee, (i)  tenant  for  life  and 
remainderman,  (j)  partners,  (k) 
lunacy,  (1)  tenants  in  common, 
(m)  possession  under  legal  title, 
and  (n)  other  cases.  The  appoint- 
ment of  receivers  is  entirely 
within  the  discretion  of  the 
courts,  and  the  power  may  be  ex- 
ercised "in  all  cases  in  which 
it  shall  appear  just  and  con- 
venient." Application  for  a  re- 
ceiver is  usually  made  by  motion, 
and  the  court  will  appoint  the  fit- 
test person,  without  regard  to 
who  may  propose  him,  the  appoint- 
ment of  a  receiver  being  for  the 
benefit  of  all  parties.  Under  the 
Conveyancing  Act,  1881,  when  a 
mortgagee  has  become  entitled 
to  exercise  his  powers  of  sale, 
he  may,  by  writing  under  his 
hand,  appoint  such  person  as 
he  sees  fit  to  be  receiver.  In 
bankruptcy  practice  a  receiver, 
termed  official  receiver,  is  an  of- 


ficer of  the  court  who  in  this 
capacity  takes  possession  on  the 
making  of  a  receiving  order,  of 
all  a  debtor's  assets.  He  is  also 
an  officer  of  the  board  of  trade 
with  the  duty  of  taking  cogni- 
zance of  the  conduct  of  the 
debtor  and  administering  his 
estates  (see  Bktcy.).  Vol.  22,  En- 
cyclopedia Britannica  951. 

2  State  V.  Reynolds,  209  Mo.  161, 
123  A.  S.  R.  468,  15  L.  R.  A.  (N.  S.) 
963,  14  Ann.  Cas.  198,  107  S.  W. 
487. 

Eichert  v.  Eichert,  28  Ohio  Cir. 
Ct.  R.  795,  judgment  affirmed  74 
Ohio  St.  512.  78  N.  E.  1124. 

The  property  or  funds  coming 
into  the  hands  of  the  receiver  are 
regarded  as  in  the  custody  of  the 
court.  State  v.  Hubbard,  58  Kan. 
797,  39  L.  R.  A.  860,  51  Pac.  290; 
State  ex  rel.  Fichtenkamm  v. 
Gambs,  68  Mo.  289;  Farmers  Loan 
etc.  Co.  V.  Oregon  etc.  Co.,  31  Ore. 
237,  38  L.  R.  A.  424,  65  Am.  St.  Rep. 
822,  48  Pac.  706;  Wilder  v.  New 
Orleans,  87  Fed.  843,  31  C.  C.  A. 
249;  Rothschild  v.  Hasbrouck,  65 
Fed.  283;  Fallon  v.  Egberts 
Woolen  Mill  Co.,  31  Misc.  523,  64 
N.  Y.  S.  466;  Battle  v.  Davis,  66 
N.  C.  252. 

A  "receiver"  is  but  an  officer  of 
the  court,  whose  tenure  of  of- 
fice is  indeterminate.  Screven  v. 
Clark,  48  Ga.  41;  National  Ex- 
change Bank  v.  Woodside,  107  Mo. 
App.  47,  80  S.  W.  715;  Hubert  v. 
New  Orleans,  130  Fed.  21,  64 
C.  C.  A.  389. 

A  receiver  is  an  officer  of  the 
court  having  certain  statutory  du- 
ties to  perform  but  at  all  times 
subject  to  the  court's  jurisdiction. 
Denver    City    Waterv/orks    Co.    v. 


10 


LAW   OF   RECEIVERS. 


the  arm  or  hand  of  the  court.^    Being  an  officer  of  the 
court   and   exercising  his   functions   for   the  benefit  of 


American  Waterworks  Co.,  81 
N.  J.  Eq.  139,  85  Atl.  826. 

A  receiver  is  an  officer  of  the 
court  appointing  him,  and  his 
power  does  not  extend  beyond  the 
jurisdiction  of  that  court,  and  will 
not  be  recognized  by  the  courts 
of  another  state,  except  upon  con- 
siderations of  comity.  Choctaw 
Coal  &  Mining  Co.  v.  Williams- 
Echols  Dry  Goods  Co.,  75  Ark.  365, 
87  S.  W.  632,  5  Ann.  Cas.  569;  Ma- 
lone  V.  Johnson,  45  Tex.  Civ.  App. 
604,  101  S.  W.  503,  505. 

A  "receiver"  is  but  an  officer  of 
the  court  by  whom  he  is  ap- 
I  ointed — as  it  is  sometimes  said, 
the  right  hand  of  the  court.  His 
custody  is  that  of  the  court,  and 
he  can  not  act,  save  as  he  may  be 
specially  authorized.  He  may  not 
enter  into  litigation  respecting 
property  in  his  possession,  save 
by  consent  of  the  court.  And  the 
law  of  comity  among  courts, 
whether  of  the  same  or  a  differ- 
ent state  or  jurisdiction,  requires 
that  leave  should  be  asked  and 
granted  before  suit  against  a  re- 
ceiver. Manker  v.  Phoenix  Loan 
Assn.  of  St.  Joseph  (Iowa),  96 
N.  W.  982,  983  (citing  Smith  V. 
St.  Louis  &  S.  F.  Ry.  Co.,  151  Mo. 
402,  52  S.  W.  378,  48  L.  R.  A.  368; 
Keen  v.  Breckinridge,  96  Ind.  69; 
Central  Trust  Co.  v.  East  Tenn. 
Ry.  Co.,  59  Fed.  523;  Haag  v. 
Ward,  89  Mo.  App.  186). 

In  general,  a  "receiver"  by  vir- 
tue of  his  appointment  is  clothed 
with  only  such  rights  of  action  as 
may  have  been  maintained  by  the 
person  over  whose  estate  he  has 
been  appointed  and  whose  rights, 
for  purposes  of  litigation,  he  has 


succeeded.  The  "receiver"  is  the 
officer,  the  agent,  and  hand  of  the 
court,  and  therefore  his  powers 
are  limited,  and  are  derived  from 
the  order  of  appointment,  if  a 
common-law  receiver,  and  from 
statute,  if  a  statutory  receiver.  In 
re  National  Mercantile  Agency, 
128  Fed.  639,  640  (quoting  and 
adopting  High,  Rec.  (3d  ed.  1894) 
sec.  201;  Beach,  Rec.  (Alderson's 
ed.  1897)  sec.  650). 

A  "receiver"  is  a  mere  officer  of 
the  court  whose  first  duty  is  to 
obey  the  orders  of  the  court.  He 
has  no  discretion,  speaking  gener- 
ally, as  to  the  application  of  funds 
which  are  in  his  hands  by  virtue 
of  the  receivership,  and  he  holds 
them  strictly  subject  to  the  order 
of  the  court,  to  be  disposed  of  as 
the  court  may  direct.  Being  a 
mere  agent  of  the  court  he  has 
no  authority  to  appeal  from  orders 
made  by  it  in  the  pending  pro- 
ceeding, except  as  it  may  author- 
ize him  so  to  do,  and  with  the 
further  exception  that  he  has  the 
right  to  appeal  in  all  matters  re- 
lating to  his  official  conduct  or 
his  accounts  and  credits,  or  from 
judgments  rendered  against  him 
in  other  proceedings.  Polk  v. 
Johnson  (Ind.),  76  N.  E.  634  (cit- 
ing Herrick  v.  Miller,  123  Ind.  304, 
24  N.  E.  Ill;  Smith  v.  Harris,  135 
Ind.  621,  629,  35  N.  E.  984;  How 
V.  Jones,  60  Iowa  70,  14  N.  W.  93; 
Dorsey  v.  Sibert,  93  Ala.  312,  99 
South.  288;  People  v.  Troy  Steel  & 
Iron  Co.,  31  N.  Y.  Supp.  337,  82 
Hun  303;  Smith  on  Receiverships, 
sec.  417). 

3  The  order  appointing  him  does 
not   affect   the   title   to   property. 


ORIGIN  OF   THE  LAW  OF   RECEIVERS. 


11 


all  parties  concerned  in  the  litigation,  he  is  not  to  be 
regarded  as  an  agent  of  either  the  plaintiff  or  defen- 
dant.^ He  acts  for  the  common  benefit  of  all  parties  inter- 


He  holds  the  property  merely  as 
a  custodian.  So.  Granite  Co.  v. 
Wadsworth,  115  Ala.  570,  22  So. 
157;  Jackson  v.  King,  9  Kan.  App. 
160,  58  Pac.  1013;  State  ex  rel. 
Fichtenkamm  v.  Gambs,  68  Mo. 
289;  Wilder  v.  New  Orleans,  87 
Fed.  843,  31  C.  C.  A.  249;  Harrison 
V.  J.  J.  Warren  Co.,  183  Mass.  123, 
66  N.  E.  589;  Union  Bank  v.  Kan- 
sas City  Bank,  136  U.  S.  223,  34 
L.  Ed.  341,  10  Sup.  Ct.  1013. 

The  property  though  tempo- 
rarily in  the  keeping  of  the  court 
is  sheltered  by  the  same  rights 
of  ownership  as  before  being  so 
placed.  State  Cent.  Sav.  Bank  v. 
Fanning  Bail-Bearing  Chain  Co., 
118  Iowa  698,  92  N.  W.  712;  Sul- 
livan Timber  Co.  v.  Black,  159  Ala. 
570,  48  So.  870;  Knickerbocker 
Trust  Co.  V.  Green  Bay  Phosphate 
Co.,  62  Fla.  519,  56  So.  699;  State 
ex  rel.  Sullivan  v.  Reynolds,  209 
Mo.  161,  15  L.  R.  A.  (N.  S.)  963, 
123  Am.  St.  Rep.  468,  14  Ann.  Cas. 
198,  107  S.  W.  487;  Vila  v.  Grand 
Island  etc.  Co.,  68  Neb.  222,  63 
L.  R.  A.  791,  110  Am.  St.  Rep.  400, 
4  Ann.  Cas.  59,  94  N.  W.  136,  97 
N.  W.  613;  American  Trust  etc. 
Bank  v.  McGettigan,  152  Ind.  582, 
71  Am.  St.  Rep.  345,  52  N.  B.  793; 
International  Trust  Co.  v.  Decker 
Bros.,  152  Fed.  78,  11  L.  R.  A. 
(N.  S.)  152,  81  C.  C.  A.  302;  Coy  v. 
Title  Guarantee  &  Trust  Co.,  198 
Fed.  275. 

Receiver  is  arm  of  the  court  and 
not  representative  of  either  party 
to  suit.  Dietrich  v.  O'Brien,  122 
Md.  482,  89  Atl.  717;  Bird  v.  Peo- 
ple's Gas  etc.  Co.,  158  Fed.  903. 

A  receiver  is  an  arm  of  the  court 


and  represents  the  debtor  and 
creditors  as  well  as  the  court. 
Harvey  v.  Gartner,  136  La.  411, 
67  So.  197,  Ann.  Cas.  1916D,  900. 

A  "receiver"  is  "the  mere  right 
arm  of  the  court  appointing  him, 
to  obey  its  orders  in  matters  of 
administration  within  its  jurisdic- 
tion, and  as  such  is  entirely  sub- 
ject to  its  control.  He  executes 
bond  for  the  faithful  performance 
of  his  duties,  to  account  alone  to 
the  court  appointing  him;  and  the 
funds  coming  to  his  hands  as  such 
receiver  are  in  custodia  legis, 
held  by  him  for  distribution  and 
application  by  the  court  whose 
commission  he  holds."  Fowler  v. 
Osgood,  141  Fed.  20,  21,  72 
C.  C.  A.  270,  4  L.  R.  A.  (N.  S.) 
824. 

A  receiver  is  but  an  arm  of  the 
court  to  take  care  of  and  admin- 
ister the  property,  assets,  and 
estate  in  suit,  to  do  with  it  as 
the  law  may  direct  for  the  benefit 
of  the  parties  concerned;  and, 
while  in  theory  he  can  do  noth- 
ing without  the  court's  order  or 
sanction,  he  has,  in  matters  of 
management  and  manner  of  dispo- 
sition of  the  estate,  a  large  discre- 
tion. Coy  V.  Title  Guarantee  & 
Trust  Co.,  198  Fed.  275. 

"The  appointment  of  a  receiver 
does  not  determine  any  right  or 
affect  the  title  of  either  party,  in 
any  manner  whatever.  He  is  the 
officer  of  the  court,  and  truly  the 
hand  of  the  court."  Ellicott  v. 
Warford,  4  Md.  85. 

4  Kreling  v.  Kreling,  118  Cal. 
421,  50  Pac.  549;  Hay  v.  McDaniel, 
26   Ind.    App.    683,    60    N.    E.    729; 


12 


LAW   OF   RECEIVERS. 


ested  in  the  litigation.^   In  view  of  his  duties  toward  all 


Gaither  v.  Stockbridge,  67  Md. 
222,  9  Atl.  632,  10  Atl.  309;  Rum- 
sey  V.  People's  Ry.  Co.,  154  Mo. 
215,  55  S.  W.  615;  Daube  v.  Phila- 
delphia etc.  Co.,  77  Fed.  713,  23 
C.  C.  A.  420;  Hale  v.  Hardon,  95 
Fed.  747,  37  C.  C.  A.  240;  Balti- 
more Building  etc.  Assn.  v.  Alder- 
son,  99  Fed.  489,  39  C.  C.  A.  609. 

Receivers  being  officers  of  the 
court  are  not  agents  of  the  party 
for  whom  they  are  appointed  re- 
ceivers, in  the  sense  that  they 
have  authority  to  bind  such  party 
by  any  act  or  omission  on  their 
part.  Stannard  v.  Robert  H.  Reid 
&  Co.,  118  App.  Div.  304,  103 
N.  Y.  Supp.  521. 

A  receiver  of  a  railroad  is  not 
the  agent  of  the  company,  nor  its 
representative,  nor  in  any  sense 
under  its  control.  He  is  a  person 
who  comes  into  possession  of  the 
equipment  and  business  in  in- 
vitum,  placed  there  by  the  court 
which  virtually  sequestrates  the 
property  for  the  time  being  to  pre- 
serve it  from  ruin  for  the  benefit 
of  creditors  primarily  and  other 
parties  interested  secondarily. 
Eckels  v.  Farley,  131  111.  App.  557. 
A  receiver  of  a  railroad  is  not  a 
representative  of  the  company, 
but  is  rather  an  officer  or  repre- 
sentative of  the  court.  His  rela- 
tion to  the  company  is  analogous 
to  that  of  a  sheriff  holding  its 
property  under  judicial  order  or 
process.  Fountain  v.  Stickney,  145 
Iowa  167,  139  Am.  St.  Rep..410,  123 
N.  W.  947. 

"A  'receiver'  does  not  become  a 
litigant  in  the  action,  nor  does  he 
represent  one  more  than  the  other 
of  any  of  the  parties  of  the  liti- 
gation. He  merely  takes  posses- 
sion of  the  property  as  the  right 


arm  of  the  court  for  the  benefit  of 
the  party  ultimately  entitled  to 
it."  Vila  V.  Grand  Island  Electric 
Light,  Ice  &  Cold  Storage  Co.,  68 
Neb.  222,  63  L.  R.  A.  791,  110  Am. 
St.  Rep.  400,  4  Ann.  Cas.  59,  97 
N.  W.  613. 

Receivers  are  officers  of  the 
court,  and  not  agents  of  the  party 
for  whom  they  are  appointed  re- 
ceivers, in  the  sense  that  they 
have  authority  to  bind  such  party 
by  any  act  or  omission  on  their 
part.  Stannard  v.  Robert  H.  Reid 
&  Co.,  118  App.  Div.  304,  103  N.  Y. 
Supp.  521. 

A  "receiver"  is  an  officer  of  the 
court  and  not  in  any .  sense  an 
agent  or  representative  of  either 
party;  he  is  not  such  a  general 
agent  as  has  any  implied  power, 
and  he  can  not  make  effectual 
contracts  unless  they  are  author- 
ized or  ratified  by  the  court. 
Lazear  v.  Ohio  Steel  Foundry  Co., 
65  W.  Va.  105,  63  S.  E.  772. 

A  receiver  of  property  ap- 
pointed by  court  is  not  an  agent. 
He  is  an  indifferent  person  hold- 
ing the  property  for  those  ulti- 
mately entitled  to  it,  and  his 
possession  is  that  of  the  court. 
Wilderberger  v.  Hartford  Fire  Ins. 
Co.,  72  Miss.  338,  48  Am.  St.  Rep. 
558,  28  L.  R.  A.  220,  17  So.  282. 

It  has,  however,  been  held  in 
Louisiana  that  where  a  receiver 
was  appointed  for  a  partnership 
with  the  consent  of  the  partners  in 
a  suit  for  the  dissolution  of  the 
partnership,  he  would  not  be  re- 
garded as  the  officer  of  the  court 
but  merely  the  agent  of  the  par- 
ties. Kellar  v.  Williams,  3  Rob. 
(La.)   321. 

5  McGarrah  v.  Bank,  117  Ga.  556, 
43  S.  E.  987;   Hooper  v.  Winston, 


ORIGIN  OF   THE  LAW  OF  RECEIVERS. 


13 


parties  to  the  litigation,  he  naturally  should  be  a  person 
who  is  impartial  as  between  the  litigants  and  parties 
interested  in  the  outcome  of  the  controversy.^  A  receiver 
has  also  been  characterized  as  a  quasi  trustee  holding 
the  fund  for  the  benefit  of  whoever  may  eventually  estab- 
lish title  to  it.'^ 


24  111.  353;  Baker  v.  Backus,  32 
111.  79;  Kaiser  v.  Kellar,  21  Iowa 
95;  Williamson  v.  Wilson,  1  Bland 
(Md.)  418;  Ellicott  v.  W^arford,  4 
Md.  80;  Osborn  v.  Heyer,  2  Paige 
(N.  Y.)  342;  Brown  v.  Northrup, 
15  Abb.  Pr.  N.  S.  333;  Corey  v. 
Long,  43  How.  Pr.  497,  12  Abb.  Pr. 
N.  S.  427;  King  v.  Cutts,  24  Wis. 
627;  Meier  v.  Kan.  Pac.  R.  Co.,  5 
Dill.  476,  Fed.  Cas.  No.  9394; 
Booth  V.  Clark,  58  U.  S.  (17  How.) 
331,  15  L.  ed.  167. 

He  is  bound  to  act  for  the  equal 
benefit  of  all  the  parties  and 
hence  can  not  agree  to  place  the 
property  in  his  custody  under  the 
control  and  management  of  one  of 
the  parties  to  the  litigation.  Shade- 
wald  V.  White,  74  Minn.  208,  77 
N.  W.  42. 

A  receiver  is  appointed  on  behalf 
of  all  the  parties  to  the  action  and 
not  on  behalf  of  the  complainant 
or  defendant  only.  Atlantic  Trust 
Co.  V.  Chapman,  208  U.  S.  360, 
13  Ann.  Cas.  1155,  52  L.  ed.  528, 
28  Sup.  Ct.  406. 

He  is  a  ministerial  officer  of  the 
court  appointing  him  and  his  pos- 
session is  not  adverse  to  either 
party,  but  for  the  benefit  of  all  the 
parties  to  the  suit  according  to 
their  respective  rights.  Chicago 
etc.  Co.  V.  Kenney,  29  Ind.  App. 
506,  68  N.  E.  20. 


6  Coy  V.  Title  etc.  Co.,  157  Fed. 

794. 

A  "receiver"  is  a  ministerial  of- 
ficer of  a  court  of  chancery,  ap- 
pointed as  an  indifferent  person 
between  the  parties  to  a  suit,  and 
he  holds  the  property  for  the  ben- 
efit of  all  the  parties  interested, 
and  his  title  and  possession  is 
that  of  the  court.  State  v.  Nor- 
folk &  S.  Ry.  Co.,  152  N.  C.  785, 
26  L.  R.  A.  (N.  S.)  710,  21  Ann. 
Cas.  692,  67  S.  E.  42. 

Receivers  are  instrumentalities 
of  the  court,  and  are  required  to 
be  impartial  as  between  the  par- 
ties litigant,  and  should  have 
authority  from  the  court,  either  ex- 
press or  implied,  for  all  of  their 
acts.  Metropolitan  Trust  Co.  of 
City  of  New  York  v.  North  Caro- 
lina Lumber  Co.,  162  Fed.  170; 
American  Box  Co.  v.  North  Caro- 
lina Lumber  Co.,  162  Fed.  170. 

A  receiver  should  be  in  a  large 
sense  indifferent  as  between  the 
various  interests  involved.  He 
phould  have  no  such  personal  in- 
terest as  would  interfere  with  an 
unbiased  and  impartial  exercise  of 
his  duties  as  a  receiver.  Farmers 
Loan  etc.  Co.  v.  Northern  Pac. 
R.  Co.,  61  Fed.  546. 

T  King  V.  Goodwin,  130  111.  102, 
17  Am.  St.  Rep.  277,  22  N.  E.  533. 


14  LAW   OF   RECEIVERS. 

§  3.    Different  Kinds  of  Receivers. 

A  chancery  receiver  is  but  the  hand  of  the  court  which 
has  taken  over  the  administration  of  the  affairs  of  the 
person  whose  property  has  been  placed  under  a  receiver. 
The  ownership  of  the  property  does  not  pass  to  the 
receiver  but  continues  in  tlie  defendant,  although  his 
control  over  it  is  vested  in  the  court  acting  through  its 
receiver.  The  property  by  being  placed  in  the  hands  of 
a  receiver  is  protected  against  the  interference  of  others. 
No  action  can  be  taken  b}'  or  against  the  owner  of  the 
property  without  the  sanction  of  the  court.  If  anything 
is  done  in  respect  to  the  property  it  must  be  done  through 
and  by  the  receiver.^  Such  a  chancery  receiver  derives 
his  authority  to  deal  with  the  property  from  the  court 
and  not  the  parties. - 

The  term  "temporary  receiver"  should  be  confined  to 
the  mere  custodian  receiver,  who  is  often  appointed,  upon 
the  filing  of  the  bill,  under  the  general  equity  power  of 
the  court,  in  order  to  preserve  the  assets  from  waste  until 
the  hearing  can  be  had  which  will  determine  whether  the 
defendant  assets  are  in  such  condition  as  to  require  being 
placed  under  a  receiver.^  A  "permanent  receiver"  is  one 
appointed  by  or  pursuant  to  a  final  judgment  or  a  tem- 
porary receiver  who  is  continued  by  the  final  judgment.^ 
A  receiver  acting  as  the  arm  of  the  court  is  frequently 
termed  an  "equitable  receiver,"  and  as  such  is  a  mere 
custodian  without  title  and  without  any  power  excepting 

1  Kelly  V.  Dolan,  218  Fed.  966.  609,  and  (D.  C.)  189  Fed.  661,  194 

2  Pennsylvania  Steel  Co.  v.  New      Fed.  543. 

York  City  Ry.   Co.,   198   Fed.   721,  3  Gallagher    v.    Asphalt    Co.    of 

117  C.  C.  A.  503,  reversing  decree  America,  67  N.  J.  Eq.  441,  58  Atl. 

(C.  C.) ;  In  re  New  York  City  Ry.  403. 

Co.,  188  Fed.  339,  and  ("C.  C.) ;  4  So  defined  by  the  General  Cor- 
Pennsylvania  Steel  Co.  v.  New  poration  Law  of  New  York  which 
York  City  Ry.  Co.,  188  Fed.  343,  is  merely  a  codification  of  the  gen- 
modifying  decrees  (C.  C.) ;  Penn-  eral  rule.  Strauss  v.  Casey  Ma- 
sylvania  Steel  Co.  v.  New  York  chine  &  Supply  Co.,  68  Misc.  474, 
City  Ry.  Co.,  189  Fed.  661.  190  Fed.  124  N.  Y.  Supp.  32. 


ORIGIN   OF   THE  LAW  OF  RECEIVERS. 


15 


that  conferred  upon  him  by  the  order  of  appointment.^ 
An  "auxiliary  receiver"  xs  a  custodian  of  the  property 
within  the  state  where  he  is  appointed  for  the  purpose 
of  preserving  the  assets  belonging  to  the  party  proceeded 
against  within  the  state,  in  order  that  creditors  may 
reach  them  without  being  compelled  to  go  to  a  foreign  jur- 
isdiction to  prove  their  claims.*^ 

A  ''special  receiver"  is  simply  an  officer  of  the  court 
and  as  such  has  no  right  even  in  the  cause  in  wdiich  he  is 
appointed,  without  leave  of  the  court,  to  intermeddle  m 
questions  affecting  the  rights  of  the  parties.^  An  ''ancil- 
lary receiver"  is  one  appointed  by  a  court  of  one  juris- 
diction in  aid  of  a  primary  appointment  by  the  court  of 
another  jurisdiction.  Such  an  appointment  is  often  made 
where  property  belonging  to  the  receivership  exists  in 
several  states.*   A  receiver  to  be  appointed  pursuant  to 


5  Cogan  V.  Conover  Mfg.  Co.,  69 
N.  J.  Eq.  358,  60  Atl.  408. 

6  Frowert  v.  Blank,  205  Pa.  299, 
54  Atl.  1000. 

7  Whyel  V.  Jane  Lew  Coal  & 
Coke  Co.,  67  W.  Va.  651,  69  S.  E. 
192. 

8  Scaife  v.  Scammon  Inv.  etc. 
Assn.,  71  Kan.  402,  80  Pac.  957; 
Eisenhart  v.  Scammon  Inv.  etc. 
Assn.,  71  Kan.  855,  80  Pac.  960; 
Reynolds  v.  Stockton,  140  U.  S. 
254,  35  L.  Ed.  464,  11  Sup.  Ct.  773. 

When  a  receiver  has  been  ap- 
pointed for  a  corporation  by  a 
court  of  the  state  where  it  is  dom- 
iciled, a  federal  court  of  another 
jurisdiction  has  power  to  appoint 
the  same  person  as  ancillary  re- 
ceiver in  such  jurisdiction.  Shin- 
ney  v.  North  American  Savings, 
Loan  &  Building  Co.,  97  Fed.  9. 

When  application  is  made  for 
the  appointment  of  a  receiver  for 
a  foreign  corporation  which  is  al- 
ready in  the  hands  of  a  receiver 


at  the  place  of  its  domicile,  the 
court  in  which  the  application  is 
made  can  do  one  of  three 
things:  First,  it  can  refuse  to  ap- 
point a  receiver  in  the  state  and 
let  the  domiciliary  receiver  bring 
suits  in  this  state  to  collect  all 
debts  of  the  insolvent  corporation 
within  its  limits;  second,  it  can 
appoint  the  domiciliary  receiver 
as  ancillary  receiver;  third,  it  can 
appoint  some  one  other  than  the 
domiciliary  receiver.  Irwin  v. 
Granite  State  etc.  Assn.,  56  N.  J. 
Eq.  244,  38  Atl.  680. 

The  purpose  and  practice  in  ap- 
pointing ancillary  receivers  are 
similar  to  those  obtaining  in  re- 
spect to  ancillary  letters  of  admin- 
istration. The  rules  of  comity 
existing  between  the  courts  of  dif- 
ferent states  and  courts  of  differ- 
ent jurisdiction  in  the  same  state 
are  followed  in  such  cases. 

An  ancillary  suit  mav  be  insti- 
tuted in  the  courts  of  any  juris- 


16  LAW    OF    RECEIVERS. 

the  stipulations  contained  in  a  mortgage  or  deed  of  trust 
is  not  considered  in  the  light  of  a  technical  receiver  to  he 
appointed  by  a  court.  Such  a  receiver  could  be  termed 
a  contract  receiver. **  Where  an  instrument  such  as  a 
mortgage  provides  for  tiie  appointment  of  a  receiver 
under  certain  contingencies  the  receiver  is  to  be  regarded 
and  treated  as  the  agent  of  the  mortgagor,  although  it 
is  in  fact  the  mortgagee  who  has  nominated  him.^*'  The 
receiver  of  a  national  bank  is  different  in  character  from 
the  receivers  appointed  by  the  courts.  The  matter  of  such 
appointments  is  regulated  entirely  by  the  National  Bank- 
ing Act,  and  the  Comptroller  in  making  the  appointment 
of  such  a  receiver  is  not  regarded  as  performing  a  judi- 
cial act.  It  is  the  decision  of  the  head  of  department  of 
the  federal  government  over  which  the  courts  have  ordi- 
narily no  control. ^^  A  receiver  appointed  pursuant  to  a 
statute  providing  for  the  appointment  of  a  receiver  under 
certain  conditions  and  circumstances  is  the  legislative 
agency  to  be  named  by  the  court  and  has  only  such  powers 
as  are  granted  by  the  legislative  act.  He  is  sometimes 
called  a  "statutory  receiver."^-  The  powers  of  receivers 
appointed  under  statutes  providing  for   such   appoint- 

diction     where     property     of    the  o  Rice   v.    St.    Paul   etc.   R.    Co., 

debtor    may    be    found,    and    the  24   Minn.  464. 

local  court  of  equity  on  such  ap-  ^„  ^^^^^^^   ^    Dickson,   L.   R.   1 

plication    will    take,  the    debtor's  ^^    ^g^.  ^^^  ^              ^   ^    ^  ^^ 

local    property   into   its    own    cus- 

,    ,       '      '  .    .         .      f    uo       634;     Owen    v.    Cronk     (1895),    1 

tody    bv    the    appointment    of    its  '  ' 

own  receiver.    This  jurisdiction  is  Q-    ^-     265;     Gosling    v.    Gaskell 

freely    exercised    by    state    courts  (1897),  A.   C.  575. 

in  aid  of  proceedings  pending  in  ii  Price  v.  Abbott,  17  Fed.  606; 

the   courts   of  other   states   or   in  Washington  Nat.  Bank  v.  Eckels, 

the  federal  courts  of  other  states.  57   p^^j    gyQ.    Bushnell  v.  Leland, 

National    Trust  Co.   v.    Miller.    33  ^g^    ^    g    g^^^   ^^   ^    ^^    g^g^    ^^ 


Sup.  Ct.  209. 


N.  J.  Eq.  155;  Buswell  v.  Supreme 

Sitting,  161  Mass.  224,  23  L.  R.  A. 

846,    36    N.    E.    1065;    Baldwin    v.  12  Gallagher   v.    Asphalt   Co.    of 

Hosmer,  101  Mich.  119,  25  L.  R.  A.      America,  67  N.  J.  Eq.  441,  58  Atl. 

7S9,  59  N.  W.  432.  403. 


ORIGIN  OF   THE   LAW   OF   RECEIVERS.  17 

ments  are,  however,  construed  in  the  light  of  the  settled 
doctrines  of  courts  of  equity  in  respect  to  receiverships.^^ 

Although  receivers  are  sometimes  designated  as  gen- 
eral receivers,  receivers  pendente  lite,  special  receivers, 
interim  receivers,  managers,  ancillary  receivers,  and,  in 
England,  liquidators,  the  purposes  in  all  cases  being  the 
same,  though  the  methods  of  accomplishment  may  differ, 
and  though  the  functions  of  the  receiver  may  vary  in  dif- 
ferent cases,  no  good  result,  but  confusion  rather,  fol- 
lows the  application  of  the  several  names  to  the  receiver, 
and  so  far  as  the  general  treatment  of  the  subject  is 
concerned,  no  nominal  distinction  will  be  observed. 
Receivers  may  be  general  as  to  property  and  special  as 
to  power,  or  vice  versa.  Nearly  all  receivers  are  pendente 
lite,  and  with  equal  propriety  might  be  called  interim, 
while  a  manager  is  only  in  the  exercise  of  an  enlarged 
power,  wdth  the  accomplishment  of  the  same  end.^^ 

§  4.    Receivership  as  Distinguished  from  Other  Remedies. 

The  law  of  receiverships  is  peculiar  in  its  nature  in 
that  it  belongs  to  that  class  of  remedies  which  are  wholly 
ancillary  or  provisional,  and  the  appointment  of  a 
receiver  does  not  affect,  either  directly  or  indirectly,  the 
nature  of  any  primary  right,  but  is  simply  a  means  by 
which  primary  rights  may  be  more  efficiently  preserved, 
protected,  and  enforced  in  judicial  proceedings.   It  adju- 

13  Cogan  V.  Conover  Mfg.  Co.,  manent  receiver,  or  any  legal 
69  N  J.  Eq.  358,  60  Atl.  408;  power  except  such  as  is  spe- 
Boonville  Nat.  Bank  v.  Blakey,  cifically  conferred  upon  him  hy 
107  Fed    891,  47  C.  C.  A.  43;   Ma-  the  court.    His  functions  are  lim- 

^       .   ^  Til-  V,    IT  A   T.,H        ited  to  the  care  and  preservation 

rion   Trust  Co.  v.  Blish,   170   Ind^  ^^^  ^^^^^^  ^    ^^^^_ 

686,   18    L.    R.   A.    (N.   S.)    347.   84  ^^^     ^^4    N.    Y.    334.    11    L.    R.    A. 

N.    E.    814    (rehearing    denied    8o  ^^^^  ^6  N.  E.  814;  Herring  v.  New 

N.  E.  344).  York,    L.    E.    &    W.    R.    Co.,    105 

14  A  receiver  pendente  lite  is  a  N.  Y.  340,  12  N.  E.  763;  Keeney 
mere  temporary  officer  and  does  v.  Home  Ins.  Co.,  71  N.  Y.  396,  27 
not   possess   the   power  of   a  per-  Am.  Rep.  60.     _ 

I  Rec. — 2 


18  LAW   OP   RECEIVERS. 

dicates  and  determines  the  rights  of  no  party  to  the  pro- 
ceeding and  grants  no  final  relief  directly  or  indirectly. 
In  this  respect  its  effects  are  analogous  to  the  law  in 
relation  to  injunction  and  interpleader,  and  sometimes, 
as  will  be  seen,  an  injunction  will  afford  an  adequate 
remedy  without  interfering  with  the  possession  of  the 
property.  It  leaves  the  parties  as  they  have  placed 
themselves,  as  determined  by  the  final  judgment  or  decree 
of  the  court. 

Hence  a  receivership  can  only  be  resorted  to  in  a  pend- 
ing action  for  specific  relief  which  is  within  the  jurisdic- 
tion of  the  court  to  graut.^ 

Although  proceedings  for  the  appointment  of  a 
receiver  are  regarded  as  extraordinary  in  character^  and 
the  duty  of  a  court  of  equity  to  appoint  a  receiver  pen- 
dente lite  to  prevent  injury  to  the  thing  in  controversy 
is  a  delicate  and  responsible  duty,  it  nevertheless  should 
be  used  unhesitatingly  in  a  proper  case.^  The  power  of 
a  court  of  equity  in  a  proper  case  to  appoint  a  receiver 
is  one  which  exists  independent  of  any  statute.*  But  the 
power  to  make  such  an  appointment  is  never  exercised 
if  the  petitioner  has  a  full  and  adequate  remedy  at  law. 
A  receiver  will  not,  however,  be  denied  for  this  reason 
alone,  unless  it  is  made  to  appear  that  the  legal  remedy 

1  Red  River  Potato  Growers'  etc.  R.  Co.,  125  TJ.  S.  361,  31  L.  ed. 
Assn    V.  Bemardy.  126  Minn.  440,      694,  8  Sup.  Ct.  887. 

148    N     W     449-    Davis    v.    Alton  Unless  the  power  to  appoint  a 

etc  Ry   Co    ISo'lll.  App.  1;  Miller  ^«««iv«r  *«   exercised   carefully   it 

■  has    a   tendency    to    run    into    un- 

V.  Bowles,  58  N.  Y.  253.  controlled  and  arbitrary  action  on 

2  Smith  V.  Brown,  50  Wash.  240,  ^^^  ^^^^  ^^  ^  single  judge.  Hutch- 
96  Pac.  1077;  Prudential  Securi-  ^^^^^  ^  American  Palace  Car  Co., 
ties  Co.  V.  Three  Forks  etc.  V.  R.  jq4  ped.  182,  187. 

Co.,   49   Mont.    567,   144   Pac.   158;  3  Ellis  v.  Penn  Beef  Co.,  9  Del. 

Strum  v.  Blair,  182  111.  App.  413.  q^i.  213,  80  Atl.  666. 

The  power  to  appoint  a  receiver  4  State  v.  Farmers  &  Merchants' 

is  a  delicate  one  and  should  be  ex-  Ins.   Co.   of  Lincoln,  90  Neb.   664, 

ercised    sparingly    and    with    ex-  Ann.  Cas.   1913B,  643,   134   N.  W, 

treme  caution.    Sage  v.  Memphis  284. 


ORIGIN  OF   THE   LAW  OF   RECEIVERS.  19 

is  equally  as  complete,  efficient,  and  effective  as  that  in 
equity.^ 

The  power  to  appoint  a  receiver  is  a  stronger  measure 
than  that  of  injunction  inasmuch  as  the  effect  is  to  trans- 
fer the  custody  of  the  property  in  controversy  from  a 
litigant  to  a  third  party  under  the  direction  of  the  court 
during  the  litigation.  It  is  not  so  much  in  the  nature 
of  an  attachment  as  of  a  sequestration.*^ 

A  receiver  differs  from  an  assignee  in  bankruptcy  in 
that  the  latter  is  vested  with  the  legal  title  to  property 
held  bv  the  bankrupt,  such  as  a  lease  or  the  like,  while  a 
receiver  has  no  estate  in  such  property,  but  is  a  mere 
custodian  for  the  court." 

The  appointment  of  a  receiver  for  a  corporation  has 
been  likened  to  the  remedy  of  an  "equitable  execution," 
the  court  thereby  obtaining  absolute  control  of  the  cor- 
poration's property  with  full  power  to  adjust  claims, 
determine  priorities,  order  sale,  and  fix  the  distribution 
of  funds  in  accordance  with  procedure  in  equity,  so  that 
claimants  thereafter  need  not  litigate  their  claims  in 
plenary  suits,  but  may  have  the  same  determined  m  the 
receivership  proceedings. « 

Under  the  provisions  of  section  92,  chapter  89  of  the 
Companies  Act  of  1862  provision  is  made  in  England 
for  the  appointment  of  a  liquidator  or  liquidators,  for 
the  purpose  of  the  winding  up  of  companies  and  asso- 
ciations thereunder:  (1)  When  the  company  has  passed 
a  resolution  requiring  the  company  to  be  wound  up ; 
(2)  when  the  company  does  not  commence  its  business 
within  a  year  from  its  incorporation,  or  suspends  its 
business  for  a  whole  year;  (3)  when  its  mem])ers  are 
reduced  in  number  to  less  than  seven;  (4)  when  the  com- 

5Robbins  V.  Reed,  174  Ind.  291.  7  Dietrick    v.    Q-Brien.    122    Md. 

91  N   E    921  482,  89  Atl.  717. 

fi  Pelzer  v   Hughes,  27  S.  C.  408,  «  Randall  v.  Wagner  Glass  Co., 

->  S   K    IS     '  47  Ind.  App.  439,  94  N.  E.  739. 


20  LAW    OF    RECEIVERS. 

pany  is  unable  to  pay  its  debts;  (5)  whenever  the  court 
is  of  the  opinion  that  it  is  just  and  equitable  that  the 
company  should  be  wound  up.  The  powers  of  the  official 
liquidator  under  the  above  act  are:  (a)  To  bring  or 
defend  any  action,  suit,  or  prosecution,  or  other  legal 
proceeding,  civil  or  criminal,  in  the  name  and  on  behalf 
of  the  company;  (b)  to  carry  on  the  business  of  the  com- 
pany so  far  as  may  be  necessary  for  the  beneficial  wind- 
ing up  of  the  same;  (c)  power  to  sell  the  company's 
assets  and  effects;  (d)  to  do  all  acts  and  to  execute  in 
behalf  of  the  company  all  deeds,  receipts,  and  other 
documents,  and  if  necessary  to  use  the  company's  seal; 
(e)  and,  generally,  to  do  and  perform  all  other  acts  and 
things  that  may  be  necessary  for  winding  up  the  affairs 
of  the  company  and  distributing  its  assets.^ 

It  is  also  provided  by  the  act  (§96)  that  the  liquidator 
may  exercise  the  above  enumerated  powers  without  the 
sanction  or  intervention  of  the  court  where  the  order 
for  his  appointment  so  provides.  While  it  is  true  that  the 
appointment  of  a  liquidator,  under  the  provisions  of 
the  above  act,  does  not  abolish  the  office  of  a  receiver, 
and  under  peculiar  circumstances  receivers  are  still 
appointed  by  the  courts,  yet  so  far  as  corporations  and 
associations  embraced  in  the  act  are  concerned,  the  offi- 
cial liquidator,  with  largely  increased  powers  and  duties, 
has  superseded  the  receiver  in  England,  but  the  func- 
tions of  his  office  are  such,  and  the  decisions  of  the  courts 
relating  thereto  so  highly  instructive  and  important,  that 
they  may  be  regarded  and  are  treated  herein  as  contribu- 
tions to  the  general  and  growing  body  of  the  law  of 
receiverships.  Under  the  Winding-Up  Act  of  1890,  after 
an  order  has  been  made  for  ^\inding  up  the  company, 
the  court  has  no  power  to  appoint  a  provisional  liquidator 

n  Ch.  89,  Vol.  XIV.  Rev.  Stat.  202   (.25  and  26  Victoria  to  28  and  29 
Victoria,  A.  D.  1862-18G5). 


ORIGIN  OF   THE  LAW  OF   RECEIVERS.  21 

other  than  the  official  receiver.^"  As  to  the  general  power 
to  appoint  receivers,  see  Judicature  Act  of  1873. 
§  5.    Necessity  to  Resort  to  the  Code  Provisions  of  Each  State. 
In  most  of  the  states  statutory  provisions  have  been 
enacted    which    prescribe    the    functions,    powers,    and 
duties  of  receivers  and  especially  in  respect  to  receivers 
relating  to  the  assets  of  corporations.  As  a  general  rule 
these  statutory  provisions  have  enlarged  the  scope  of  the 
powers  of  receivers,  although  in  most  instances  they  are 
mere  codifications  of  the  powers   always   exercised  by 
courts  of  equity  in  respect  to  receiverships.    And  fre- 
quently they  adopt  the  practice  of  the  High  Court  of 
Chancery  of  England  on  the  subject  of  receivers.  It  would 
serve  no  useful  purpose  to  set  out  or  refer  to  the  code 
sections  of  the  various  states  on  the  subject.   Whenever 
the  court  in  its  decision  has  based  its  rule  of  action 
upon  a  specific  statute  we  will  in  our  review  of  the  case 
state  that  fact. 

10  Re  North  Wales   Gunpowder      ceiver  may  be   appointed   in   due 

Co    (1892)    2  Q.  B.  220;  under  the      course  of  law.    Taylor  v.  Eckers- 

T   :,       ;  A    .     f  1«7^    8?^    ol    8        ley.  ^-  R-  2  Ch.  Div.  302,  45  L.  J. 

Judicature  Act  of  1873.  §  25,  cl.  8.  y.  ^^  ^    ^    ^^^ 

the  court  has  most  ample  power  ^  ^^^^^^^  ^^^^^^^  ^^  ^^  ^  ^^^^.. 
in   the   appointment  of  receivers,  ^^^  appointed  to  carry  on  a  busi- 
and  may  do  so  whenever  it  is  just  ^^^^  pendente  lite.    Smith  v.  New 
or  convenient,  or  as  construed  by  York   Consol.    Stage   Co.,    18   Abb. 
the    court,    just    and    convenient.  p^.   ^^^^  ^33    rj-j^g  purpose  is  to  en- 
North    London    Railway   v.    Great  ^^^^  ^^^  company's  business  to  be 
Northern  Railway,  L.  R.  11  Q.  B.  ^^j^  ^^  ^^  going  concern,  the  cur- 
Div.  30.  rent  expenses,  wages,   etc.,  being 
A   liquidator   is   a   statutory   re-  provided     for     by     the     plaintiff, 
ceiver,  with  enlarged  powers  con-  Makins   v.   Ibotson    (1891),    1    Ch. 
ferred  by  Act  of  Parliament,  and  133^  60  L.  J.  Ch.  164,  63  L.  T.  515; 
may  be  appointed  generally  or  for  Peek  v.  Trinsmaran  Iron  Co.,  L.  R. 
a   special    purpose.    Re    Langham  2  Ch.  Div.  115.    And  it  seems  that 
Skating  Rink  Co.,  L.  R.  6  Ch.  Div.  gnch  a  manager  will  be  appointed 
102.  where  it  is  necessary  to  preserve 
In  cases  of  danger  or  loss  the  the  security  though  the  business 
court  may  appoint  an  interim  re-  is    not    mortgaged.     Campbell    v. 
ceiver    until    such    time    as    a    re-  Lloyd's  Bank,  58  L.  J.  Ch.  424. 


CHAPTER  II. 

GENEEAL  GKOUNDS  AND  CIRCUMSTANCES  IN  WHICH  A 
EECEIVER  IS  APPOINTED. 

§  6.    General  Principles  Applicable. 

The  rules  of  law  applicable  to  receiver  skips  are  very 
similar  to  the  rules  followed  from  time  immemorial  by 
courts  of  equity  in  dealing  with  the  remedy  of  injunction, 
the  remedy  of  a  receivership  being,  however,  more  dras- 
tic in  its  effects  upon  the  defendant  in  that  it  takes  prop- 
erty which  is  in  his  possession  and  places  it  in  the  hands 
of  a  receiver  to  be  administered  pending  the  outcome  of 
some  litigation  concerning  it  or  its  owner.  The  injunctive 
character  of  the  remedy  consists  in  the  object  of  the 
court  being  to  prevent  injury  to  the  thing  in  controversy 
and  to  preserve  it  for  the  benefit  of  all  the  parties  to  the 
litigation.    The  great  object  of  the  court  in  such  cases 
is  to  secure  the  property  or  thing  in  controversy  so  that 
it  may  be  subjected  to  such  order  or  decree  as  the  court 
may  ultimately  make  in  the  case.   The  possession  of  the 
receiver  is  not  adverse  to  or  in  hostility  to  the  rights  of 
the  defendant.   His  possession  is  that  of  the  court.    The 
Supreme  Court  of  Mississippi,  in  an  early  case,^  in  lay- 
ing  dovra   the    general    rules   which    should   obtain    in 
receivership  cases,  said:  "These  principles  are:  That  the 
plaintiff  must  show,  first,  either  that  he  has  a  clear  right 
to  the  property  itself  or  that  he  has  some  lien  upon  it, 
or  that  the  property  constitutes  a  special  fund  to  which 
he  has  a  right  to  resort  for  the  satisfaction  of  his  claim ; 
and,  secondly,  that  the  possession  of  the  property  by 
the  defendant  was  obtained  by  fraud,  or  that  the  prop- 
erty itself,  or  the  income  arising  from  it,  is  in  danger 

1  Mays  V.  Rose,  Freem.  Ch.  (Miss.)  703. 

(22) 


GENERAL    GROUNDS    OF    APPOINTMENT.  23 

of  loss  from  the  iwiglect,  waste,  misconduct,  or  insolvency 
of  the  defendant." 

The  act  of  appointing  a  receiver  is  in  the  nature  not 
of  an  attachment,  but  a  sequestration.   It  operates  pros- 
pectively upon  the  rents  and  profits  which  may  come 
to  the  hands  of  the  receiver  as  a  lien  in  favor  of  those 
who  may  ultimately  be  found  to  be  entitled  to  or  have 
priorities  in  the  principal  subject  out  of  which  the  rents 
and  profits  issae.   In  the  exercise  of  this  sunmiary  and 
extraordinary  jurisdiction,  it  may  be  said  that  a  court 
of   equity  reverses,  in   a   great  measure,   its   ordinary 
course  of  administering  justice  by  beginning  at  the  end 
and  levying  upon  the  property  a  kind  of  equitable  exe- 
cution, by  which  it  makes  a  general  instead  of  a  specific 
appropriation  of  the  issues  and  profits,  and  subsecjuently 
determining  w^ho  is  entitled  to  the  benefits  of  the  prop- 
erty so  sequestrated.    Acting,  however,   as  it  must  of 
necessity,  before  the  merits  of  the  cause  have  been  fully 
developed,  and  not  infrequently  when  the  proper  parties 
in  interest  are  not  all  before  the  court,  it  proceeds  \\ith 
much  caution  and  circumspection,  in  order  to  avoid  dis- 
turbing unnecessarily  or  injuriously  legal  and  equitable 
rights  and  priorities.^ 

§  7.   General  Class  of  Cases  in  Which  Receiver  Is  Appointed. 

There  are  four  general  classes  of  cases  in  which  a 
court  will  appoint  a  receiver,  namely :  First,  where  there 
is  no  person  competent  by  reason  of  interest  or  other- 
wise to  take  the  custody  and  management  of  the  prop- 
erty which  constitutes  the  subject-matter  of  the  litiga- 
tion; second,  where,  although  all  of  the  parties  may  be 
equally  entitled  to  the  possession  and  control  of  the  prop- 
erty or  fund,  still  it  is  not  proper,  owing  to  the  nature 
of  the  litigation  or  of  the  relation  of  the  parties,  that 
either  of  them  should  have  such  possession  or  control ; 

2  Beverley   v.   Brooke,   4   Gratt.  (Va.)  187. 


24  LAW    OF   RECEIVERS. 

third,  where  the  person  hohling  the  property  occupies 
a  position  of  trust  or  quasi-trust  relation  and  is  violating 
his  fiduciary  duties  in  that  connection  by  waste,  misuse, 
or  misapplication;  and,  fourth,  where,  after  the  rendi- 
tion of  a  judgment  or  decree,  the  ordinary  processes  of 
the  court  or  its  legally  constituted  officers  can  not  effi- 
ciently act  or  properly  perform  the  duties  required  to 
carry  the  judgment  or  decree  into  effect. 

The  different  circumstances  illustrating  the  applica- 
tion of  these  different  classes  of  cases  will  be  taken  up 
in  detail  under  their  appropriate  headings. 

§  8.    Applicability  of  General  Rules  of  Equity. 

The  appointment  of  a  receiver,  on  account  of  the  seri- 
ous consequences  arising  from  an  improvident  exercise 
of  this  power,  is  hedged  with  all  of  the  rules  formulated 
by  courts  of  equity  as  guides  in  the  exercise  of  the 
powers  which  must  necessarily  be  inherent  in  a  court  of 
equity.  The  similarity  of  the  appeals  to  the  conscience 
of  the  court  in  cases  of  receiverships  and  of  injunctions 
has  made  applicable  many  of  the  well  known  rules  which 
apply  to  cases  in  which  injunction  is  sought.  As  has  been 
already  suggested,  the  principal  purpose  of  a  receiver- 
ship is  to  preserve  and  protect  the  property  which  is 
the  subject  of  the  litigation  for  the  benefit  of  the  party 
who  will  be  ultimately  found  by  the  court  to  be  entitled 
to  it,^  and  the  receiver  is  merely  a  ministerial  officer  of 
the  court  holding  the  property  in  trust  for  that  purpose.^ 
Such  being  the  main  purpose  of  the  remedy,  it  naturally 
follows  that,  in  order  to  warrant  the  appointment  of  a 
receiver  over  property  or  a  fund  in  litigation,  there  must 
be  a  showing  of  a  danger  that  it  may  become  lost,  mate- 
rially injured,  or  destroyed  before  the  termination  of  such 

1  Sullivan  Timber  Co.  v.  Black,  -  Northern  Brewery  Co.  v.  Prin- 

159  Ala.  570,  48  So.  870;  Blakeney      cess  Hotel,  78  Or.  453,  153  Pac.  37. 
V.  Dufaur,  15  Beav.  42. 


GENERAL    GROUNDS    OF    APPOINTMENT. 


litigation.^  So,  also,  if  it  be  shown  that  the  property  in 
litigation  is  in  danger  of  being  removed  beyond  the  juris- 
diction of  the  court,  it  is  a  sufficient  ground  for  the 
appointment  under  the  general  rules  applicable  to  the 
subject  and  also  under  the  statutory  provisions  prevail- 
ing in  most  of  the  states,  which  are  generally  mere 
codifications  of  the  chancery  rules.^  In  view  of  the  pur- 
pose of  a  receivership  to  prevent  the  loss  or  material 


3  Smith  V.  Lusk,  119  Ala.  394,  24 
So.  256;  Hastings  v.  Tousey,  106 
N.  Y.  Supp.  639,  121  App.  Div.  815; 
Chase's  Case,  1  Bland  (Md.)  206, 
17  Am.  Dec.  277;  Lenox  v.  No- 
trebe,  Hempst.  225,  Fed.  Cas.  No. 
8246b;  Wilson  v.  Hawker  Lumber 
Co.,  74  W.  Va.  65,  81  S.  E.  568; 
White  V.  Smole,  22  Beav.  73; 
White  V.  James,  26  Beav.  191. 

Under  Comp.  Laws  1909,  §  5772, 
thus  where  the  rents  and  profits 
of  land  in  litigation  are  being  re- 
moved, a  receiver  will  be  ap- 
pointed without  regard  to  the 
probable  insolvency  of  the  defen- 
dant. Hughes  V.  Garrelts,  35 
Okla.  321,  129   Pac.  43. 

A  receiver  will  not  be  ap 
pointed  over  personal  property 
merely  for  the  asking,  but  facts 
must  be  alleged  showing  a  neces- 
sity therefor  in  order  to  render 
effectual  a  final  judgment  in  plain- 
tiff's favor  for  the  relief  de- 
manded in  the  complaint  in  the 
event  of  his  recovery.  Ketcham 
v.  Provost,  132  N.  Y.  Supp.  120, 
147  App.  Div.  777. 

And  where  an  insolvent  foreign 
corporation  has  property  in  New 
York  which  was  being  attached  by 
resident  creditors,  and  there  was 
danger  that  it  would  be  wasted 
and  dissipated  in  litigation,  the 
supreme  court  may  appoint  a  re- 


ceiver of  its  property  in  order  to 
secure  an  equitable  distribution 
of  its  assets  in  this  state  among 
its  resident  creditors.  Popper  v. 
Supreme  Council  of  Order  of 
Chosen  Friends,  70  N.  Y.  Supp. 
637,   61   App.   Div.  405. 

The  danger  of  loss  of  the  prop- 
erty may  arise  "from  neglect, 
waste,  misconduct  or  insolvency 
of  the  defendant."  Mays  v.  Rose, 
Freem.  Ch.  (Miss.)  703. 

If  there  is  no  danger  to  the  prop- 
erty, and  no  fact  is  in  evidence 
to  show  the  necessity  or  expedi- 
ency of  appointing  a  receiver,  a 
receiver  will  not  be  appointed,  un- 
less there  be  some  equity  in  the 
case  to  support  the  application. 
Whitworth  v.  Whyddon,  2  Macn.  & 
G.  55;  Wright  v.  Vernon,  3  Drew. 
121;  Micklethwaite  v.  Mickleth- 
waite,  1  D.  &  J.  530. 

But  the  mere  allegation  of  dan- 
ger to  the  property  is  not  suffi- 
cient, if  the  court  is  satisfied  that 
no  loss  need  be  apprehended. 
Whitworth  v.  Whyddon,  2  Macn.  & 
G.  55. 

4  Rappaport  v.  Otten,  120  N.  Y. 
Supp.  461,  135  App.  Div.  386;  Po- 
merantz  v.  Mintz  Realty  Co. 
(Hartman),  126  N.  Y.  Supp.  649, 
141  App.  Div.  864;  Bond-Reed 
Hardware  Co.  v.  Walsh  (Tex. 
Civ.),   181   S.  W.   248. 


26 


LAW    OF   RECEIVERS. 


change  of  the  condition  of  the  property  from  that  obtain- 
ing at  the  time  of  the  litigation,  it  has  been  said  by  Lord 
Lindley  that  the  appointment  of  a  receiver  in  itself  oper- 
ates as  an  injunction.^  But  it  is  the  rule,  based  upon  the 
idea  that  a  receiver  will  not  be  appointed  except  under 
very  necessitous  circumstances,  that  a  receiver  mil  not 
be  appointed  when  the  plaintiff  can  be  awarded  an  equal 
protection  by  the  issuance  of  an  injunction  and  there  is 
no  element  of  fraud  or  insolvency  involved  in  the  mat- 
ter.^ Following  the  principles  appertaining  to  equity 
jurisprudence,  it  is  a  fundamental  rule  that  a  receiver 
will  not  be  appointed  if  the  plaintiff  has  a  full  and  ade- 
quate remedy  at  law  in  respect  to  his  alleged  rights,^  or 


5  Tyrell    v.    Painton     [1895],    1 
Q.  B.  206. 

An  order  for  an  injunction  is 
always  in  a  sense  included  in  an 
order  for  a  receiver.  It  is  not  nec- 
essary, if  a  receiver  be  appointed, 
to  go  on  and  grant  an  injunction 
in  terms;  but  in  cases  where  per- 
sons in  a  fiduciary  character  have 
misconducted  themselves,  the 
court  will  often  grant  an  injunc- 
tion as  well  as  a  receiver,  not 
because  an  injunction  is  neces- 
sary to  prevent  a  party  from  re- 
ceiving when  a  receiver  is  once 
appointed,  but  for  the  purpose  of 
marking  its  sense  of  the  conduct 
of  the  parties  who  have  miscon- 
ducted themselves.  Evans  v.  Co- 
ventry, 3  Drew.  82. 

In  a  proper  case  a  receiver  may 
be  appointed  where  the  applica- 
tion of  the  plaintiff  was  for  an 
injunction.  Parker  v.  Parker,  82 
N.  C.  165. 

And  it  has  been  held  that  the 
appointment  of  a  receiver,  when 
necessary  for  the  preservation 
of  the  property,  pending  an  in- 
junction  suit,   is   a  necessary   in- 


cident to  the  power  of  this  court 
to  grant  an  injunction.  Gray  v. 
Council  of  Newark,  9  Del.  Ch.  171, 
79  Atl.  735,  739. 

6  Dabney  Oil  Co.  v.  Providence 
Oil  Co.  of  Arizona,  22  Cal.  App. 
233,  133  Pac.  1155;  Cass  v.  Realty 
Securities  Co.,  129  N.  Y.  Supp. 
400,   144  App.   Div.  916. 

7  Wright  v.  Wright,  180  Ala.  343, 
60  So.  931;  Sylvester's  Admr.  v. 
Willson's  Admrs.,  2  Alaska  325; 
First  Nat.  Bank  v.  Superior 
Court  of  Lassen  County,  12  Cal. 
App.  335,  107  Pac.  322;  Bush  v. 
Mattox,  110  Ga.  472,  35  S.  E.  640; 
Griffin  v.  Henderson,  116  Ga.  310, 
42  S.  E.  482;  Winkler  v.  Winkler, 
40  111.  179;  Coughron  v.  Swift,  18 
111.  414;  Carstarphen  Warehouse 
Co.  V.  Fried,  124  Ga.  544,  52  S.  E. 
598;  Mannos  v.  Bishop-Babcock- 
Becker  Co.,  181  Ind.  343,  104  N.  E. 
579;  Speights  v.  Peters,  9  Gill 
(Md.)  472,  473;  Rice  v.  St.  Paul 
&  P.  R.  Co.,  24  Minn.  464;  Blades 
v.  Billings  Mercantile  Co.,  154  Mo. 
App.  350,  134  S.  W.  579;  Sherman 
V.  Clark,  4  Nev.  138,  97  Am.  Dec. 
516;   Wooden  v.  Wooden,   3  N.  J. 


GENERAL  GROUNDS  OF  APPOINTMENT. 


27 


where  the  court  can  find  another  and  less  stringent  means 
for  protecting  the  rights  of  the  parties.^  But  a  receiver 
will  not  be  denied  on  the  ground  that  the  plaintiff  has 
an  adequate  remedy  at  law  unless  it  also  appears  that 
the  legal  remedy  is  as  equally  efficient  and  effective  as 
that  in  equity.^  The  fact,  however,  that  his  remedy  at 
law  may  be  difficult  to  enforce  will  not  be  sufficient 
ground  to  aid  him  in  having  a  receiver  appointed,^"  and 
the  fact  that  he  has  lost  his  remedy  at  law  by  his  own 
laches  will  not  place  him  in  a  position  to  ask  for  a 
receiver."    He  is  not,  however,  required  to  exhaust  his 


Eq.  429;  Mullen  v.  Jennings,  9 
N.  J.  Eq.  192;  Corey  v.  Long,  43 
How.  Pr.  (N.  Y.)  492,  497; 
Parmly  v.  Tenth  Ward  Bank,  3 
Edw.  Ch.  (N.  Y.)  395;  Morrison 
V.  Buckner,  Hempst.  442;  Slover  v. 
Coal  Creek  etc.  Co.,  113  Tenn.  421, 
106  Am.  St.  Rep.  851,  68  L.  R.  A. 
852,  82  S.  W.  1131;  Webster  v. 
Couch,  6  Rand.  (Va.)  519;  Poage 
V.  Bell,  3  Rand.  (Va.)  586;  Berg- 
man Clay  Mfg.  Co.  v.  Bergman, 
73  Wash.  144, 131  Pac.  485;  Sollory 
V.  Leaver,  L.  R.  9  Eq.  22;  Orphan 
Asylum  Soc.  v.  McCartee,  Hopk. 
Ch.  (N.  Y.)  429. 

The  appointment  of  a  temporary 
receiver,  before  a  trial,  can  not  be 
justified  merely  because  plaintiff 
shows  he  is  apparently  entitled  to 
some  recovery,  especially  where 
the  defendant  is  engaged  in  a  go- 
ing business,  and  apparently  sol- 
vent and  able  to  satisfy  any  judg- 
ment obtained  against  him.  Jos- 
eph V.  Herzig,  115  N.  Y.  Supp. 
330,  130  App.  Div.  707. 

The  fact  that  notes  secured  by 
a  deed  of  trust  have  been  issued 
ultra  vires,  is  no  ground  for  a 
recovery    since    the    invalidity    of 


the  notes  could  be  set  up  collat- 
erally against  any  sale.  Price  v. 
Bankers  Trust  Co.  (Mo.),  178 
S.  W.  745. 

The  fact  that  plaintiff  has  re- 
covered a  money  judgment  in  a 
simple  action  at  law  does  not  au- 
thorize the  appointment  of  a  re- 
ceiver under  a  code  section  (Rev. 
Codes,  §  6G98)  allowing  a  receivi^r 
to  be  appointed  to  carry  judg- 
ments into  effect,  as  the  creditor 
can  take  the  necessary  steps  to 
enforce  the  judgment.  Forsell  v. 
Pittsburg  &  Montana  Copper  Co., 
113  Pac.  479,  42  Mont.  412. 

8  Blades  v.  Billings  Mercantile 
Co.,  154  Mo.  App.  350,  134  S.  W. 
579. 

0  Robbins  v.  Reed,  174  Ind.  291, 
91  N.  E.  921;  Twin  City  Power 
Co.  V.  Barrett,  126  Fed.  302,  61 
C.  C.  A.  288;  Columbia  etc.  Dredg- 
ing Co.  V.  Washed  etc.  Co.,  136 
Fed.  710.  The  rule  set  forth  in 
the  text  is  merely  the  well  known 
rule  applied  in  injunction  suits. 

10  Cremen  v.  Hawkes,  2  Jo.  & 
Lar.  674. 

11  Brewery  v,  Barnes,  3  Russ. 
94. 


28 


LAW   OF   RECEIVERS. 


remedies  at  law  before  applying  for  the  appointment  of  a 
receiver.  ^2 

§  9.    Necessity  for  Danger  of  an  Irreparable  Injury. 

The  appointment  of  a  receiver  being  a  remedy  of  such 
a  harsh  nature,  the  power  of  appointment  is  exercised  by 
the  courts  only  in  cases  where  the  failure  to  do  so  would 
place  the  petitioning  party  in  danger  of  suffering  an 
irreparable  loss  or  injury.^    This  generally  means  that, 


12  It  is  not  requisite  that  a 
rarty  applying  for  a  receiver 
should  have  exhausted  his  reme- 
dies at  law.  Chicago  etc.  Ry. 
Co.  V.  Kenney,  159  Ind.  72,  62 
N.  E.  26;  Sallee  v.  Soules,  168 
Ind.  624,  81  N.  E.  587. 

1  Randle  v.  Carter,  62  Ala.  95; 
Wright  v.  Wright,  180  Ala.  343,  60 
So.  931;  Gray  v.  Council  of  Town 
of  Newark,  9  Del.  Ch.  171,  79  Atl. 
739;  Price  v.  Bankers  Trust  Co.  of 
St.  Louis  (Mo.),  178  S.  W.  745; 
Aldrich  v.  Union  Bag  and  Paper 
Co.,  81  N.  J.  Eq.  244,  87  Atl.  65; 
Cleveland  etc.  Ry.  Co.  v.  Jewett,  37 
Ohio  St.  649;  People's  Inv.  Co.  v. 
Crawford,  (Tex.  Civ.)  45  S.  W.  738. 

W^here  a  defendant  in  fieri  facias 
has  delayed  the  lawful  sale  of  land 
the  subject  of  the  action  for  seven 
years,  through  claims  interposed 
by  himself  and  wife  in  forma  pau- 
peris without  merit,  which  some- 
times were  withdrawn  and  some- 
times were  decided  against  them, 
and  through  the  interposition  by 
himself  of  different  affidavits  of 
illegality  also  without  merit,  dur- 
ing which  time  he  has  remained  in 
possession  and  received  the  rents 
and  profits  of  the  land,  and  the 
amount  of  the  executions  had  in- 
creased by  accruing  interest,  and 
the  value  of  the  land  has  dimin- 


ished by  the  method  employed  in 
cultivating  it,  and  there  was  dan- 
ger of  the  interposition  of  another 
affidavit  of  illegality  and  an  excep- 
tion to  an  adverse  ruling  thereon, 
on  affidavit  in  forma  pauperis,  a 
receiver  ad  interim  was  held  to 
be  properly  appointed.  Smith  v. 
Zachry,  128  Ga.  290,  57  S.  E.  513. 

A  receiver  for  a  building  in 
course  of  erection  is  proper,  where 
it  appears  that  it  is  likely  to  be  the 
subject  of  protracted  litigation,  and 
unless  completed  will  deteriorate 
and  go  into  dilapidation.  Chicago 
Title  &  Trust  Co.  v.  Chapman,  132 
111.  App.  55. 

A  receiver  pending  litigation  of 
a  going  concern  should  not  be  ap- 
pointed, unless  it  appears  that 
otherwise  the  interests  of  the  par- 
ties or  at  least  some  of  them  will 
be  jeopardized.  Cohn  v.  Wahn,  132 
App.  Div.  849,  117  N.  Y.  Supp.  633. 

A  receivership  being  a  violent 
and  costly  remedy,  interfering  with 
the  rights  of  persons  in  possession, 
in  order  to  obtain  the  appointment 
of  a  receiver,  a  plaintiff  must  show 
a  clear  right  to  the  property  in 
litigation  or  a  lien  thereon,  or  a 
right  to  resort  to  it  for  the  satis- 
faction of  a  debt,  and  if  the  allega- 
tions of  the  bill  are  fully  denied  by 
the    answer,    and    not    sustained 


GENERAL    GROUNDS    OF    APPOINTMENT,  29 

in  order  to  sLow  cause  for  tLe  appointment  of  a  receiver, 
the  petitioner  must  show  either  a  clear  legal  rig-ht  in 
himself  to  the  property  in  controversy,  that  he  has  some 
lien  upon  it,  or  that  it  constitutes  a  special  fund  out  of 
which  he  is  entitled  to  satisfaction  of  his  demand,  and 
it  must  appear  that  possession  of  the  property  was 
obtained  by  defendant  through  fraud,  or  that  the  prop- 
erty or  income  from  it  is  in  danger  of  loss  from  the  neg- 
lect, waste,  or  misconduct  of  defendant,  and  applicant 
must  have  a  present,  existing  interest  in  the  property 
over  which  he  seeks  to  have  the  receiver  appointed.^ 

As  was  said  by  the  Supreme  Court  of  Georgia,^  in  dis- 
cussing this  subject:  **The  high  prerogative  act  of  taking 
property  out  of  the  hands  of  one,  and  putting  it  in 
pound,  under  the  order  of  a  judge,  ought  not  to  be 
taken,  except  to  prevent  manifest  wrong,  imminently 
impending. ' ' 

The  object  of  a  receivership  being  to  preserve  the 
property  for  the  party  who  may  be  ultimately  found 
to  be  entitled  to  it  at  the  termination  of  the  litigation,  a 
danger  that  the  property  may  be  wasted,  destroyed,  dis- 
sipated, or  suffer  deterioration  or  be  removed  from  the 
jurisdiction  of  the  court  is  always  such  a  condition  of 
affairs  as  will  bring  the  matter  to  the  favorable  consid- 
eration of  the  court.^    In  fact,  there  is  no  other  single 

by  the  evidence,  the  receivership  Van  Ness,  155  App.  Div.  633,  140 

should  be  denied.   Suit  v.  A.  Hoch-  n.  Y.  Supp.  1043. 
stetter  Oil  Co.,  63  W.  Va.  317,  61  o  Gilbert   v.    Block,   51   111.   App. 

S-  E.  307.  51g.   Golden  Valley  Land  etc.  Co. 

Where  a  plaintiff,  suing  to  set  ^    johnstone.   21   N.   D.   101,   Ann. 

aside  a  transfer  of  property  made  ^^^    ^^^^^^   ^^^^   ^^^   ^    ^    g^^. 

by   her  deceased   husband    to   de-  ^^^^^^^^.^^^^  ^^^^^  Co.  v.  Decker 

fendant,    who    is    financially    irre-  ^^^^^  ^^^  ^^^    ^^^  ^^  ^   ^    ^   3^2. 

sponsible,   showed    an   interest   in  ii   i     r,    a    (N    g  )  152 
the  property,  and   that  it  was  in 

the   possession  of  the   defendant,  ^  Crawford  v.  Ross.  39  Ga.  44. 

and  that  there  was  great  danger  4  Myers  v.  Estell,  48  Miss.  372, 

of  a  disposition  of  it  pending  the  401;    Lyon    v.    United    States   etc. 

action,    the    court   will    appoint   a  Co.,  48  Mont.  591,  Ann.  Cas.  1915D 

receiver  pendente   lite.    Morse  v.  1036,  140  Pac.  86;  Allen  v.  Cooley, 


30  LAW   OF   RECEIVERS. 

ground  upon  which  the  appointment  of  a  receiver  is  more 
often  resorted  to  and  for  which  the  appointment  results 
more  beneficially  than  that  of  loss  or  danger  to  the  par- 
ties in  interest,  and  especiallj^  to  the  plaintiff  who  by  his 
action  puts  the  machinery  of  the  court  into  motion. 
Where  the  fund  or  property  constituting  the  subject  of 
contention  is  of  such  nature  as  to  be  most  likely  subject 
to  waste,  deterioration,  or  serious  injury  if  left  in  the 
possession  of  the  defendant ;  or  where  the  party  in  pos- 
session is  guilty  of  careless  management,  or  wantonness ; 
or  where  by  reason  of  improper  care  and  attention  from 
any  one  the  property  is  liable  to  be  lost  or  damaged  from 
any  cause,  the  court  in  the  exercise  of  its  undoubted  right 
will,  by  its  receiver,  take  the  property  or  fund  into  pos- 
session, and  preserve  the  same  until  such  time  as  the 
rights  of  the  litigants  are  determined.  It  frequently  hap- 
pens that  property  and  assets  are  charged  mth  the  pay- 
ment of  debts  and  equitably  belong  to  creditors  who,  by 
reason  of  inadequacy  of  common  law  remedies,  or  other- 
wise, are  not  afforded  complete  protection,  and  are  in 
danger  of  losing  the  benefit  of  the  security  to  which  in 
equity  they  are  entitled.  In  all  such  cases  a  receiver  is 
proper.^   Sometimes  the  plaintiff  may  have  a  lien,  or  an 

53  S.  C.  414,  31  S.  E.  634;   Folk  v.  No.  14402;  Buffalo  Chemical  Works 

United  States,  233  Fed.  177.  v.    Bank    of    Commerce,    79    Hun 

A  receiver  may  be  appointed  in  (N.  Y.)  93;  Drought  v.  Percival,  2 

a  suit  by  a  judgment  creditor,  over  Molloy  502. 

stock  standing  in  the  name  of  the  A  receiver  should  not  be  ap- 
debtor's  wife,  where  there  is  rea-  pointed  of  a  fund  in  the  hands  of 
sonable  ground  to  apprehend  that  the  Sheriff,  on  which  a  lien  is 
it  will  be  removed  beyond  the  claimed,  unless  it  appears,  as  re- 
jurisdiction  of  the  court,  or  will  be  quired  by  Ky.  Civ.  Code,  sec.  298, 
lost.  State  Bank  v.  Gill,  23  Hun  that  there  is  danger  of  its  loss 
(N.  Y.)  410.  or    removal.     Combs    v.    Breathitt 

The  appointment  of  a  receiver  County,   20   Ky.   L.   Rep.   1247,   49 

for   a   railroad   will   not  be   made  S.  W.  2. 

merely  for  a  default  in  payment  of  5  Hughes  v.  Hatchett,  55  Ala.  631; 

interest.     Loss    must    be    shown.  Ft.  Payne  Furnace  Co.  v.  Ft.  Payne 

Union  Trust  Co.  v.  St.  Louis,  I.  M.  Coal  &  I.  Co.,  96  Ala.  472,  38  Am. 

&  S.  R.  Co.,  4  Dill.  114,  Fed.  Cas.  Ct.  Rep.  109,  11  So.  439;  Corcoran  v. 


GENERAL   GROUNDS    OF    APPOINTMENT. 


31 


equitable  claim  to  the  property,  or  other  interest  therein, 
and  in  either  case  the  right  to  a  receiver  is  enforced 
where  loss  is  imminent. 

The  danger  of  loss  here  spoken  of  may  be  occasioned 
by  the  peculiar  nature  of  the  subject-matter  of  the  litiga- 
tion itself,  or  by  reason  of  the  acts  or  conduct  of  the  per- 
son in  custody  or  possession.  It  may  also  result  from 
the  insolvency  or  bankruptcy  of  the  defendant  in  pos- 
session and  his  inability  to  financially  respond  for  any 
damage  or  loss  of  the  property  or  funds.  It  will  not  be 
availing,  however,  if  the  threatened  danger  is  remote,  or 
if  the  danger  is  past.*' 


Doll,  35  Cal.  476;  West  v.  Chasten, 
12  Fla.  315;  Harrup  v.  Winslet,  37 
Ga.  655;  Powell  v.  Quinn,  49  Ga. 
523;  Orton  v.  Madden,  75  Ga.  83; 
Baker  v.  Backus,  32  111.  79 ;  Haight 
V.  Burr,  19  Md.  130;  Vosbell  v. 
Hynson,  26  Md.  83;  Thomson  v. 
Diffenderfer,  1  Md.  Ch.  489;  Mays 
V.  Rose,  Freem.  Ch.  (Miss.)  703; 
Rathbone  v.  Parkersburg  Gas  Co., 
31  W.  Va.  798,  8  S.  E.  570;  Ken- 
nedy V.  St.  Paul  &  P.  R.  Co.,  2  Dill. 
448,  Fed.  Cas.  No.  7706;  Parkhurst 
V.  Kinsman,  2  Blatchf.  78,  Fed.  Cas. 
No.  10760;  Peck  v.  Trimsaran 
Coal,  Iron  &  S.  Co.,  L.  R.  2  Ch. 
Div.  115. 

On  a  bill  filed  by  a  stockholder 
of  a  company  against  a  director,  to 
take  charge  of  moneys  alleged  to 
have  been  improperly  received  and 
retained  by  such  director,  no  ap- 
prehension of  loss  being  alleged  in 
the  bill,  and  the  answer  alleging 
that  the  money  was  loaned  to  the 
director  by  the  board  of  directors, 
a  receiver  will  be  refused.  Hager 
V.  Stevens,  6  N.  J.  Eq.  374. 

A  fund  will  not  be  taken  from 
one  entitled  to  its  custody  and 
transferred   to   a   receiver,   unless 


there  is  imminent  danger  of  loss. 
Rheinstein  v.  Bixby,  92  X.  C.  307; 
Clark  V.  Dew,  1  Russ.  &  M.  103. 

Pending  the  litigation,  unless 
there  is  some  evidence  that  the 
property  is  in  danger  or  there  is 
clear  proof  of  fraud  in  obtaining 
possession  thereof,  a  receiver  will 
be  refused.  Willis  v.  Corlies,  2 
Edw.  Ch.  281. 

6Kean  v.  Colt.  5  N.  J.  Eq.  365; 
Beecher  v.  Binniger,  7  Blatchf.  170, 
Fed.  Cas.  No.  1222.  The  court  in 
Mays  V.  Rose,  Freem.  Ch.  (Miss.) 
703,  say  the  danger  of  loss  may 
arise  "from  neglect,  waste,  miscon- 
duct or  insolvency  of  the  defend- 
ant." 

Courts  do  not  appoint  receivers 
as  a  punishment  for  past  derelic- 
tions or  because  of  past  dangers. 
Thus,  for  instance,  in  passing  upon 
the  appointment  of  a  receiver  for 
a  solvent  and  prosperous  corpora- 
tion, something  more  must  be 
shown  than  past  misconduct.  Orig- 
inal Vienna  etc.  Co.  v.  Heissler,  50 
111.  App.  406. 

But  the  appointment  of  a  re- 
ceiver is  never  made  on  the  mere 
anticipation  of  something  that  may 


32 


LAW   OF   RECEIVERS. 


The  court  lias  no  power  to  appoint  a  receiver  merely 
because  under  the  circumstances  of  the  case  it  would  be 
a  more  convenient  mode  of  obtaining  satisfaction  of  a 
judgment  than  the  usual  modes  of  execution,  although 
otherwise,  if  there  is  a  threatened  fraudulent  conveyance 
to  make  way  with  the  judgment  debtor's  property.'^ 

§  10.    Caution  and  Discretion  to  Be  Exercised  by  Courts. 

The  power  to  appoint  a  receiver  is  always  regarded  as 
a  delicate  one  and  should  be  exercised  with  great  cau- 
tion and  not  in  doubtful  cases,^  and  bearing  in  mind 
the  rule  that  the  injury  caused  by  making  the  appoint- 
ment should  not  be  greater  than  the  injury  sought  to  be 
averted.^  The  court  before  granting  the  relief  should  be 
convinced  that  the  appointment  is  needful  and  proper 
under  the  circumstances  of  the  case.^    Whether  or  not 


happen.  Chadron  Bkg.  Co.  v.  Ma- 
honey,  43  Neb.  214,  61  N.  W.  594. 

A  receiver  will  not  be  appointed 
because  an  officer  of  a  corporation 
is  in  a  position  to  betray  it,  where 
there  is  no  evidence  to  establish 
any  probability  that  he  will  so  act. 
Young  V.  Rutan,  69  111.  App.  513; 
Dozier  v.  Logan,  101  Ga.  173,  28 
S.  E.  612;  Boston  Invest.  Co.  v. 
Pacific  Short-Line  Bridge  Co.,  104 
Iowa  311,  73  N.  W.  839. 

T  Harris  v.  Beauchamp  [1894],  1 
Q.  B.  801,  63  L.  J.  Q.  B.  480. 

1  Whitley  v.  Bradley,  13  Cal. 
App.  720,  110  Pac.  596;  Lehman  v. 
Trust  Co.  of  America,  57  Fla.  473, 
49  So.  502;  Crawford  v.  Ross,  39 
Ga.  44;  Furlong  v.  Edwards,  3  Md. 
99,  112;  Blades  v.  Billings  Mercan- 
tile Co.,  154  Mo.  App.  350,  134  S.  W. 
579;  Virginia  -  Carolina  Chemical 
Co.  v.  Hunter,  84  S.  C.  214,  66  S.  E. 
177;  Chisolm  v.  Carolina  Agency 
Co..  88   S.  C.  438,  70  S.   E.  1035; 


Bergman  Clay  Mfg.  Co.  v.  Berg- 
man, 73  Wash.  144,  131  Pac.  485; 
Curtiss  V.  Dean,  85  Wash.  435,  148 
Pac.  581;  Suit  v.  Hochstetter  Oil 
Co.,  63  W.  Va.  317,  61  S.  E.  307; 
Latham  v.  Chafee,  7  Fed.  525. 

"The  appointment  of  a  receiver 
is  a  harsh  proceeding  and  should 
be  resorted  to  only  in  extreme 
cases."  Jenks  v.  Horton,  96  Mich. 
13,  55  N.  W.  372. 

2  Dabney  Oil  Co.  v.  Providence 
Oil  Co.,  22  Cal.  App.  233,  133  Pac. 
1155. 

3  "The  appointment  of  a  receiver 
is  the  exercise  of  a  power  in  aid 
of  a  proceeding  in  equity,  and  is 
the  subject  of  sound  discretion. 
The  court  must  be  convinced  that 
it  is  needful  and  is  the  appropriate 
means  of  securing  a  proper  end. 
Such  an  appointment  is  a  strong 
measure,  and  not  to  be  exercised 
doubtingly."  Chicago  etc.  Mining 
Co.  V.  United  States  Petroleum  Co., 
57  Pa.  St.  83. 


GENERAL    GROUNDS    OF    APPOINTS  KNT. 


33 


the  court  will  appoint  a  receiver  is  regarded  as  a  matter 
within  its  sound  discretion^  subject,  of  course,  to  the 
general  rule  that  such  discretion  should  not  be  abused,^ 


4  Ex  parte  Walker,  25  Ala.  81, 
104;  Micou  v.  Moses,  72  Ala.  439; 
Ashurst  V.  Lehman,  86  Ala.  370,  5 
■So.  731;  Albritton  v.  Lott-Black- 
sher  Commission  Co.,  167  Ala.  541, 
52  So.  653;  Sylvester's  Adm.  v. 
Wilson's  Adm.,  2  Alaska  325;  La 
Societe  Frangaise  D'epargenes  v. 
Fifteenth  Judicial  Dist.  Ct.,  53  Cal. 
495;  Reid  v.  Reid,  38  Ga.  24;  Gore 
V.  Illinois  Bldg.  etc.  Assn.,  56  111. 
App.  642;  Benneson  v.  Bill.  62  111. 
408;  Mays  v.  Rose,  Freem.  Ch. 
(Miss.)  703;  Davis  v.  United  States 
Electric  P.  &  L.  Co.,  77  Md.  35,  25 
Atl.  982;  Lowell  v.  Doe,  44  Minn. 
144,  46  N.  W.  297;  Myers  v.  Estell, 
48  Miss.  372,  404;  Bacon  v.  Eng- 
strom,  129  Minn.  229,  152  N.  W. 
264,  537;  Brent  v.  B.  E.  Brister 
Sawmill  Co.,  103  Miss.  876,  Ann. 
Cas.  1915B,  576,  43  L.  R.  A.  (N.  S.) 
720,  60  So.  1018;  Hartnett  v.  St. 
Louis  Min.  etc.  Co.,  51  Mont.  395, 
153  Pac.  437;  Syracuse  City  Bank 
v.  Tallman,  31  Barb.  201;  Rider  v. 
Bagley,  84  N.  Y.  461;  Denike  v. 
New  York  &  R.  Lime  &  C.  Co.,  80 
N.  Y.  599;  Verplank  v.  Caines,  1 
Johns.  Ch.  57;  Jacobs  v.  Gibson,  9 
Neb.  380,  2  N.  W.  893;  Oakley  v. 
Paterson  Bank,  2  N.  J.  Eq.  173; 
Hamburgh  Mfg.  Co.  v.  Edsall,  8 
N.  J.  Eq.  141;  Nichols  v.  Perry  Pat- 
ent Arms  Co.,  11  N.  J.  Eq.  126; 
Hanna  v.  Hanna,  89  N.  C.  68;  Chi- 
cago &  A.  Oil  &  Min.  Co.  v.  Unite'^ 
States  Petroleum  Co.,  57  Pa.  83; 
Beaumont  v.  Beaumont,  166  Pa. 
615,  31  Atl.  336;  Simmons  Hard- 
ware Co.  V.  Waibel,  1  S.  D.  488,  36 
Am.  St.  Rep.  755,  11  L.  R.  A.  2G7 
47  N.  W.  814;  Pelzer  v.  Hughes, 
I  Rec. — 3 


27  S.  C.  408,  3  S.  E.  781;  Cone 
V.  Paute,  12  Heisk.  506;  Mor- 
rison v.  Buckner,  Hempst.  442; 
I>enox  V.  Notrebe,  Hempst.  225; 
Toomey  v.  First  Mortgage  Trust 
Co.,  (Tex.  Civ.)  177  S.  W.  539; 
Williamson  v.  Washington  City, 
V.  M.  &  G.  S.  R.  Co.,  33  Gratt. 
624;  Norris  v.  Lake,  89  Va.  513, 
16  S.  E.  663;  Lyle  v.  Commer- 
cial Nat.  Bank,  93  Va.  487,  25 
S.  E.  547;  Grantham  v.  Lucas,  15 
W.  Va.  425;  Sales  v.  Lusk,  60  Wis. 
490,  19  N.  W.  362;  Lamp  v.  Home- 
stead Bldg.  Ass'n,  62  W.  Va.  56,  57 
S.  E.  249;  Vose  v.  Reed,  1  Woods 
647,  Fed.  Cas.  No.  17011;  Milwau- 
kee &  M.  R.  Co.  v.  Soutter,  94  U.  S, 
(2  Wall.)  510;  Whelpley  v.  Erie 
R.  Co.,  6  Blatchf.  271,  Fed.  Cas. 
No.  17504;  Williamson  v.  New  Al- 
bany etc.  R.  Co.,  1  Biss.  198,  Fed. 
Cas.  No.  17753;  Pullan  v.  Cincin- 
nati &  C.  A.  L.  R.  Co.,  4  Biss.  35, 
Fed.  Cas.  No.  11461;  Tysen  v.  Wa- 
bash R.  Co.,  8  Biss.  247,  Fed.  Cas. 
No.  14315;  Union  Trust  Co.  v.  St. 
Louis,  I.  M.  &  S.  R.  Co.,  4  Dill.  114, 
Fed.  Cas.  No.  14402;  Owen  v.  Ho- 
man,  3  Macn.  &  G.  378,  20  L.  J.  N. 
S.  Ch.  314,  15  Jur.  339,  affirmed  in 
4  H.  L.  Rep.  997;  Greville  v.  Flem- 
ing, 2  Jones  &  L.  335  (Sugden's 
Dec);  Skip  v.  Harwood,  3  Atk. 
564;  Smith  v.  Port  Dover  &  L.  H.  R. 
Co.,  12  Ont.  App.  288,  25  Am.  & 
Eng.  R.  Cas.  639;  Farmers'  Loan 
&  T.  Co.  v.  Chicago  &  A.  R.  Co., 
27  Fed.  146;  Pennsylvania  Co.  v. 
Jacksonville,  T.  &  K.  W.  R.  Co..  55 
Fed.  131  [2  U.  S.  App.  606]. 

r.  Ex    parte    Smith,    23    Ala.    94; 
Wilcoxon  Mfg.  Co.  v.  Atkinson,  73 


34  LAW    OF   RECEIVERS. 

or  that  the  court  has  not  exceeded  its  jurisdiction  in  tlio 
matter.*'  The  discretion  to  be  exercised  by  the  court  must 
not  be  arbitrary  or  absolute;  it  is  a  sound  and  judicial 
discretion,  taking  into  account  all  the  circumstances  of 
the  case,  exercised  for  the  purpose  of  promoting  the  ends 
of  justice  and  of  protecting  the  rights  of  all  the  parties 
interested  in  the  controversy  and  subject-matter,  and 
based  upon  the  fact  that  there  is  no  other  adequate  rem- 
edy or  means  of  accomplishing  the  desired  objects  of  the 
judicial  proceeding.'^ 

In  other  words,  the  exercise  of  judicial  discretion  in 
the  appointment  of  a  receiver  is  governed  by  the  same 
general  rules  applicable  to  the  use  of  judicial  discretion 
in  any  other  class  of  cases  coming  within  the  domain 
of  equitable  jurisdiction.  Such  discretion  is  not  the  mere 
will  or  caprice  of  the  chancellor  who  is  called  upon  to 
act,  but  is  broader  and  more  comprehensive.  It  means, 
in  this  connection,  the  judicial  action  of  the  chancellor, 
based  upon  a  careful  consideration  of  the  facts  and  cir- 
cumstances of  the  particular  case,  the  rights  and  interests 
of  the  respective  parties,  and  the  general  principles  of 
equity  jurisprudence  applicable  thereto.  Some  courts 
have  gone  to  the  extent  of  holding  that  the  appointment 
of  a  receiver  rested  so  largely  in  the  determination  of 
the  appointing  court  that  the  action  was  not  a  matter  of 
re\dew  in  the  upper  courts  except  where  there  appeared 
to  be  an  abuse  of  the  discretion.  Judicial  discretion,  in 
the  restricted  sense  in  which  it  is  sometimes  used,  in  its 
logical  results,  places  the  court  in  a  position  of  respon- 

Ga.  338;  Sanders  v.  Slaughter,  89  ter  Oil  Co.,  63  W.  Va.  317,  61  S.  E. 
Ga.  34,  14  S.  E.  873.  307. 

Though    the    power    of    circuit  6  Stone  v.  Wetmore,  42  Ga.  601: 

court?Hto  appoint  receivers  is  dis-      _  _,  n  t,  ■       -„„    t-.  i, 

.1  .  .       .  Tappan  v.  Gray,  9  Paige  o07;  Falk 


V.  United  States,  233  Fed.  177. 


cretionary,  such  discretion  is  gov- 
erned as  to  the  exercise  thereof  by 
legal  and  equitable  principles,  vio-  ^  Fort  Payne  Furnace  Co.  v.  Fort 

lation    of    which    amounts    to    an      Payne  Coal  etc.  Co.,  96  Ala.  472,  38 
abuse  thereof.  Suit  v.  A.  Hochstet-      Am.  St.  Rep.  109,  11  So.  439. 


GENERAL    GROUNDS    OF    APrOINTMENT. 


35 


sibility  which,  in  most  cases,  it  will  not  willingly  assume, 
and  in  some  cases  it  should  not  be  permitted  to  assume.^ 


8  The  discretion  is  to  be  governed 
by  a  view  of  the  whole  circum- 
stances of  the  case.  Williamson  v. 
Wilson,  1  Bland  Ch.  418;  Ham- 
burgh Mfg.  Co.  v.  Edsall,  8  N.  J. 
Eq.  141;  Vose  v.  Reed,  1  Woods 
647,  Fed.  Cas.  No.  17011;  Perry  v. 
Oriental  Hotels  Co.,  L.  R.  5  Ch. 
App.  420;  Cookes  v.  Cookes,  2  DeG. 
J.  &  S.  526;  Owen  v.  Homan,  3 
Macn.  &  G.  378,  412  (4  H.  L.  Cas. 
1033). 

Judicial  discretion  has  been  de- 
fined to  be  a  discretion  to  be 
exercised  in  discerning  the  course 
prescribed  by  the  law;  never  the 
arbitrary  will  of  the  judge.  Tripp 
V.  Cook,  26  Wend.  152;  Piatt  v. 
Munroe,  34  Barb.  293.  According 
to  Coke,  "discernere  per  legem, 
quid  sit  justum";  perceiving  by  or 
through  (or  according  to)  the  law 
what  would  be  just.  Anderson's 
Dictionary,  p.  363.  Judicial  discre- 
tion as  contradistinguished  from 
the  private  discretion  of  the  judge 
is  wholly  different.  Of  the  latter 
Lord  Camden  says:  "The  (private) 
discretion  of  a  judge  is  the  law  of 
tyrants;  it  is  always  unknown;  it 
is  different  in  different  men;  it  is 
casual,  and  depends  upon  constitu- 
tion, temper  and  passion.  In  the 
best  it  is  oftentimes  caprice;- in 
the  worse  it  is  every  vice,  folly, 
and  passion  to  which  human  na- 
ture can  be  liable." 

While  the  appointment  of  a  re- 
ceiver rests  iu  the  discretion  of  the 
court,  yet  it  is  such  discretion  as 
will  be  subject  to  review  by  a 
higher  court.  La  Societe  Frangaise 
D'epargenes  v.  Fifteenth  Judicial 
Dist.  Ct,  53  Cal.  495;   Emmons  v. 


Garnett,  7  Mackey  52;  Wilson  v. 
Davis,  1  Mont.  98;  Grantham  v. 
Lucas,  15  W.  Va.  425;  Milwaukee 
&  M.  R.  Co.  V.  Soutter,  69  U.  S. 
(2  Wall.)  510,  17  L.  Ed.  900. 

In  Simpson  v.  Ottawa  &  P.  R. 
Co.,  1  Ont.  Ch.  Chamb.  126,  the 
court  say:  "I  agree  that  where 
the  court  can  not  interpose  use- 
fully it  should  not  interfere  at  all, 
and  that  it  should  interfere  only 
so  far  as  it  can  interfere  usefully." 

In  Orphan  Asylum  Soc.  v.  Mc- 
Cartee,  Hopk.  Ch.  435,  the  court 
say:  "It  is  said  that  the  appointing 
of  a  receiver  rests  in  discretion. 
This  proposition  does  not  teach 
much.  A  receiver  is  proper  if  the 
fund  is  in  danger,  and  this  prin- 
ciple reconciles  the  cases  found  in 
the  books.  There  is  no  case  in 
which  the  court  appoints  a  receiver 
merely  because  the  measure  can 
do  no  harm.  ...  As  this  case 
now  stands  before  the  court  the 
fund  appears  to  be  entirely  safe  in 
the  hands  of  the  trustee." 

Although  such  an  appointment 
is  to  a  large  extent  within  the  dis- 
cretion of  the  chancellor,  still  there 
are  rules  that  should  be  observed 
in  exercising  such  discretion, 
which  are  that  the  power  of  ap- 
pointment is  to  be  exercised  with 
great  circumspection,  that  com- 
plainant must  have  title  to  or  a 
lien  upon  the  property  and  a  re- 
ceiver must  be  necessary  to  its 
preservation,  that  a  receiver  will 
not  be  appointed  merely  because 
his  appointment  can  do  no  harm, 
that  fraud  or  imminent  danger 
must  be  clearly  shown,  and  that, 
unless  the  necessity  is  of  the  most 


36 


LAW    OF    RECEIVERS. 


A  very  safe  and  sound  rule  for  the  appointment  of 
receivers  was  set  forth  in  an  early  case''  in  Michigan, 
wherein  the  court  said:  ''The  appointment  of  receivers 
is,  like  many  other  judicial  functions,  governed  in  part 
by  discretion  and  in  part  by  rules  of  right.  No  court 
could  have  unlimited  discretion  to  put  private  estates 
into  the  hands  of  receivers.    There  are  manv  cases  of 


stringent  character,  a  receiver  will 
not  be  appointed  until  defendant  is 
heard.  Lehman  v.  Trust  Co.  ot 
America,  57  Fla.  473,  49  So.  502. 

In  exercising  its  discretion  the 
court  proceeds  with  caution,  and  is 
governed  by  a  view  of  all  the  cir- 
cumstances of  the  case.  No  posi- 
tive or  unvarying  rule  can  be  laid 
down  as  to  whether  it  will  or  will 
not  interfere  by  this  kind  of  in- 
terim protection  of  the  property. 
Where  the  property  is  as  it  were  in 
medio,  in  the  enjoyment  of  no  one, 
the  court  can  hardly  do  wrong  in 
taking  possession.  It  is  the  com- 
mon interest  of  all  parties  that  the 
court  should  prevent  a  scramble. 
Such  is  the  case  where  the  receiver 
of  property  of  a  deceased  person  is 
appointed  pending  a  litigation  as 
to  the  right  to  probate  or  adminis- 
tration. No  one  is  in  the  actual 
enjoyment  of  property  so  circum- 
stanced, and  no  wrong  can  be  done 
to  any  one  by  taking  and  preserv- 
ing it  for  the  benefit  of  a  success- 
ful litigant.  But  where  the  object 
of  the  plaintiff  is  to  assert  a  right 
to  property  of  which  the  defendant 
is  in  enjoyment,  the  case  is  neces- 
sarily involved  in  further  ques- 
tions. The  court  by  taking  posses- 
sion at  the  instance  of  the  plaintiff 
may  be  doing  wrong  to  the  defend- 
ant; in  some  cases  an  irreparable 
wrong.  If  the  plaintiff  should 
eventually  fail  in  establishing  his 


right  against  the  defendant,  the 
court  may  by  its  interim  interfer- 
ence have  caused  mischief  to  the 
defendant  for  which  the  subse- 
quent restoration  of  the  property 
may  afford  no  adequate  compensa- 
tion. In  all  cases,  therefore,  where 
the  court  interferes  by  appointing 
a  receiver  of  property  in  the  pos- 
session of  the  defendant,  before 
the  title  of  the  plaintiff  has  been 
judicially  established,  it  exercises 
a  discretion  to  be  governed  by  all 
the  circumstances  of  the  case. 
Where  the  evidence  on  which  the 
court  is  to  act  is  very  clear  in 
favor  of  the  plaintiff,  there  the 
risk  of  eventual  injury  to  the  de- 
fendant Is  very  small,  and  the 
court  does  not  hesitate  to  inter- 
fere. Where  there  is  more  of  doubt, 
there  is  more  of  difficulty.  The 
question  is  one  of  degree,  as  to 
which,  therefore,  it  is  impossible 
to  lay  down  any  precise  or  un- 
varying rule.  Owen  v.  Homan,  4 
L..  L.  Cas.  1032,  per  Lord  Cran- 
worth. 

9  Barry  v.  Briggs,  22  Mich.  201. 

While  the  duty  of  a  court  of 
equity  to  appoint  a  receiver  pen- 
dente lite  to  prevent  injury  to  the 
thing  in  controversy  is  a  delicate 
and  responsible  duty,  it  should  be 
used  unhesitatingly  in  the  proper 
case.  Ellis  v.  Penn  Beef  Co.,  9 
Del.  Ch.  213,  80  Atl.  666. 


GENERAL    GROUNDS    OF    APPOINTMENT.  37 

recognized  equity  jurisprudence  where  receivers  may  be 
appointed  at  a  preliminary  stage  of  the  cause  on  bill 
and  affidavits.  But  there  are  also  many  cases  where  the 
appointment  of  a  receiver  would  be  entirely  beyond  the 
legitimate  power  of  the  court.  It  would  be  a  very  strange 
thing  if,  because  some  such  orders  of  appointment  are 
entirely  within  the  discretion  of  the  court  and  not  appeal- 
able, the  same  immunity  could  be  extended  to  palpable 
usurpation  of  power  or  excess  of  power.  It  is  one  of  the 
fundamental  principles  of  jurisprudence  that  rights  can 
not  be  divested  without  legal  authority,  and  when  a  right 
is  divested  by  the  order  of  a  court  of  chancery  an  appeal 
lies  to  determine  whether  it  is  legal  or  unauthorized. ' ' 

The  following  principles  laid  down  in  an  early  case  in 
Mississippi  have  generally  been  regarded  as  a  concise 
statement  of  the  general  principles  to  be  followed  by  the 
courts  in  the  appointment  of  receivers,  namely,  that  the 
applicant  must  show  that  he  has  a  clear  right  to  the 
property  itself,  or  that  he  has  some  lien  upon  it,  or  that 
the  property  constitutes  a  special  fund  to  wliich  he  has 
a  right  to  resort  for  the  satisfaction  of  his  claim,  but  that 
in  addition  to  these  conditions  he  must  show  that  the 
possession  of  the  property  was  obtained  by  the  defendant 
through  fraud  or  that  the  property  itself,  or  its  income, 
is  in  danger  of  loss  or  great  depreciation.^" 

§  11.    Character  of  Title  to  Be  Shown  by  Plaintiff. 

In  order  to  authorize  the  appointment  of  a  receiver  it 
is  essential  that  the  applicant  show  either  a  clear  legal 
right  in  himself  to  the  property  in  controversy  or  that 
he  has  some  lien  upon  or  property  right  in  it,  or  that 
it  constitutes  a  special  fund  out  of  which  he  is  entitled 
to  satisfy  his  demand.  He  must  also  show  that  he  lias  a 
present  existing  interest  in  the  property  ;^  and  where  the 

10  Mays    v.    Rose,    Freem.    Ch.      720,  110  Pac.  596;    State  v.  Union 

(Miss.)    703.  Nat.  Rank,  145  Tnd.  537.  57  Am.  St. 

1  Whitley  V.  Bradley,  13  Cal.  App.      Rep.  209,  44  N.  E.  585;    Steele  v. 


38 


LAW   OP   RECEIVERS. 


question  of  title  is  involved  in  the  issue  the  plaintiff 
must  show  in  himself  a  strong  presumptive  title-  or  a 


Aspy,  128  Ind.  367,  27  N.  E.  739; 
Smith  V.  Wells,  20  How.  Pr.  (N.Y.) 
158. 

Independently  of  the  Judicature 
Act,  1873,  when  a  plaintiff  has  a 
right  to  be  paid  out  of  a  particular 
fund,  the  court  will  appoint  a  re- 
ceiver to  protect  that  fund  from 
being  dissipated,  so  as  to  defeat 
his  rights.  Cummins  v.  Perkins 
(1899).  1  Ch.  16. 

Relief  by  appointment  of  re- 
ceiver and  granting  of  an  injunc- 
tion before  trial  should  not  be 
given  where  petitioner  has  no  lien 
on,  interest  in,  or  claim  to  the 
property  of  the  adverse  party.  Gar- 
trell  V.  McCravey,  144  Ga.  249,  86 
S.  E.  932.  See  also  Atlanta  etc.  Ry. 
Co.  V.  Carolina  etc.  Cement  Co., 
140  Ga.  650,  79  S.  E.  555. 

The  appointment  of  a  receiver 
does  not  affect  the  title  or  involve 
a  determination  of  it,  but  it  can 
only  be  made  on  the  application  of 
one  having  an  acknowledged  in- 
terest. But  a  claim  of  the  whole 
title  is  unnecessary  to  authorize  a 
party  to  make  application  for  the 
appointment  of  a  receiver;  hence, 
a  widow  claiming  dower  in  the 
premises  may  make  the  applica- 
tion. Chase's  Case,  1  Bland  (Md.) 
206,  17  Am.  Dec.  277. 

Hence  a  receiver  will  not  be  ap- 
pointed over  a  mere  allowance  to 
the  defendant  which  amounts  to  a 
mere  gratuity  in  which  he  has  no 
property  right.  Timothy  v.  Day 
(1908),  2  L.  R.  Ir.  26. 

A  bill  is  insufficient  for  an  in- 
junction and  the  appointment  of  a 
receiver,  if  it  alleges  only  that  the 
defendant  is  indebted  to  the  com- 


plainants, and  that  he  is  disposing 
of  his  property,  collecting  money 
due  him,  and  secreting  the  same, 
with  intent  to  defraud  the  com- 
plainants, and  that  they  are  in- 
formed and  believe  that  he  intends 
to  abscond  and  defraud  his  cred- 
itors; it  does  not  show  that  the 
complainants  have  any  lien  as 
judgment  creditors  or  otherwise 
upon  the  defendant's  property.  Uhl 
V.  Dillon,  10  Md.  500,  69  Am.  Dec. 
172. 

2  Ashurst  V.  Lehman,  86  Ala. 
370,  5  So.  731;  Steele  v.  Aspy,  128 
Ind.  367,  27  N.  E.  739;  Mapes  v. 
Scott,  4  111.  App.  268;  Cofer  v. 
Echerson,  6  Iowa  502;  Elwood  v. 
First  Nat.  Bank  of  Greenleaf,  41 
Kan.  475,  21  Pac.  673;  Cole  v. 
O'Neill,  3  Md.  Ch.  174;  Clark  v. 
Ridgely,  1  Md.  Ch.  70;  Vause  v. 
Woods,  46  Miss.  120;  Chase's  Case, 
1  Bland  (Md.)  206,  17  Am.  Dec. 
277;  Smith  v.  Wells,  20  How.  Pr. 
(N.  Y.)  158;  Willis  v.  Corlies,  2 
Edw.  Ch.  (N.  Y.)  281,  287;  Gregory 
V.  Gregory,  1  Jones  &  S.  (N.  Y.)  1; 
Durant  v.  Crowell,  97  N.  C.  367,  2 
S.  E.  541;  Levenson  v.  Elson,  88 
N.  C.  182;  Horton  v.  White,  84 
N.  C.  297;  McNair  v.  Pope,  96  N.  C. 
502,  2  S.  E.  54;  Bryan  v.  Moring, 
94  N.  C.  694;  Twitty  v.  Logan,  80 
N.  C.  69;  Sobernheimer  v.  Wheeler, 
45  N.  J.  Eq.  614,  18  Atl.  234;  Emer- 
son's Appeal,  95  Pa.  258;  Schlecht's 
Appeal,  60  Pa.  172;  Chicago  &  A. 
Oil  &  Min.  Co.  v.  United  States 
Petroleum  Co.,  57  Pa.  83;  De  Walt 
V.  Kinard,  19  S.  C.  286;  Norris  v. 
Lake,  89  Va.  513,  16  S.  E.  663; 
Beecher  v.  Bininger,  7  Blatchf.  170, 
Fed.  Cas.  No.  1222;  Lloyd  v.  Pass- 


gener^Uj  grounds  of  appointment. 


39 


strong  presumption  against  the  defendant's  title.^  But  in 
such  cases  there  should  be  also  a  showing  of  a  danger 
of  loss  or  injury  or  insolvency.  And  where  it  appears 
that  the  title  to  the  property  is  in  dispute  and  this  is  an 
issue  in  the  case,  and  the  rights  of  all  parties  therein 
are  threatened,  or  where  the  property  is  in  medio,  a 
receiver  should  be  appointed."* 

But  where  the  case  involves  simply  a  dry  legal  title,  a 
court  of  equity  vdW  refuse  to  interfere  and  leaves  the 
plaintiff  to  his  remedy  at  law,^^  and  this,  too,  though  tlie 
property  may  be  vacant.^ 


ingham,  16  Ves.  Jr.  59;  Bambrigge 
V.  Boddeley,  3  Macn.  &  G.  413; 
Owen  V.  Homan,  3  Macn.  &  G.  378, 

4  H.  L.  R.  Cas.  997;  Lancashire  v. 
Lancashire,  9  Beav.  120;  Talbot  v. 
Hope  Scott,  4  Kay  &  J.  96;  Parian 
V.  Seddons,  L.  R.  16  Eq.  34. 

A  receiver  pendente  lite  will  not 
be  appointed  in  an  action  to  re- 
cover possession  of  real  property, 
where  plaintiff's  title  is  put  in 
issue,  in  the  absence  of  some  spe- 
cial circumstances  rendering  such 
an  appointment  necessary  to  pre- 
serve plaintiff's  rights.  Sengfelder 
V.  Hill,  16  Wash.  355,  58  Am.  St. 
Rep.  36,  47  Pac.  757. 

3  Mapes  V.  Scott,  4  111.  App.  268; 
Stilwell  V.  Williams,  6  Madd.  49; 
Hugnonin  v.  Bosely,  13  Ves.  Jr. 
105. 

4  Graham  v.  Fuller  Electrical  Co., 
75  Ga.  878;  Hamberlain  v.  Marble, 
24  Miss.  586;  Mills  v.  Pittman,  1 
Paige  Ch.  (N.  Y.)  490;  Rollins  v. 
Henry,  77  N.  C.  467;  United  States 
V.  Church  of  Jesus  Christ  of  L.D.S., 

5  Utah  361,  15  Pac.  473;  Hlawacek 
V.  Bohman,  51  Wis.  92,  8  N.  W. 
102;  Owen  v.  Homan,  4  H.  L.  Cas. 
997,  17  Jur.  861. 

Where  a  dispute  exists  between 


members  of  an  unincorporated 
library  association  and  an  incor- 
porated library  association  organ- 
ized by  some  of  the  officers  and 
members  of  the  former  association, 
who  claim  to  be  its  successor,  as 
to  which  party  was  entitled  to  the 
property  of  the  original  associa- 
tion, an  order  appointing  a  receiver 
without  expense  pending  the  deter- 
mination of  the  dispute  will  not  be 
disturbed,  where  the  property  and 
the  affairs  of  the  associations  were 
not  such  that  a  loss  could  occur 
as  a  consequence  of  such  appoint- 
ment. Ladies'  Library  Ass'n  of 
Greenville,  Unincorporated,  v.  La- 
dies' Library  Ass'n  of  Greenville, 
Incorporated,  155  Mich.  663,  119 
N.  W.  1098. 

5  Mapes  V.  Scott,  4  111.  App.  268; 
Lenox  v.  Notrebe,  Hempst.  225, 
Fed.  Cas.  No.  8246b. 

A  receiver  will  be  appointed  to 
take  possession  of  property  pen- 
dente lite  only  where  the  circum- 
stances require  summary  relief  or 
where  there  is  imminent  danger  of 
loss  without  an  adequate  remedy 
at  law,  but  not  ordinarily  where 
title  is  merely  in  dispute.     Bacon 


40 


LAW   OF   RECEIVERS. 


The  rule  lias  sometimes  been  stated  as  follows :  Where 
the  issue  is  simply  a  question  of  title  between  the  plain- 
tiff and  defendant  and  in  the  absence  of  fraud,  serious 
injury,  or  imminent  danger  of  loss,  the  court  will  refuse 
to  interfere  until  the  plaintiff  has  first  established  in  a 
common  law  proceeding  his  legal  rights  In  other  cases 
the  general  rule  has  been  stated  that  to  entitle  the  plain^ 
tiff  to  relief  he  must  show  a  reasonable  probability  of 


V.   Engstrom,   129   Minn.   229,   152 
N.  W.  264,  537. 

The  appointment  of  a  receiver 
for  the  purpose  of  preserving  the 
future  rents  of  real  property,  to 
abide  the  result  of  an  action  con- 
cerning the  same,  is  not  author- 
ized where  the  action  proceeds  on 
the  assumed  ownership  by  plaintiff 
of  the  land  and  the  profits  thereof 
and  involves  merely  legal,  as  dis- 
tinguished from  equitable,  rights. 
San  Jose  Safe-Deposit  Bank  v. 
Bank  of  Madera,  121  Cal.  543,  54 
Pac.  85. 

6  Carrow  v.  Ferrior,  37  L.  J.  Ch. 
569,  L.  R.  3  Ch.  719;  Talbot  v. 
Hope  Scott,  4  Kay  &  J.  96,  4  Jur. 
N.  S.  1172,  27  L.  J.  Ch.  273;  Lan- 
cashire v.  Lancashire,  9  Beav.  120, 
15  L.  J.  Ch.  N.  S.  54;  Mordaunt  v. 
Hooper,  Ambl.  311;  Dobbin  v. 
Adams,  8  Ir.  Eq.  157;  Clark  v.  Dew, 
1  Russ.  &  M.  103;  Knight  v.  Dii- 
plessis,  2  Ves.  Sr.  360;  Toldervy  v. 
Colt,  1  Young  &  C.  621,  5  L.  J. 
Exch.  Eq.  25. 

7  West  V.  Chasten,  12  Fla.  315; 
Harrup  v.  Winslet,  37  Ga.  655;  Cal- 
lanan  v.  Shaw,  19  Iowa  183;  Vause 
V.  Woods,  46  Miss.  120;  Pignolet  v. 
Bushe,  28  How.  Pr.  (N.  Y.)  9;  Kipp 
V.  Hanna,  2  Bland  (Md.)  26;  Davis 
V.  Reaves,  2  Lea.  (70  Tenn.)  649; 
Lloyd  V.  Passingham,  16  Ves.  Jr. 
59;  and  see  specially  Talbot  v. 
Hope  Scott,  4  Kay  &  J.  90;  Earl  of 


Fingal  v.  Blake,  2  Moll.  50;  Smith 
V.  Smith,  2  Younge  &  C.  351,  10 
Hare  Appx.  Ixxi;  Silver  v.  Bishop 
of  Norwich,  3  Swanst.  112n. 

Where  the  plaintiff  had  repu- 
diated the  authority  of  defendants 
to  act  for  it  in  making  certain 
contracts  and  denied  liability  there- 
under, and  made  no  claim  to  own 
the  property  acquired  by  defend- 
ants under  the  contracts,  it  is  not 
entitled  to  a  receiver  to  hold  the 
property  pending  a  determination 
of  its  litigation  with  other  parties 
to  the  contracts.  Red  River  Potato 
Growers'  Ass'n  v.  Bemardy,  126 
Minn.  440,  148  N.  W.  449. 

The  court  will  not  appoint  a  re- 
ceiver at  the  instance  of  a  person 
whose  right  is  disputed,  where  the 
effect  of  the  order  would  be  to 
establish  the  right,  even  if  the 
court  be  satisfied  that  the  person 
against  whom  the  demand  is  made 
is  fencing  off  the  claim.  Greville 
V.  Fleming,  2  J.  &  L.  335. 

In  an  action  to  recover  the  pos- 
session of  real  property  to  which 
the  title  is  disputed  and  of  which 
both  parties  claim  to  be  owners  in 
fee,  a  receiver  will  not  be  ap- 
pointed to  take  possession  of  the 
property  from  the  defendant  or 
to  receive  the  rents  and  profits 
thereof.  Sengfelder  v.  Hill,  16 
Wash.  355,  58  Am.  St.  Rep.  36,"  47 
Pac.  757. 


GENERAL.    GROUNDS    OP    APPOINTMENT.  41 

recovery,  based  on  a  strong  title  in  himself,  and  this  must 
be  coupled  with  imminent  danger  of  loss^  and  suit  be 
brought  within  a  reasonable  time.^ 

But  the  court  will  not  allow  a  receivership  suit  to  be 
used  as  a  substitute  for  that  of  ejectment.  The  rule  in 
this  respect  was  very  clearly  and  succinctly  set  forth 
by  Judge  Sanborn,  sitting  as  a  Judge  of  the  Circuit 
Court  of  Appeals,  in  a  recent  case,^"  in  which  he  said: 
"The  possession  and  use  of  real  estate  by  those  actually 
in  possession  have  always  been  jealously  protected  by 
English  and  American  courts.  Strangers  without  title 
may  not  eject  those  in  possession,  although  the  latter 
have  no  title.  The  possessors  have  the  right  to  a  trial 
of  the  issue  between  legal  titles  by  a  jury  and  to  con- 
tinue in  possession  until  the  plaintiff  by  the  strength  of 
his  own  title,  not  through  the  weakness  of  his  adver- 
saries', establishes  his  right  thereto.  This  suit  is  a  con- 
fession that  the  plaintiffs  can  not  recover  possession  of 
this  land  on  the  strength  of  their  title.  If  they  could  they 
would  have  an  adequate  remedy  at  law  and  their  suit 
must  fail.  When  a  plaintiff  brings  ejectment  on  a  para- 
mount legal  title  and  the  defendant  in  possession  sues  in 
equity  on  the  ground  that  he  has  the  superior  equity, 
the  established  rule  and  general  practice  are  to  stay  the 

8  Mayo  V.  McPhaul,  71  Ga.  758;  In  a  suit  involving  a  contest  be- 
Cofer  V.  Echerson,  6  Iowa  502;  tween  conflicting  titles,  a  receiver 
Gregory  v.  Gregory,  1  Jones  &  S.  can  not  be  appointed  to  take  pos- 
(N.  Y.)  1;  Chicago  &  A.  Oil  &  Min.  session  from  the  defendant,  when 
Co.  V.  United  States  Petroleum  the  right  is  doubtful,  and  no  dan- 
Co.,  57  Pa.  83;  and  see  a  clear  ger  as  to  the  security  of  the  plain- 
statement  of  the  doctrine  of  the  tiff  is  alleged,  and  no  special 
text  by  Lord  Erskine  in  Hugnonin  circumstances  are  shown.  Freer  v. 
V.  Basely,  13  Ves.  Jr.  105;  and  see  Davis,  52  W.  Va.  35,  94  Am.  St. 
Lord  Truro  In  Bainbrigge  v.  Bad-  Rep.  910,  43  S.  E.  172. 
deley,  3  Macn.  &  G.  414;  Owen  v.  9  Skinner's  Co.  v.  Irish  Soc,  1 
Homan,  3  Macn.  &  G.  378;  Fingal  Myl.  &  C.  162;  Commissioners  etc. 
V.  Blake,  2  Moll.  78;  Lloyd  v.  Trim-  v.  Lockhart,  Ir.  R.  3  Eq.  515. 
leston,  2  Moll.  78;  Mordaunt  v.  m  Folk  v.  United  States,  233  Fed. 
Hooper,  Ambl.  311.  177. 


42  LAW   OF   RECEI\'ERS. 

action  at  law  and  hold  the  defendant  in  possession  until 
the  validity  of  the  defendant's  claim  in  equity  is 
adjudged.  And  when,  as  in  this  case,  a  plaintiff  out  of 
possession  brings  a  suit  in  equity  to  avoid  the  legal  title 
of  a  defendant  in  possession  which  is  admittedly  supe- 
rior, it  is  likemse  the  general  rule  and  the  established 
practice  in  equity  to  refuse  to  appoint  a  receiver  to 
deprive  the  defendant  of  the  possession  or  of  the  product 
of  the  property  until  after  a  full  trial  of  the  equitable 
claim  and  the  legal  titles  on  their  merits. 

*' A  court  of  equity  is  not  without  jurisdiction  to  appoint 
a  receiver  of  real  estate  and  of  its  proceeds  in  the  pos- 
session of  a  defendant  holding  under  a  title  regular  on 
its  face.  But  the  cases  in  Avhich  it  may  exercise  that 
power  before  a  trial  of  the  issues  on  the  merits  without 
a  departure  from  the  established  principles  and  prac- 
tice of  equity  jurisprudence  are  exceptions  to  the  general 
rule,  and  clear  proof  of  the  following  necessary  facts  is 
indispensable  to  bring  such  a  case  within  the  exceptions : 

''First — The  fact  that  there  is  imminent  danger  that 
unless  a  receiver  is  appointed  the  property  or  its  pro- 
ceeds will  be  deteriorated  in  value  or  wasted  during  the 
pendency  of  the  suit.  Second — The  fact  that  the  plaintiff 
will  suffer  irreparable  loss  from  such  deterioration  or 
waste.  But  if  the  defendant  is  solvent  and  abundantly 
able  to  respond  to  any  such  loss,  or  if  he  will  give  a 
good  bond  so  to  respond,  the  loss  can  rarely  be  irrep- 
arable, and  the  general  rule  is  that  a  receiver  should  not 
be  appointed.  Third — The  fact  that  on  the  pleadings  and 
preliminary  proofs  there  is  a  strong  probability  that  the 
plaintiff  will  ultimately  prevail  on  the  merits. 

"But  courts  of  equity  are  extremely  averse  to  any 
interference  with  the  possession  of  a  defendant  claiming 
real  estate  under  a  legal  title.  They  proceed  in  such  a  case 
with  extreme  caution  anrl  rarely  interfere.  If  it  seems 
doubtful  whether  or  not  the  plaintiff  will  recover  at  the 


GENERAL    GROUNDS    OF    APPOINTMENT. 


43 


final  hearing,  or  whether  or  not  there  is  imminent  danger 
that  the  phiintiff  will  suffer  irreparable  loss,  the  appli- 
cation for  a  receiver  will  be  denied  and  in  the  hearing 
and  decision  of  such  a  case  all  the  presumptions  are  in 
favor  of  the  defendant  in  possession  under  a  legal  title. 
A  court  of  equity  is  sedulous  to  prevent  the  successful 
invocation  of  its  interlocutory  injunction,  or  its  appoint- 
ment of  a  receiver  to  perform  the  function  of  a  success- 
ful action  of  ejectment  and  at  the  same  time  to  avoid  the 
trial  of  titles  indispensable  to  such  an  action.  "^^ 

§12.    Receivership  Where  Recovery  Is  Doubtful. 

In  order  to  authorize  the  appointment  of  a  receiver  it 
is  an  indispensable  rule  that  the  party  petitioning  for 
such  an  appointment  must  show  to  the  court  that  there 
is  a  reasonable  probability  that  he  mil  ultimately  pre- 
vail in  the  litigation,^  and  a  danger  of  the  property  in 


^ 


11  The  court  cited  the  following 
authorities:     Kelley   v.    Boettcher 
(C.  C),  89  Fed.  125,  129,  19  Morr. 
Min.  Rep.  515;  Lancaster  v.  Ashe- 
ville  St.  Ry.  Co.   (C  C),  90  Fed. 
129,  133;  Sage  v.  Railroad  Co.,  125 
U.   S.  376,  377.  8   Sup.  Ct.  887.  31 
L.  Ed.  694;  United  States  v.  Ameri- 
can Tobacco  Co.,  221  U.  S.  106,  186. 
187,  31  Sup.  Ct.  632,  55  L.  Ed.  663; 
Bosworth  V.  Terminal  R.  R.  Ass'n, 
174  U.  S.  182,  186,  187,  19  Sup.  Ct. 
625,  43  L.  Ed.  941;  Ryder  v.  Bate- 
man  (C.  C),  93  Fed.  16,  28,  29,  31; 
Trust   &   Deposit  Co.   v.    Spartan- 
burg Waterworks  Co.    (C.  C),  91 
Fed.  324,  325.  326;  Worth  Mfg.  Co. 
V.  Bingham,  116  Fed.  785,  790,  792, 
54  C.  C.  A.  119,  124,  126;  Carson  v. 
Allegany  Window  Glass  Co.  (C.  C), 
189  Fed.  791,  795,  796,  797,  798,  800; 
Higginson  v.  Chicago,  B.  &  Q.  R. 
R.  Co.,  102  Fed.  197,  199.  42  C.  C.  A. 
254:  Moore  v.^'Bank  of  British  Co- 
lumbia  (C.  C),  106  Fed.  574,  579, 


affirmed  125  Fed.  849,  60  C.  C.  A. 
431;  High  on  Receivers  (4th  ed.) 
§§  553,  557,  558. 

1  Whitley  v.  Bradley,  13  Cal. 
App.  720,  110  Pac.  596;  Steele  v. 
Aspy,  128  Ind.  367,  27  N.  E.  739; 
Mead  v.  Burk,  156  Ind.  577,  60  N.E. 
338;  Paine  v.  Mueller,  150  Iowa 
340,  130  N.  W.  133;  Blondheim  v. 
Moore,  11  Md.  365;  Mays  v.  Rose, 
Freem.  Ch.  (Miss.)  718;  McCarter 
V.  Clavin,  72  N.  J.  Eq.  642,  66  Atl. 
599;  Flagler  v.  Blunt,  32  N.  J.  Eq. 
518;  Smith  v.  Wells,  20  How.  Pr. 
(N.  Y.)  158;  Goodyear  v.  Betts,  7 
How.  Pr.  (N.  Y.)  187;  Leavitt  v. 
Yates,  4  Edw.  Ch.  (N.  Y.)  162; 
Rheinstein  v.  Bixbey,  92  N.  C.  309; 
Levenson  v.  Elson,  88  N.  C.  184; 
Beecher  v.  Bininger,  7  Blatchf.  170, 
Fed.  Cas.  No.  1222:  Folk  v.  United 
States,  233  Fed.  177;  Bainbrigge  v. 
Baddeley,  3  Macn.  &  G.  413;  Owen 
V.  Homan,  3  Macn.  &  G.  378,  412 
(affirmed  in  4  H.  L.  Cas.  997). 


44 


LAW    OF    RECEIVERS. 


controversy  being  lost  or  endangered  pending  the  litiga- 
tion.  This  is  substantially  the  rule  which  also  obtains  in 


If  the  ultimate  success  of  the 
plaintiff  in  the  litigation  is  a  mat- 
ter of  grave  doubt,  no  receiver 
should  be  appointed.  Hurt  v.  Hurt, 
157  Ala.  126,  47  So.  260. 

To  entitle  a  plaintiff  to  the  ap- 
pointment of  a  receiver,  an  abso- 
lute right  to  recover  in  the  action 
need  not  be  shown;  it  is  sufficient 
if  the  right  to  a  judgment  is  prob- 
able. Paine  v.  Mueller,  150  Iowa 
340,  130  N.  W.  133. 

Where,  in  a  petition  for  the  ap- 
pointment of  a  receiver,  the  relief 
prayed  for  is  that  complainant's 
claim  be  decreed  a  prior  lien  on  all 
the  insolvent's  assets,  and  such  re- 
lief can  not  be  granted,  a  receiver 
should  not  be  granted.  Bank  of 
Florence  v.  United  States  Sav.  & 
L.  Co.,  104  Ala.  297,  16  So.  110. 

The  general  rule  of  equity  is  also 
set  forth  in  the  statutory  provis- 
ions relative  to  the  matter.  Thus 
under  Rev.  Stats.,  art.  1465,  which 
provides  that  a  receiver  may  be 
appointed  in  certain  cases  on  the 
application  of  any  party  whose 
right  to  or  interest  in  the  property 
is  probable,  it  is  held  that,  in  order 
to  authorize  the  appointment  of  a 
receiver  in  an  action  for  the  recov- 
ery of  an  interest  in  real  estate 
before  final  hearing,  the  one  seek- 
ing such  relief  must  show  that  he 
will  probably  succeed  in  estab- 
lishing his  right.  Hardy  Oil  Co. 
V.  Burnham  (Tex.  Civ.  App.),  124 
S.  W.  221. 

Where  a  farming  contract  con- 
tained no  provisions  for  rescission, 
forfeiture,  or  re-entry  for  a  breach 
of  it,  the  court  will  not  appoint  a 
receiver  to  farm  the  land  in  a  suit 


by  the  landowner  charging  the  ten- 
ant with  bad  husbandry  and  with 
breaches  of  different  covenants 
and  the  tenant  denied  the  allega- 
tions and  the  plaintiff  had  delayed 
for  months  after  an  attempted  re- 
scission and  had  allowed  the  ten- 
ant to  put  in  and  partially  harvest 
crops,  and  the  inconveniences  aris- 
ing from  the  receivership  would 
also  be  very  great.  Conover  v. 
Tansey,  73  N.  J.  Eq.  562,  67  Atl. 
1013. 

Where  the  owner  of  timber  land 
made  a  contract  with  the  owners 
of  a  sawmill  to  remove  their  mill 
and  set  it  up  on  such  land,  and 
saw  the  timber  thereon,  at  certain 
prices,   but  the   timber   owner   to 
have  the  right,  on  notice  and  pay- 
ment of  a  bonus,  to  terminate  the 
contract,  and  the  mill  was  affixed 
to  the  soil  in  the  ordinary  way  for 
such  mills,  the  mill  owners,  in  the 
absence  of  provisions  to  the  con- 
trary in  the  contract,  were  entitled 
on  termination  of  the  contract  to 
remove  the  mill,  since  it  was  not 
a  part  of  the  land  and  hence  the 
grantee  of  the  land  owner  had  no 
such  interest  or  probable  interest 
in  the  mill  as  to  entitle  him  to  a 
receiver  for  the  mill  under  Rev. 
Stats.  1895,  art.  1465,  on  breach  of 
the  contract  by  the  mill  owners. 
J.  A.  Wotring  &  Son  v.  Indemnity 
Imp.  Co.,  47  Tex.  Civ.  App.  300,  100 
S.  W.  358. 

In  an  action  by  a  father,  after 
commencement  of  proceedings,  by 
his  children,  without  his  knowl- 
edge, under  the  statute,  to  have 
a  guardian  appointed  for  him, 
where  the  children  had  no  interest 


GENERAL    GROUNDS    OF    APPOINTMENT. 


45 


cases  where  injunctive  relief  is  sought.-  In  other  words, 
if  the  evidence  is  conflicting  or  the  legal  questions 
involved  are  doubtful  in  respect  to  the  ultimate  deter- 
mination, the  application  should  be  refused  as  in  a  fore- 
closure proceeding  where  the  right  to  foreclose  is  doubt- 
ful or  in  a  proceeding  involving  the  legal  construction 
of  deeds.  It  is,  of  course,  likewise  essential  that  it  is 
probable  that  the  property  over  which  a  receiver  is 
sought  will  be  lost  or  will  sustain  injury  during  the  pen- 
dency of  the  suit  if  left  in  the  possession  of  the  defendant, 
or,  if^it  be  a  business,  that  it  will  be  mismanaged  by 
defendant  if  left  under  his  control.^  ~  The  court  must  be 
satisfied  that  a  receiver  is  necessary  to  preserve  the 
property  and  thereby  adequately  protect  the  riglits  of 


in  the  property,  the  appointment 
of  a  receiver  of  the  property  of  the 
father  and  the  granting  of  an  in- 
junction against  interference  with 
the  property  in  the  receiver's 
hands  is  improper.  Gartrell  v.  Mc- 
Cravey,  144  Ga.  249,  86  S.  E.  932. 

Parties  who  have  acquiesced  in 
the  enjoyment  of  the  property 
against  their  rights  can  not  have 
a  receiver  appointed.  Gray  v.  Chap- 
lin, 2  Russ.  147;  Sltinner's  Co.  v. 
Irish  Society,  1  My.  &  Cr.  162. 

2  Weis  V.  Goetter,  72  Ala.  259 
(see  statute) ;  Ashurst  v.  Lehman, 
86  Ala.  370,  5  So.  731;  Lovett  v. 
Slocumb,  109  N.  C.  110,  13  S.  E. 
893;  Pelzer  v.  Hughes,  27  S.  C.  408, 
3  S.  E.  781;  Norris  v.  Lake,  89  Va. 
513,  16  S.  E.  663;  Davenport  v. 
Davenport,  7  Hare  217;  Outcalt  v. 
Disborough,  3  N.  J.  Eq.  214;  Hill 
V.  Thompson,  3  Meriv.  622;  Pills- 
worth  V.  Hopton,  6  Ves.  Jr.  51; 
Smith  V.  Collyer,  8  Ves.  Jr.  89; 
Norway  v.  Rowe,  19  Ves.  Jr.  144. 

"The  authority  of  the  court  to 
preserve  the  property  the  subject 
of    litigation    pending    the   action 


until  final  judgment  and  then  apply 
it,  as  justice  may  require,  is  too 
manifest  to  admit  of  question,  and 
such  authority  should  be  exercised 
when  it  appears  that  there  is  rea- 
sonable ground  to  believe  that  the 
plaintiff  may  recover,  and  the  in- 
terference of  the  court  is  neces- 
sary to  protect  the  property  in 
question  pending  the  controversy." 
Craycroff  v.  Morehead,  67  N.  C. 
422;  Morris  v.  Willard,  84  N. 
C.  293;  Levenson  v.  Elson,  88  N.  C. 
182.  If  the  defendant  demands 
affirmative  relief  he  must  show  an 
apparently  good  title,  either  not 
controverted  or  not  unequivocally 
denied.  Lovett  v.  Slocumb,  109 
N.  C.  110,  13  S.  E.  893;  McNair  v. 
Pope,  96  N.  C.  502,  2  S.  E.  54; 
Bryan  v.  Moring,  94  N.  C.  694; 
Oldham  v.  First  Nat.  Bank,  84 
N.  C.  304;  Wilkinson  v.  Dobbie,  12 
Blatchf.  298,  Fed.  Cas.  No.  17670. 

3  Ogden  City  v.  Bear  Lake  & 
River  Waterworks  &  Irrig.  Co.,  16 
Utah  440,  41  L.  R.  A.  305,  52  Pac. 
697;  Vose  v.  Reed,  1  Woods  647, 
Fed.  Cas.  No.  17011. 


46 


LAW   OF   RECEIVERS. 


the  litigants.''  There  must  be  a  legal  or  equitable  right 
in  property  reasonably  clear  and  free  from  doubt  and 
attended  with  danger  of  loss.    The  preservation  of  the 


4  Whitley  v.  Bradley,  13  Cal. 
App.  720,  110  Pac.  596;  Chase's 
Case,  1  Bland  (Md.)  206,  213, 17  Am. 
Dec.  277;  Walker  v.  House,  4  Md. 
Ch.  39;  Bloodgood  v.  Clark,  4  Paige 
(N.  Y.)  574;  Orphan  Asylum  Soc. 
V.  McCartee,  Hopk.  Ch.  (N.  Y.)  429. 
The  chancellor  in  Clark  v. 
Ridgely,  1  Md.  Ch.  70,  said:  "In- 
deed, it  is  believed  the  authority 
and  duty  of  the  court  to  appoint, 
or  not  appoint,  a  receiver  de- 
pends upon  the  question  w^hether 
the  property  is  or  is  not  in  danger 
in  the  hands  of  the  party  who  may 
at  the  time  be  in  possession.  .  .  . 
There  is  no  case  in  which  the 
court  appoints  a  receiver  merely 
because  the  measure  can  do  no 
harm."  The  Chief  Justice  in  Blond- 
heim  v.  Moore,  11  Md.  365,  laid 
down  as  a  rule  that  should  govern 
the  court  in  the  appointment  of  a 
receiver  the  following:  "That  fraud 
or  imminent  danger  if  the  interme- 
diate possession  should  not  be 
taken  by  the  court  must  be  clearly 
proved." 

"There  should,  however,  be  a 
concurrence  upon  two  grounds — a 
reasonable  probability  of  success 
on  the  part  of  complainant,  and 
that  the  subject-matter  in  contro- 
versy is  in  danger."  Ashurst  v. 
Lehman,  86  Ala.  370,  5  So.  731; 
Norris  v.  Lake,  89  Va.  513,  16  S.  E. 
663;  Skinner  v.  Maxwell,  66  N.  C. 
45;  Flagler  v.  Blunt,  32  N.  J.  Eq. 
518.  Waste  on  the  part  of  the 
party  in  possession  is  sufficient  to 
justify  the  ajipointment.  Vose  v. 
Reed,  1  Woods  647,  Fed.  Cas.  No. 
17011. 


A  receiver  of  book  accounts  as- 
signed by  a  debtor  to  one  of  his 
creditors  will  not  be  appointed 
pending  a  suit  by  another  creditor 
to  set  aside  the  assignment  as 
fraudulent,  where  the  assignee  has 
put  in  an  answer  denying  the  alle- 
gations of  fraud  and  asserting  his 
right  to  the  security,  and  it  ap- 
pears that  he  has  abundant  means 
to  respond  in  any  amount  for 
which  he  may  be  held  liable.  Wae- 
ber  v.  Rosenstein,  6  App.  Div.  447, 
39  N.  Y.  Supp.  593. 

A  receiver  should  never  be  ap- 
pointed over  a  mortgagee  of  chat- 
tels in  possession,  where  there  is 
a  balance  due  him.  Bayaud  v.  Fel- 
lows, 28  Barb.  (N.  Y.)  451. 

In  the  absence  of  fraud,  and 
where  a  corporation  has  parted 
with  all  its  property  and  used  the 
same  in  payment  of  debts,  a  re- 
ceiver will  not  be  appointed.  Hale- 
Berry  Co.  v.  Diamond  State  Iron 
Co.,  94  Ga.  61,  22  S.  E.  217. 

And  where  rents  are  applied  to 
the  payment  of  the  mortgage  debt 
and  necessary  expenses  in  the 
management  and  care  of  the  prop- 
erty, a  receiver  will  not  be  ap- 
pointed. Myton  V.  Davenport,  51 
Iowa  583,  2  N.  W.  402. 

Receiver  not  appointed  where 
administrator  has  power  to  pro- 
tect property.  Veret  v.  Duprez,  L. 
R.  6  Eq.  329. 

An  order  appointing  a  receiver 
pendente  lite,  in  a  proceeding 
under  3  How.  (Mich.)  Ann.  Stat. 
§  8749o,  providing  for  the  appoint- 
ment of  a  receiver  at  the  instance 
of  persons  having  preferred  claims 


GENERAL    GROUNDS    OF    APPOINTMENT. 


47 


subject  of  the  controversy  for  the  benefit  of  the  party 
who  will  ultimately  be  decreed  to  have  the  right  thereto 
is  the  object  of  committing  it  to  the  custody  of  the 
receiver.^  It  must,  however,  be  borne  in  mind  that  unless 


under  a  voluntary  assignment,  is 
improvident,  if  not  an  absolute  nul- 
lity. Hall  V.  Wayne  Circuit  Judge, 
111  Mich.  395,  69  N.  W.  643. 

Because  the  husband  of  an  ex- 
ecutrix was  in  the  West  Indies, 
and  not  amenable  to  the  process  of 
court  in  case  his  wife  as  executrix 
should  commit  waste  or  refuse  to 
pay,  a  receiver  was  appointed.  De- 
cided by  the  Lord  Chancellor  of 
England  in  1741.  Taylor  v.  Allen, 
2  Atk.  213. 

In  Lloyd  v.  Passingham,  16  Ves. 
Jr.  59-70,  Lord  Eldon  said:  "The 
court  must  not  only  be  satisfied  of 
the  existence  of  fraud,  but  it  must 
be  morally  sure  that  upon  the 
hearing  of  the  cause  the  party 
would  upon  the  circumstances  be 
turned  out  of  possession,  and  not 
only  that,  but  it  must  see  some 
danger  to  the  immediate  rents  and 
profits." 

5  Fort  Payne  Furnace  Co.  v.  Fort 
Payne  Coal  &  I.  Co.,  96  Ala.  472, 
38  Am.  St.  Rep.  109,  11  So.  439; 
Hughes  V.  Hatchett,  55  Ala.  631; 
Handle  v.  Carter,  62  Ala.  95;  Skin- 
ner V.  Maxwell,  66  N.  C.  45. 

In  actions  at  law  property  will 
not  be  taken  from  a  party  in  pos- 
session, claiming  in  good  faith  the 
right  to  it,  without  first  exacting 
from  him  at  whose  suit  it  is  done 
ample  security  for  the  protection 
of  his  adversary  against  injury. 
In  actions  of  detinue  and  attach- 
ment for  the  seizure  of  property 
an  adequate  bond  with  good  sure- 
ties is  required  to  indemnify  the 
defendant  against  loss.  Injunctions 


and  equitable  attachments  are  al- 
lowed only  on  the  same  conditions. 
In  actions  for  the  appointment  of 
receivers  ordinarily  no  indemnify- 
ing bonds  are  required,  and  the 
consequences  that  may  follow  from 
wresting  from  the  defendant  of  the 
property  in  litigation,  are  such  that 
the  granting  of  a  receiver  should, 
in  all  cases,  be  attended  with  great 
care  and  circumspection.  Briar- 
field  Iron  Works  Co.  v.  Foster,  54 
Ala.  622. 

The  appointment  of  a  receiver  is 
unnecessary  where  the  property  is 
a  decree  of  court,  of  which  the 
receiver  could  not  take  possession, 
it  being  virtually  in  the  hands  of 
the  court.  Matthews  (Scruggs)  v. 
Memphis  &  C.  R.  Co.,  108  U.  S.  368, 
27  L.  Ed.  756,  2  Sup.  Ct.  780. 

A  receiver  pendente  lite  should 
not  be  appointed  unless  there  is  a 
probable  right  to  a  permanent  re- 
ceiver. Party  seeking  the  appoint- 
ment of  a  receiver  pendente  lite 
must  show  a  probable  interest  in 
the  property  involved  and  danger 
of  loss  or  misappropriation  of  same 
unless  receiver  is  appointed.  Whit- 
ley V.  Bradley,  13  Cal.  App.  720, 
110  Pac.  596. 

Where  there  is  no  danger  to  the 
property  in  controversy  and  no 
other  reason  for  a  receiver,  none 
will  be  appointed.  Beaumont  v. 
Beaumont,  166  Pa.  St.  615,  31  Atl. 
336. 

The  danger  of  loss  must  be  of 
an  immediate  character  and  not 
past  or  remote.  Kean  v.  Colt,  5 
N.  J.  Eq.  (1  Halst.  Ch.)  365. 


48  LAW   OF   RECEIVERS. 

the  power  to  appoint  a  receiver  is  exercised  with  clue  cau- 
tion property  may  be  illegally  taken  from  its  rightful 
owner.  If  property  is  properly  placed  in  tJie  hands  of 
a  receiver  the  remedy  becomes  a  shield  and  protection, 
whereas  if  improperly  placed  in  the  hands  of  a  receiver, 
the  remedy  may  be  a  great  hardship  and  method  of 
harassment.  The  necessity  for  caution  in  its  exercise  is 
also  shown  by  the  fact  that  the  ultimate  rights  of  the 
litigants  are  necessarily  prejudged  to  a  certain  extent 
by  the  probabilities  of  the  petitioner's  right  to  recover.    V 

In  other  words,  when,  from  all  the  facts  before  the 
court,  it  is  a  question  of  grave  doubt  whether  the  plain- 
tiff will  ultimately  be  entitled  to  recover,  the  court  may 
in  the  exercise  of  its  discretion  refuse  to  appoint  a 
receiver.*^  And  in  certain  classes  of  cases  such  as  quasi- 
public  corporations,  wdiicli  furnish  service  to  the  public 
in  the  shape  of  water,  light,  transportation,  and  the  like, 
the  court  will  not  only  scrutinize  the  rights  of  the  moving 
party  and  the  injuries  which  may  result  to  the  defendant, 
but  also  the  effects  of  the  appointment  of  a  receiver  upon 
the  public  whom  the  corporation  serves  and  upon  the 
numerous  employees  engaged  in  the  public  service.''' 

In  all  cases,  however,  the  question  of  the  probability 
of  plaintiff  ultimately  recovering  is  necessarily  one  which 
can  not  be  defined,  and  the  question  of  such  probability  in 
such  circumstances  is  one  of  degree,  which  in  each  par- 
ticular case  must  practically  be  determined  by  the  dis- 
cretion of  the  court  exercised  in  view  of  all  of  the  equi- 
table rules  applicable  to  the  subject. 

0  Bank    of    Florence    v.    United  97  N.  W.  613 ;  Wilkinson  v.  Dobbie, 

States  Sav.  etc.  Co.,  104  Ala.  297,  12    Blatchf.    298,    Fed.    Cas.    No. 

16   So.   110;    Builders'  etc.   Supply  17670;  Kelley  v.  Boettcher,  89  Fed. 

Co.  V.  Lucas,  119  Ala.  202,  24  So.  125;  Lancaster  v.  Asheville  St.  Ry. 

416;    Hayes   v.    Jasper   Land    Co.,  Co.,  90  Fed.  129;  Owen  v.  Homan, 

147  Ala.   340,  41   So.   909;    Vila  v.  3  Macn.  &  G.  378. 

Grand  Island  etc.  Co.,  68  Neb.  222,  7  Wabash  R.  Co.  v.  Dykeman,  133 

110  Am.  St.  Rep.  400,  4  Ann.  Cas.  Ind.  56,  32  N,  E.  823. 
59,  63  L.  R.  A.  791,  94  N.  W.  136, 


GENERAL    GROUNDS    OF    APPOINTMENT.  49 

§  13.    Whether  Existence  of  Property  Must  Be  Shown. 

It  is  not  necessary  to  show  that  there  is  property  to 
come  into  the  hands  of  the  receiver  as  a  prerequisite  to 
the  appointment.^  But  where  it  does  not  appear  that  any 
advantage  will  be  gained  by  the  appointment  of  a  receiver 
none  will  be  appointed.-  And  where  it  is  showTi  that  there 
are  no  assets  which  could  be  distributed  by  the  receiver 
the  court  will  not  perform  an  idle  act  by  appointing  one.=* 
And  likewise  where  existing  mortgages  upon  the  property 
will  consume  the  entire  property  no  receiver  will  be 
appointed.^ 

Nor  will  a  receiver  be  appointed  where  it  appears  that 
the  plaintiff  has  parted  with  his  interest  in  the  property 
over  which  a  receiver  is  sought,  even  where  it  otherwise 
w^ould  have  done  so.^ 

So  also  courts  are  averse  to  appointing  a  receiver 
where  the  property  in  controversy  is  of  trifling  value.^ 
And  a  court  will  not  appoint  a  receiver  over  property 
outside  of  its  jurisdiction.' 


1  Button  V.  Thomas,  97  Mich.  93, 
56  N.  W.  229;  Rankin  v.  Roths- 
child, 78  Mich.  10,  43  N.  W.  1077. 

That  the  debtor  does  not  appear 
to  have  property  is  no  ground  for 
refusal  to  appoint;  but  where  it 
appears  that  the  only  property  is 
a  trust  fund  under  a  devise  which 
the  debtor  is  willing  to  apply  upon 
demand,  the  appointment  will  be 
refused.  DeCamp  v.  Dempsey,  10 
N.  Y.  Civ.  Proc.  Rep.  210. 

The  answer  in  a  creditors  bill, 
that  defendant  has  not  property  to 
the  amount  of  $100,  is  not  a  suffi- 
cient reason  for  refusing  to  ap- 
point a  receiver.  Fuller  v.  Taylor, 
6  N.  J.  Eq.  301,  Fitzburgh  v.  Ever- 
ingham,  6  Paige  Ch.  (N.  Y.)  29. 

That  there  is  no  other  property 
than  an  equity  of  redemption  is 
I  Rec. — 4 


not  a  defense.    Bailey  v.  Lane,  15 
Abb.  Pr.  (N.  Y.)  373,  note. 

2  Grandfalls  Mut.  Irr.  Co.  v. 
WTiite  (Tex.  Civ.),  131  S.  \V.  233; 
Mercantile  Investment  etc.  Co.  v. 
River  Platte  Trust  etc.  Co.,  L.  R. 
[1892]  2  Ch.  303. 

A  receiver  will  not  be  appointed 
after  a  judgment  debtor  has  be- 
come a  bankrupt.  Ryan  v.  Lefroy, 
3  Ir.  Ch.  Rep.  351. 

3  Burton  v.  Enterprise  Loan  etc. 
Ass'n,  114  Ind.  226,  5  Am.  St.  Rep. 
608,  16  N.  E.  486. 

4  Collins  V.  Myers,  68  Ga.  530. 

5  Smith  V.  Wells,  20  How.  Pr. 
(N.  Y.)   158. 

6  Whitworth  v.  Whyddon,  2 
Macn.  &  G.  52. 

7  Baltimore  etc.  Loan  Ass'n  v. 
Alderson,  90  Fed.  142,  32  C.  C.  A. 
542. 


50 


LAW   OF   RECEIVERS. 


§  14.    Necessity  for  Pendency  of  a  Suit. 

In  effect  the  appointment  of  a  receiver  is  not  unlike 
a  statutory  attachment  so  far  as  the  seizure  and  preser- 
vation of  the  property  are  concerned  and  the  ultimate 
right  of  the  successful  party  relates  back  to  the  date  of 
the  appointment.  The  appointment  of  a  receiver  amounts 
to  a  sequestration  of  the  property  of  the  defendant  in 
advance  of  a  hearing  and  adjudication  of  his  rights. 
Hence  it  is  apparent  that  the  appointment,  save  in  a  few 
exceptional  cases,  is  an  incident  to  the  litigation  itself 
and  not  the  main  purpose  of  the  litigation.  Consequently 
it  is  a  well  established  rule  that  in  order  to  authorize 
the  appointment  of  a  receiver  it  is  essential  that  there 
shall  be  at  the  time  of  the  appointment  a  suit  pending 
in  which  relief  other  than  the  mere  appointment  of  the 
receiver  is  sought.^    The  exceptions  to  the  general  rule 


1  Harwell  v.  Potts,  80  Ala.  70; 
Crowder  v.  Moone,  52  Ala.  220; 
Baker  v.  Backus'  Admr.,  32  111.  79; 
State  V.  Union  Nat.  Bank,  145  Ind. 
537,  57  Am.  St.  Rep.  209,  44  N.  E. 
585;  Guy  v.  Doak,  47  Kan.  236,  366, 
27  Pac.  968;  Merchants  etc.  Nat. 
Bank  v.  Kent,  Circuit  Judge,  43 
Mich.  292,  5  N.  W.  627;  Jones  v. 
Schall,  45  Mich.  379,  8  N.  W.  68; 
Hardy  v.  McClellan,  53  Miss.  507; 
Barber  v.  Manier,  71  Miss.  725,  15 
So.  890;  Jones  v.  Schaff  Bros.  Co., 
187  Mo.  App.  597,  174  S.  W.  177; 
State  V.  Ross,  122  Mo.  435,  23  L.  R. 
A.  534,  25  S.  W.  947;  Lyon  v. 
United  States  Fidelity  etc.  Co.,  48 
Mont.  591,  Ann.  Cas.  1915D,  1036, 
140  Pac.  86;  Vila  v.  Grand  Island 
etc.  Co.,  68  Neb.  222,  110  Am.  St. 
Rep.  400,  4  Ann.  Cas.  59,  63  L.  R.  A. 
791,  94  N.  W.  136,  97  N.  W.  613; 
Mann  v.  German-Am.  etc.  Co.,  70 
Neb.  454,  97  N.  W.  600;  In  re 
Hancock,  27  Hun  (N.  Y.)  575; 
Mabon  v.  Ongley  etc.  Co.,  156  N.  Y. 


196,  50  N.  E.  805;  Martin  v.  Har- 
nage,  26  Okla.  790,  38  L.  R.  A. 
(N.  S.)  228,  110  Pac.  781;  Repub- 
lic Trust  Co.  V.  Taylor  (Tex.  Civ.), 
184  S.  W.  772;  Popp  v.  Daisy  Gold 
Min.  Co.,  27  Utah  83,  74  Pac.  426; 
Rainey  v.  Freeport  etc.  Co.,  58 
W.  Va.  424,  52  S.  E.  528;  Baltimore 
Bargain  House  v.  St.  Clair,  58 
W.  Va.  565,  52  S.  E.  660;  Robinson 
V.  W.  Va.  Loan  Co.,  90  Fed.  770; 
In  re  Brant,  96  Fed.  257;  Ex  parte 
Mountfort,  15  Ves.  Jr.  445;  Ex 
parte  Whitfield,  2  Atk.  315;  Anon., 

1  Atk.  489,  578;   Ex  parte  Peillon, 

2  Thomson  (Nova  Scotia)  405; 
Young  V.  Wright,  8  P.  R.  (New 
Brunswick)  198;  Salter  v.  Salter, 
L.  R.  [1896]  Prob.  Div.  291. 

In  this  connection  see  also  note 
to  Ann.  Cas.  1912B,  236. 

The  filing  of  the  petition  in  an 
action  between  partners  is  a  pre- 
requisite to  the  appointment  of  a 
receiver  by  the  district  court, 
under   Tex.    Rev.    Stat.    1895,    art. 


GENERAL    GROUNDS    OF    APPOINTMENT. 


51 


o-cur  in  matters  relative  to  the  preservation  of  the  estates 
of  insane  persons,  infants,  and  estates  of  decedents  where 
there  does  not  appear  to  be  any  one  who  has  a  legal  right 
to  deal  with  the  property.^ 

The  resort  to  receivership  in  such  cases  is  more  often 
done  in  England  than  in  this  country/^  At  one  time  in 
Ireland  it  was  the  practice  of  the  chancery  court  m  cer- 
tain specified  cases  to  appoint  receivers  where  no  bill 
•was  pending,  but  this  exceptional  practice  grew  out  of  the 
statute  known  as  4  &  5  Wm.  IV,  chap.  78,  §  7 ;  o  &  6 
Wm.  IV,  chap.  55,  §  31. 

The  pending  action  must  be  one  for  such  relief  as  can 
be  litigated  between  the  parties  even  if  the  application 
for  the  appointment  be  denied.^  Hence  if  the  sole  object 


1465.    Webb  v.  Allen,  15  Tex.  Civ. 
App.  605,  40  S.  W.  342. 

A  suit  is  necessary  to  the  ap- 
pointment of  a  receiver,  and  the 
party  whose  property  is  to  be 
taken  from  him  and  placed  in  the 
hands  of  a  receiver  must  be  a 
party  to  the  pending  suit.  Wil- 
kinson V.  Lehman-Durr  Co.,  136 
Ala.  463,  34  So.  216;  Baker  v. 
Backus'  Admr.,  32  111.  79;  Ex  parte 
Williams,  17  S.  C.  396;  McLean  v. 
Lafayette  Bank,  3  McLean  503, 
Fed.  Cas.  No.  8887  (16  Fed.  Cas. 
262). 

A  suit  which  has  for  its  sole  ob- 
ject the  appointment  of  a  receiver 
will  not  authorize  such  an  appoint- 
ment. Continental  Trust  Co.  v. 
Brown  (Tex.  Civ.  App.),  179  S.  W. 
939. 

A  motion  for  the  appointment, 
where  the  order  to  show  cause 
against  the  appointment  is  served 
before  the  commencement  of  the 
suit,  is  irregular.  Kattenstroth  v. 
Astor  Bank,  2  Duer.  (N.  Y.)  632. 
A  receiver  will  not  be  appointed 


on  a  petition,  but  only  on  a  bill. 

Rice  V.  Tonnele,  4  Sandf.  Ch.  (N. 

Y.)  568. 

2  Price    V.    Bankers    Trust    Co. 

(Mo.),  178  S.  W.  745;  Style  v.  Lan- 

trip    (Tex.    Civ.),   171    S.   W.   786; 

Jones    V.    Bank    of   Leadville,    10 

Colo.  464,   17   Pac.  272;    Hardy  v. 

McClellan,  53  Miss.  507;   Davis  v. 

Flagstaff  S.  U.  Co.,  2  Utah  74,  91, 

2  Morr.  Min.  Rep.  660. 

Except  in  certain  statutory  cir- 
cumstances, the  only  instances  in 
the  English  practice  in  which  a 
receiver  will  be  appointed  without 
a  suit  being  pending  is  that  of  the 
appointment  of  a  receiver  in  the 
case  of  a  lunatic.  Ex  parte  Whit- 
field, 2  Atk.  315. 

3  For  the  cases  on  this  subject, 
see  the  treatment  of  the  subject 
under  estates  of  that  character. 

4  Houston  etc.  Ry.  Co.  v.  Hughes 
(Tex.  Civ.),  182  S.  W.  23;  Hart- 
nett  v.  St.  Louis  Min.  etc.  Co.,  51 
Mont.  395,  153  Pac.  437;  Mann  v. 
German-American  etc.  Co.,  70  .Neb. 
454,  97  N.  W.  600. 


52 


LAW    OF   RECEIVERS. 


of  the  suit  is  the  appointment  of  a  receiver,  the  court  will 
not  take  jurisdiction  in  the  absence  of  statutory  provi- 
sions allowing  such  suits.^  The  court  must  have  jurisdic- 
tion to  entertain  the  cause  of  action  to  Avhich  the  appoint- 
ment of  the  receiver  would  be  ancillary  and  have  power 
to  grant  the  relief  demanded  in  the  action,^  for  if  the 
court  has  no  jurisdiction  over  the  subject-matter  it  has 
no  authority  to  appoint  a  receiver,  since  it  is  fundamental 
that  there  is  no  such  proceeding  in  equity  as  a  plain 
receivership  action,  in  which  the  appointment  of  a  re- 
ceiver is  the  only  desideratum."^  The  action  must,  of 
course,  be  one  which  comes  within  the  equitable  juris- 


5  Hermann  v.  Thomas  (Tex.  Civ. 
App.),  143  S.  W.  195;  Price  v. 
Bankers  Trust  Co.  of  St.  Louis 
(Mo.),  178  S.  W.  745;  Hartnett  v. 
St.  Louis  Min.  &  Mill.  Co.  of  Mon- 
tana, 51  Mont.  395,  153  Pac.  437. 

One  who  alleges  himself  a  cred- 
itor of  the  corporation  can  not 
apply  for  the  appointment  of  a  re- 
ceiver without  making  a  principal 
demand.  Van  Vleet  v.  Evangeline 
Oil  Co.,  127  La.  919,  54  So.  286. 

The  appointment  is  not  the  ulti- 
mate end  and  object  of  the  suit, 
but  is  merely  a  provisional  rem- 
edy or  auxiliary  proceeding.  Sheri- 
dan Brick  Works  v.  Marion  Trust 
Co.,  157  Ind.  292,  87  Am.  St.  Rep. 
207,  61  N.  E.  666;  State  ex  rel. 
Merriam  v.  Ross,  122  Mo.  435,  23 
L.  R.  A.  534,  25  S.  W.  947. 

A  bill  which  has  for  its  sole 
object  the  appointment  of  a  re- 
ceiver will  not  be  entertained.  Con- 
tinental Trust  Co.  v.  Brown  (Tex. 
Civ.  App.),  179  S.  W.  939. 

c  Red  River  Potato  Growers' 
Ass'n  v.  Bernardy,  126  IV.Mnn.  440, 
H8  N.  W.  449. 

Thus  a  bill  for  the  appointment 


of  a  receiver  merely  asking  for 
time  in  which  to  pay  an  indebted- 
ness does  not  state  sufficient 
ground  for  the  appointment.  Con- 
tinental Trust  Co.  V.  Brown  (Tex. 
Civ.  App.),  179  S.  W.  939. 

7  Condon  v.  Mutual  Reserve  etc. 
Ass'n,  89  Md.  99,  73  Am.  St.  Rep. 
3  69,  44  L.  R.  A.  149,  42  Atl.  944; 
Hartnett  v.  St.  Louis  Min.  etc.  Co., 
51  Mont.  395,  153  Pac.  437;  Zuber 
V.  Micmac  Gold  Min.  Co.,  180  Fed. 
625.  A  very  clear  and  concise  dis- 
cussion of  this  subject  was  ren- 
dered by  Mr.  Presiding  Justice 
Paris  in  Price  v.  Bankers  Trust 
Co.  (Mo.),  178  S.  W.  745. 

Equity  has  no  jurisdiction,  under 
Code  1899,  ch.  133,  §  28  (Code  1906, 
4031),  authorizing  the  appointment 
of  a  receiver,  in  an  action  where 
there  is  danger  of  loss  or  misap- 
propriation of  the  subject-matter 
of  the  action,  to  appoint  a  special 
receiver,  unless  there  be  equity 
jurisdiction  independent  of  the  ap- 
plication for  such  receiver.  Ward 
V.  Hotel  Randolph  Co.,  65  W.  Va. 
721,  63  S.  E.  613. 


GENERAL    GROUNDS    OF    APPOINTMENT. 


53 


diction  of  the  court, '^  and  the  relief  prayed  for  must  be  of 
such  a  character  as  to  be  germane  to  the  cause  of  action 
set  up.^ 

In  order  to  constitute  a  suit  as  pending  within  the  above 
rule  it  is  necessary  that  the  complaint  or  bill  shall  state  a 
cause  of  action  against  the  defendant.^"  The  complaint 
may,  however,  be  one  in  the  nature  of  a  cross-bill  filed  by 
the  defendant. ^^  Under  statutes  which  provide  that  a 
suit  is  not  commenced  until  a  summons  has  been  issued 
in  the  case  or  other  conditions  complied  with,  a  receiver 
can  not  be  appointed  before  such  a  summons  has  been 
issued,  even  though  the  complaint  has  been  filed,^^  but 
the  action  will  be  deemed  as  pending  for  this  purpose 


8  A  receiver  will  not  be  ap- 
pointed in  a  proceeding  in  quo 
warranto.  Stone  v.  Wetmore,  42 
Ga.  601. 

9  Davis  V.  Alton,  J.  &  P.  Ry.  Co., 
180  III.  App.  1;  Hartnett  v.  St. 
Louis  Min.  etc.  Co.,  51  Mont.  395, 
153  Pac.  437. 

10  Hartnett  v.  St.  Louis  Min.  etc. 
Co.,  51  Mont.  395,  153  Pac.  437; 
Price  v.  Bankers  Trust  Co.  (Mo.), 
178  S.  W.  745;  Mann  v.  German- 
American  etc.  Co.,  70  Neb.  454,  97 
N.  W.  601;  Pullis  v.  PuUis  Bros. 
Iron  Co.,  157  Mo.  565,  57  S.  W. 
1095;  Cantwell  v.  Columbia  Lead 
Co.,  199  Mo.  1,  97  S.  W.  167;  For- 
est Oil  Co.  V.  Wilson  (Tex.  Civ. 
App.),  178  S.  W.  626;  Houston  etc. 
Ry.  Co.  v.  Hughes  (Tex.  Civ.  App.), 
182  S.  W.  23;  Republic  Trust  Co.  v. 
Taylor  (Tex.  Civ.  App.),  184  S.  W. 
772. 

A  liberal  construction  will  be 
given  to  a  complaint  in  determin- 
ing its  sufficiency  so  far  as  it  re- 
lates to  the  appointment  of  a  tem- 
porary receiver  pending  the  action, 
but  it  must  state  a  cause  for  such 
appointment;    and  if  the   applica- 


tion is  made  without  notice,  the 
cause  for  an  appointment  without 
notice  must  appear  either  in  the 
verified  complaint  or  by  affidavit, 
under  Ind.  Rev.  Stat.  1894,  §  1244, 
providing  that  a  receiver  shall  not 
be  appointed  without  notice  of  the 
application  to  the  adverse  party, 
except  upon  sufficient  cause  shown 
by  affidavit.  Sullivan  Electric 
Light  &  P.  Co.  V.  Blue,  142  Ind. 
407,  41  N.  E.  805. 

11  Russell  V.  Mohr-Weil  Lumber 
Co.,  102  Ga.  593,  27  S.  E.  699. 

12  Guy  V.  Doak,  47  Kan.  236,  366, 
27  Pac.  968;  Dixon  v.  Dixon,  119 
Md.  413,  86  Atl.  1042;  Hardy  v.  Mc- 
Clellan,  53  Miss.  507;  Barber  Bros. 
V.  Manier,  71  Miss.  725,  15  So.  890; 
Dwelle  V.  Hlnde,  8  Ohio  C.  D.  10, 
18  Ohio  Ct.  618. 

Where  the  summons  was  not  de- 
livered to  the  serving  officer  until 
the  next  day  after  the  filing  of 
the  complaint  and  appointment  of 
the  receiver,  the  appointment  was 
made  before  the  action  was  com- 
menced, and  hence  while  the  court 
had  no  jurisdiction.  Marshall  v. 
Matson,  171  Ind.  238,  86  N.  E.  339. 


54  LAW   OF   RECEIVERS. 

where  the  notice  or  service  is  merely  defective.^^  And 
where,  under  the  statutory  pro^dsions  in  force,  a  suit  is 
deemed  to  be  commenced  upon  the  serving  of  notice  of 
the  pendency  of  the  action,  it  has  been  held  that  the 
appointment  of  a  receiver  was  not  premature,  although 
made  before  the  actual  filing  of  the  petition,  but  subse- 
quent to  the  service  of  the  notice.^^  And  in  another 
instance  it  was  held  where  the  receiver  was  appointed 
by  a  judge  in  chambers,  while  in  another  district,  upon 
the  presentation  of  the  bill  and  answer  which  had  not 
been  filed,  but  the  appointment  was  not  to  take  effect 
until  the  pleadings  and  order  of  appointment  had  been 
filed,  the  appointment  was  valid.^^  In  accordance  with  the 
rules  above  set  forth,  an  appointment  of  a  receiver  in 
advance  of  the  pendency  of  a  proper  suit  is  held  to  be 
void,^'^  and  the  subsequent  filing  of  the  bill  will  not  vali- 
date such  an  appointment.^^  Where  at  the  time  of  making 
the  original  appointment,  no  suit  Avas  pending  before 
the  court,  but  after  the  proper  filing  of  the  suit  the  court 
confirms  the  original  appointment,  such  confirmation  will 
be  regarded  as  an  original  appointment  and  be  valid  from 
the  date  of  confirmation.^^ 

If  the  controversy,  which  is  the  subject-matter  of  the 
litigation,  is  settled  during  the  pendency  of  the  suit,  the 
court  loses  jurisdiction  to  appoint  a  receiver,^'^  or  if  one 

13  Hellebrusn  v.  Blake,  119  Ind.  379,  8  N.  W.  68;  Hardy  v.  McClel- 
349,  21  N.  E.  976.  Ian,  53  Miss.  507. 

14  Paine  v.  Mueller,  150  Iowa  340,  ^g  Anderson  v.  Riddle,  10  Wyo. 
130  N.  W.  133.  277,  68  Pac.  829. 

I'jHorn    V.    Pere    Marquette    R. 
^      -IC1  -c.  ^   coc  19  Christoffel  V.  Lee,  153  111.  App. 

Co.,  151  Fed.  626. 


16  Howell  V.  Harris-Cortner  Co., 


395. 


168  Ala.  383,  Ann.  Cas.  1912B  234,  The  jurisdiction   of   a   court   to 

52  So.  935;   Bank  of  Meadville  v.  appoint  a  receiver  should  always 

Hardy,  94  Miss.  587,  48  So.  731.  follow    the    jurisdiction    of    the 

17  Harwell  v.  Potts,  80  Ala.  70;  action  upon  which  the  receivership 

Gold  Hunter  Min.  &  S.  Co.  v.  Holle-  is  sought  to  be  ingrafted.  Price  v. 

man,    3    Ida.    99    (2    Ida.    839),    27  Bankers  Trust  Co.,  (Mo.)  178  S.  W. 

Pac.  413;  Jones  v.  Schall,  45  Mich.  745. 


GENERAL    GROUNDS    OF    APPOINTMENT.  OO 

has  been  appointed  the  only  jurisdiction  remaining  in  the 
court  is  to  settle  the  receiver's  accounts.^"  Likewise  where 
judgment  is  rendered  in  favor  of  the  defendant  such 
judgment  operates  as  a  termination  of  the  receivership 
where  the  receiver  was  appointed  for  the  purpose  of  pre- 
serving the  property  during  the  pendency  of  the  action.-^ 
The  same  result  happens  where  a  judgment  in  favor  of 
the  plaintiff  is  reversed  on  appeal.-- 

§  15.  Right  of  Court  to  Refuse  Appointment  on  Condition  of 
Defendant  Furnishing  a  Bond, 
^here  a  court  is  of  the  opinion  that  the  plaintiff  is  enti- 
tled to  have  a  receiver  appointed  to  take  charge  of  the 
property  or  fund  in  litigation  but  nevertheless  feels 
that  the  plaintiff  could  be  made  secure  in  respect  to  the 
outcome  of  the  litigation  in  the  event  of  his  recovery 
by  the  furnishing  of  a  bond  by  the  defendant  to  secure 
any  such  recovery,  it  is  within  the  discretion  of  the  court 
to  make  an  order  refusing  to  appoint  a  receiver  upon 
condition  that  the  defendant  furnish  such  a  bond.^   The 

20  Decker  Bros.  v.  Berner's  Bay      bond  to  pay  plaintiff  his  eventual 
Mining  Co.,  3  Alaska  280.  condemnation  money  in  case  said 

..  ^  ,    .  nronertv    or   any   part   thereof   is 

21  Wiencke  v.  Bibby,  15  Cal.  App.      Properiy    or   a  y    ^^ 

„  -r.       cnr    T,     „r„+^^  ,r  -c^  p  found    subject  to   plaintitt  s   juag 

50,  113  Pac.  876;  Brewster  v.RG.  where    the   defendant   had 

Brewster  Co..  130  N.  Y.  Supp.  654.  -ent-^  ^^  ^^^  ^^^^^  ^^^^    ^^^^^^  ^ 

145  App.  Div.  812.  ^^^j^^^  ^gg  ^^   ^^4^  rj^  g    J,    ;l076. 

22  Co-operative  Sanitary  Baking  j^^  ^ow  v.  Holmes,  2  C.  E.  Green 
Co.  v.  Shields,  (Fla.)  70  So.  937.  ^-^  -j^    j    ^^^    143^  the  court  re- 

1  Baker  v.  Bartol,  7  Cal.  551;  fused  to  appoint  a  receiver  over 
Davis  V.  Leonard,  66  Fla.  351,  63  property  in  possession  of  one  ten- 
So.  584;  Clyatt  v.  Taylor,  136  Ga.  ant  in  common,  in  a  suit  for  parti- 
774,  71  S.  E.  1076;  Conquest  v.  Na-  tion,  where  he  offered  to  give 
tional  Bank,  97  Ga.  500,  25  S.  E.  adequate  security  for  the  rents 
343;  Parsille  v.  Brown,  188  Mich.  and  profits  pending  the  litigation. 
485,  154  N.  W.  569;  Mead  v.  Orr-  a  reasonable  time  may  be  al- 
ery,  3  Atk.  235;  Haigh  v.  Grattan,  i>(jwed  within  which  the  defendant 
1  Beav.  201.  may  file  a  bond  to  secure  the  plain- 
It  is  not  an  abuse  of  discretion  tiff  in  the  event  of  his  recovery, 
to  appoint  a  receiver  conditioned  Barclay  v.  Quicksilver  Min.  Co.. 
on     defendant's     failure     to     give  9  Abb.  Pr.  N.  S.  (N.  Y.)  283. 


56  LAW    OF    RECEIVERS. 

making  of  such  an  order  is  merely  another  way  of  saying 
that  a  receiver  should  be  appointed  in  the  case,  but 
making  it  optional  mth  the  defendant  to  submit  to  the 
appointment  or  furnish  a  bond  if  he  prefer  to  do  that 
rather  than  have  a  receiver  appointed,  but  such  a  choice 
should  only  be  offered  by  a  court  in  a  case  wherein  the 
appointment  of  a  receiver  would  be  proper.  At  first  sight 
in  such  a  case  it  would  appear  that  the  court  was  exact- 
ing a  bond  from  the  defendant  in  advance  of  trial  to 
secure  the  payment  of  any  judgment  which  might  be 
recovered  against  him,  but  such  is  not  the  case  since  the 
order  for  the  furnishing  of  the  bond  is  not  mandatory  but 
merely  presented  in  the  alternative  and  allows  the  defen- 
dant to  refuse  to  furnish  the  bond  if  he  desires.  The  rea- 
sons for  the  practice  in  such  case  were  well  stated  in  an 
early  case  in  California,-  wherein  the  court  said : 

''It  is  true  that  the  court  had  no  power  to  compel  the 
defendant  to  execute  the  bond  in  question,  but  it 
undoubtedly  had  the  power  to  appoint  a  receiver,  and  if 
the  defendant  chose  to  execute  a  bond  rather  than  pay 
the  money  over  to  the  officer  of  the  court,  it  was  a  volun- 
tary act  upon  his  part,  and  the  bond  was  good  as  a  com- 
mon law  bond.  In  this  respect  he  is  not  to  be  considered 
as  a  receiver  or  officer  of  the  court,  but  as  a  party  who, 
for   a  personal   accommodation,   has   assumed   a   legal 

Where  the  character  of  the  prop-  Hence  in  cases   of   partnership 

erty  involved  is  such  that  it  is  not  dissolution  and  accounting  where 

likely  to  be  injured  if  a  receiver  is  losses  to  the  partnership  business 

not  appointed,  and  the  defendant  ^jj^  assets  can  be  avoided  by  the 

is  solvent,  it  has  been  held  that  furnishing  of  a  bond  to  make   a 

the  court  should  allow  the  defend-  ^^^^   accounting,   the   courts   will 

ant    the    alternative    of    giving    a  gj^^  ^^e  defendant  the  privilege  of 

bond  for  the  protection  of  plaintiff  ^^^^^             ^^^^  ^  ^^^^   Cary  Bros. 

or    having    a    receiver    appointed.  ,    ^     ,      „       -.n^  tt,  ^    ro^. 

„  ,    ^  f^  V    Dolhoff  etc.  Co.,  126  Fed.  584 

Stillwell  V.  Savannah  Grocery  Co.,       v.  i^ui  u      et  .         ' 

88  Ga.  100,  13  S.  E.  963;   Cordele      Mann  v.   Gaddie,   158   Fed.  42,   88 

Ice  Co.   v.   Sims,  120   Ga.  428,   48      C.  C.  A.  1. 

S  B   12.  2  Baker  v.  Bartol,  7  Cal.  551, 


GENERAL    GROUNDS    OF    APPOINTMENT. 


57 


responsibility,  and,  after  receiving  its  benefits  on  liis 
part,  shonld  be  estopped  from  denying  its  legality." 

The  court  in  such  cases  knows  the  circumstances  sur- 
rounding the  case  and  adopts  the  remedial  relief  so  as 
to  reach  the  ends  of  substantial  justice  without  unduly 
injuring  the  rights  or  interest  of  any  party  to  the  liti- 
gation. The  provisional  remedy,  being  merely  auxiliary 
to  the  ultimate  relief,  should  not  usurp  or  anticipate  the 
office  and  effects  of  a  trial  on  the  merits.=^  Where  a  fund 
which  is  in  litigation  is  placed  in  the  custody  of  the  court, 
a  receiver  will  not,  of  course,  be  appointed  to  take  charge 
of  it.* 

In  some  states  statutory  provisions  exist  which  pro- 
vide that  a  receiver  should  not  be  appointed  in  a  case 
if  the  defendant  offers  to  furnish  a  bond  to  protect  the 
plaintiff  in  the  event  of  his  recovery  and,  of  course,  under 
such  statutes,  no  receiver  will  be  appointed  if  the  statu- 
tory bond  is  forthcoming.^ 
§  16.   Effect  Where  an  Injunction  Would  Serve  Same  Purpose. 

An  injunction,  of  course,  does  not  have  the  effect  of 
taking  the  possession  away  from  the  enjoined  party, 
although  it  may  restrict  him  in  the  exercise  of  his  pos- 
session while  the  appointment  of  a  receiver  takes  the 
entire  management  and  control  of  the  property  from  the 
defendant.  The  object  of  both  an  injunction  and  receiver- 
ship proceeding  is  the  preservation  of  the  property  pend- 
ing the  litigation,  and  both  remedies  are  frequently 
exercised  in  the  same  litigation,  but  the  court  will  not  nec- 

3  In  Popper  v.  Scheider,  7  Abb.  court  vacated  its  order  of  appoint- 

Pr.  N.  S.  (N.  Y.)  56,  which  was  an  ment  on  condition  of  a  bond  being 

action   to  dissolve   a   partnership,  given    to    pay    plaintiff    any    sum 

the  existence  of  which  was  denied  found  due  on  a  final  settlement  of 

bv   defendant,   the   court  had   ap-  the  alleged  partnership, 

pointed  a  receiver,  hut  upon  mo-  4  Curling  v.  Townshend,  19  Ves. 

tion    of    the    defendant    and    his  Jr.  628. 

showing  that  the  business  would  5  Roberts  v.  Pipkin,  63  S.  C.  252. 

be  injured  by  the  receivership,  the  41  S.  E.  300. 


58  LAW    OF   RECEIVERS. 

essarily  appoint  a  receiver  merely  because  the  plaintiff 
has  shown  sufficient  grounds  for  the  granting  of  an 
injunction.^ 

Where,  however,  the  granting  of  an  injunction  will  pro- 
tect the  rights  of  the  plaintiff  in  the  event  of  his  recovery, 
the  court  will  not  resort  to  the  more  drastic  remedy  of  a 
receivership  w^hereby  the  defendant  will  be  deprived  of 
the  possession  of  the  property  in  controversy.^ 

§  17.    Insolvency  as  a  Ground  for  Receivership. 

Mere  insolvency  of  the  defendant  without  any  other 
ground  being  stated  as  a  cause  of  action  will  not  be  suffi- 
cient for  the  appointment  of  a  receiver  by  a  court  of 
equity  in  the  absence  of  a  statute  allowing  the  appoint- 
ment upon  a  showing  of  insolvency  or  imminent  danger 
of  such  a  condition.^ 

Insolvency  is,  however,  most  frequently  one  of  sev- 
eral reasons  for  the  appointment  of  a  receiver,  but  insol- 
vency as  a  ground  for  the  appointment  of  a  receiver  is 
predicated  upon  the  general  doctrine  of  probable  loss. 
Hence  there  must  be  coupled  with  an  allegation  of  insol- 

1  Rawnsley  v.  Trenton  Mut.  etc.  2  Empire  Hotel  Co.  v.  Main,  98 

Ins.   Co.,   1  Stockt.    (9   N.  J.  Eq.)  Ga.   176,   25   S.  E.   41.3;    Tarvin  v. 

347;    Oakley  v.  Paterson  Bank,  1  Walker's   Creek  etc.  Co.,  109   Ky. 

Green  Ch.    (2  N.  J.  Eq.)    173.     It  5^9^  go  g   ^   155 

does   not  follow  that  because   an  ^  prudential    etc.    Co.   v.    Three 

injunction  may  be  granted  to  stay  ^^^^^  ^^^            ^^     ^^  ^^^^^    ^^.^ 

irreparable  damage  by  the  defend-  ^^^     ^^^                 Virginia-Carolina 

ant  until  decision  respecting  title  .     ,   ^           tt      »        can 

can  be  reached,  a  receiver  will  be  Chemical  Co.  v.  Hunter,  84  S.  C. 

appointed  to  deprive  one  in  pos-  214,   66   S.   E.   177;    Galvin  v.   Mc- 

session  under  color  of  title  of  his  Connell,  53  Tex.  Civ.  4S6,  117  S.  W. 

advantage     and     more    especially  211;  Floore  v.  Morgan,  (Tex.  Civ.) 

allow    the    receiver    to    work    his  175  S.  W.  737;   Continental  Trust 

land,  and  charge  it  with  a  lien  for  Co.  v.  Brown,  (Tex.  Civ.)  179  S.  W. 

expenditures.     Freer  v.  Davis,  52  939;     Houston     etc.     Ry.     Co.     v. 

W.   Va.   35,   94  Am.  St.   Rep.   910,  Hughes,  (Tex.  Civ.)   182  S.  W.  23. 
43  S.  E.  172. 


GENERAL    GROUNDS    OF    APPOINTMENT. 


59 


voncy  additional  allegations  showing  tlie  plaintiff's  right 
of  recovery  or  probability  of  recovery,  and  that  such 
recovery  will  be  wholly  or  substantially  lost  or  impaired 
by  reason  of  the  insolvency.-  Insolvency  is  most  fre- 
quentlv  one  of  the  grounds  of  application  for  a  receiver 
in  cases  of  insolvent  banks,=^  corporations,^  mortgages,^ 
fraudulent  conveyances,*^  matters  involving  trusts,^  part- 


2  Cofer  V.  Eclierson,  6  Iowa  502; 
Chase's  Case,  1  Bland  Ch.   (Md.) 
206,    17    Am.    Dec.    277;     Cox    v. 
Peters,  13  N.  J.  Eq.  39 ;  Gregory  v. 
Gregory,  1  Jones  &  S.  (N.  Y.)   1; 
Rollins  V.  Henry,  77  N.  C.  467;  Mc- 
Nair  v.  Pope,  96  N.  C.  502,  2  S.  E. 
54;    Lawrence  Iron  Works  Co.   v. 
Rockbridge  Co.,  47  Fed.  755;  Trust 
&  Deposit  Co.  V.  Spartanburg  etc. 
Co.,  91  Fed.  324;   Ryder  v.  Bate- 
man,  93  Fed.  16;  Owen  v.  Homan, 
4'h.  L.  Cas.  997,  3  Macn.  &  G.  378; 
Commissioners    etc.    v.    Lockhart, 
Ir.  Rep.  3  Eq.  515. 

While  mere  insolvency  is  not 
sufficient  ground  for  appointment 
of  a  receiver,  if  a  debtor  adopts  a 
course  of  conduct  which  shows  a 
fraudulent  intent  to  delay  or  hin- 
der his  creditors,  an  equity  court 
will  appoint  a  receiver.  Virginia- 
Carolina  Chemical  Co.  v.  Hunter, 
84  S.  C.  214,  66  S.  E.  177. 

An  auxiliary  petition  was  filed 
for  the  appointment  of  a  receiver 
to  protect  the  property  and  im- 
pound the  rents,  on  the  ground  of 
the  defendant's  insolvency  and 
the  insufficiency  of  the  property  to 
discharge  the  balance  due  on  the 
purchase  price.  There  was  no 
abuse  of  discretion  in  making  such 
appointment.  Adams  v.  Foster,  143 
Ga.  701,  85  S.  E.  834. 


3  Hill  V.  Western  &  A.  R.  Co.,  86 
Ga.  284,  12  S.  E.  835;  Attorney 
General  v.  Bank  of  Columbia,  1 
Paige  (N.  Y.)  511. 

4  Nichols  v.  Perry  Patent  Arms 
Co.,  11  N.  J.  Eq.  126;  Middlesex 
County  Board  of  Chosen  Freehold- 
ers V.  State  Bank  at  New  Bruns- 
wick, 30  N.  J.  Eq.  311;  North 
Carolina  S.  C.  C.  R.  Co.  v.  Drew,  3 
Woods  691,  Fed.  Cas.  No.  17434; 
Buck  V.  Piedmont  &  A.  L.  Ins.  Co., 
4  Fed.  849,  4  Hughes  415;  White- 
water Valley  Canal  Co.  v.  Vallette, 
62  U.  S.  (21  How.)  414,  16  L.  Ed. 
154;  Evans  v.  Coventry,  5  DeG.  M. 
&  G.  911. 

5  Hart  V.  Respess,  89  Ga.  87,  14 
S.  E.  910;  McMahon  v.  North  Kent 
Ironworks  Co.,  [1891]  2  Ch.  148; 
Reynolds  v.  Quick,  128  Ind.  316,  27 
N.  E.  621;  Merritt  v.  Gibson,  129 
Ind.  155,  15  L.  R.  A.  227,  27  N.  E. 
136;  Hill  V.  Robertson,  24  Miss. 
368;  Quincy  v.  Cheeseman,  4  Sandf. 
Ch.  405. 

G  Tufts  V.  Little,  56  Ga.  139; 
Gunby  v.  Thompson,  56  Ga.  316; 
Chappell  V.  Boyd,  56  Ga.  578;  Pen- 
dleton  Bros.  v.  Johnson,  85  Ga.  840, 
11  S.  E.  144;  Flagler  v.  Blunt,  32 
N.  J.  Eq.  518;  Ahlhauser  v.  Doud, 
74  Wis.  400,  43  N.  W.  169. 

7  Bowling  V.  Scales,  2  Tenn.  Ch. 
63;  Drlskill  v.  Boyd,  (Tex.  Civ.) 
181  S.  W.  715. 


60  LAW    OF    RECEIVERS. 

nersliips,^  judgment  debtors,^  executors  and  administra- 
tors/^ joint  tenants/^  and  matters  relating  to  dower.^- 
In  respect  to  the  question  when  a  person  or  corporation 
is  insolvent  reference  must  be  had  to  the  general  deci- 
sions on  the  question  irrespective  as  to  whether  they 
refer  to  questions  of  receivers  or  not,  since  different 
courts  view  the  question  from  different  angles,  some  bas- 
ing insolvency  upon  inability  to  pay  debts  as  they  become 
due  in  the  usual  course  of  business,  while  others  base  it 
on  a  deficiency  of  assets  over  liabilities.  It  is  obvious  that 
the  same  rule  should  not  be  applied  to  a  railroad  com- 
pany or  large  manufacturing  concern  as  should  be  applied 
to  a  bank.  In  a  general  sense,  however,  and  as  generally 
used  in  bankruptcy  and  insolvent  laws,  insolvency  means 
an  inability  to  pay  debts  as  they  mature. ^^ 

A  receiver  may,  however,  be  appointed  in  a  proper 
case  notwithstanding  that  the  defendant  is  perfectly  sol- 
vent. ^^ 


s  Bard  v.  Bingham,  54  Ala.  463 
Barnard  v.  Davis,  54  Ala.  565 
Boyce    v.    Burchard,    21    Ga.    74 


C.    414;    Sandford    v.    Ballard,    30 
Beav.  109. 

12  Chase's  Case,  1  Bland  Ch.  206. 


Williamson  v.  Wilson,  1  Bland  Ch.  13  The  fact  that  a  defendant  can 

(Md.)    418;    Heathcot   v.    Ravens-  not  pay  its  current  obligations  as 

croft,  6  N.  J.  Eq.  113;  Randall  v.  they  mature,  and  is  unable  in  the 

Morrell,  17  N.  J.  Eq.  343;  People's  ordinary  course  of  its  business  to 

Bank  v.  Fancher,  21  N.  Y.  Supp.  pay  its  liabilities,  is  a  proper  and 

C45.  sufficient  allegation  of  insolvency 

0  McCord  V.  Weil,  33  Neb.   868,  in  a  suit  in  equity.   American  Can 

51  N.  W.  300;   Shannon  v.  Hanks,  Co.    v.    Erie    Preserving    Co.,    171 

88  Va.  338,  13  S.  E.  437;  Dunlap  v.  Fed.  540. 

Hedges,   35  W.  Va.   287,  13   S.   E.  See  discussion  of  the  subject  in 

657;  Ogden  v.  Chalfant,  32  W.  Va.  Sill    v.    Kentucky    Coal    etc.    Co., 

559,  9  S.  E.  879.  (Del.  Ch.)  97  Atl.  617. 

10  Williams  v.  Jenkins,  11  Ga.  1 4  Mead  v.  Burk,  156  Ind.  577,  60 
595;  Johns  v.  Johns,  23  Ga.  31;  N.  E.  338;  Fink  v.  Montgomery, 
Jenkins  v.  Jenkins,  1  Paige  243.  162  Ind.  424,  68  N.  E.  1010;    Man- 

11  Bryan  v.  Moring,  94  N.  C.  694,  nos  v.  Bishop-Babcock-Becker  Co., 
699;   Street  v.  Anderton,  4  Bro.  C.  181  Ind.  343,  104  N.  E.  579. 


GENERAL   GROUNDS    OF    APPOINTMENT.  61 

§  18.    What  Constitutes  a  Bar  to  Relief  by  Receivership. 

Following  the  analogy  of  the  rules  applicable  to  injunc- 
tional  relief,  long  acquiescence  in  the  perpetration  of  the 
wrongs  or  injuries  complained  of  as  ground  for  the 
appointment  of  a  receiver  A\ill  be  regarded  by  the  courts 
as  a  bar  to  the  appointment  of  a  receiver,^  So,  also,  the 
appointment  of  a  receiver  has  been  refused  where  the 
plaintiff  applying  for  the  receiver  was  a  monopoly 
engaged  in  the  conduct  of  transactions  in  restraint  of 
trade.^ 

§  19.    Right    of    Court    to    Exact    Security    for    Receivership 
Expenses. 

The  receiver  and  those  who  render  services  in  respect 
to  the  receivership  are  entitled  to  be  compensated  for 
their  services  as  well  as  those  who  furnish  funds  or  mate- 
rial during  the  pendency  of  the  receivership.  Ordinarily 
payment  and  reimbursement  for  services  and  expenses 
nmst  be  sought  from  out  of  the  property  constituting 
the  receivership  fund,  but  sometimes  it  may  be  doubtful 
whether  the  receivership  fund  will  be  sufficient  to  meet 
such  expenses.  This  may  be  the  result  of  the  fluctuating 
value  of  the  business  over  which  a  receiver  is  sought 
or  because  of  the  bulk  of  the  receivership  property  being 
in  the  nature  of  a  chose  in  action,  the  recovery  of  which 
and  adding  to  the  fund  may  be  doubtful.  Sometimes  the 
receivership  may  suffer  unforeseen  losses  in  its  assets 

1  Skinners  Company  v.  Irish  So-  where  the  question  was  raised  on 
ciety,  1  Myl.  &  Cr.  162.  a     writ     of     prohibition     whether 

After  forty  years  undisturbed  stockholders  in  a  corporation 
possession  the  court  will  not  ap-  which  had  forfeited  its  charter  be- 
point  a  receiver.  Gray  v.  Chaplin,  cause  of  being  conducted  as  a 
2  Russ.  Ch.  126.  monopoly  and  over  which  the  trial 

2  American  Biscuit  etc.  Co.  v.  court  had  appointed  a  receiver, 
Klotz,  44  Fed.  721.  were    in   a    position   to    object   to 

In  this  connection  see  also  the  such  an  appointment,  but  the  ap- 

case    of    Havemeyer    v.    Superior  pellate  court  held  that  under  the 

Court,  84  Cal.  327,  18  Am.  St.  Rep.  statutes  in  force  no  receiver  could 

1:12,  10  L.   R.  A.  627,  24  Pac.  121,  be  appointed. 


62  LAW   OF   RECEIVERS. 

and  thus  be  unable  to  pay  its  expenses  from  out  of  the 
fund,  but  where  at  the  time  of  the  making  of  the  appoint- 
ment it  is  known  that  it  is  doubtful  whether  the  assets 
of  the  receivership  will  be  sufficient  to  meet  the  reason- 
able anticipated  expenses  of  the  receivership  the  question 
arises  as  to  the  practice  to  be  followed  by  the  court  in 
the  circumstances.  ''No  court,"  as  was  well  said  by  the 
Supreme  Court  of  Oregon,^  ''is  bound  or  ought  to  engage 
or  continue  in  the  operation  of  a  railroad  or  any  other 
enterprise  without  the  ability  to  promptly  discharge  its 
obligations,  and  unless  it  can  do  so  it  should  keep  out 
or  immediately  go  out  of  the  business." 

Hence  cases  may  arise  in  wdiich  by  reason  of  the  spe- 
cial circumstances  it  is  equitable  to  require  the  parties 
commencing  the  receivership  proceedings  to  meet  the 
expenses  in  the  event  that  the  receivership  funds  prove 
to  be  inadequate  for  that  purpose.-  The  proper  practice 
for  a  court  to  follow  in  a  case  where  it  appears  probable 
at  the  time  of  making  the  appointment  of  a  receiver 
that  the  property  which  is  about  to  be  placed  under  a 
receiver  will  be  inadequate  to  meet  the  expenses  of  the 
receivership  is  to  require  the  moving  parties  to  furiiisli 
a  guaranty  or  security  for  the  payment  of  the  expenses 
to  be  incurred  in  the  event  that  the  property  belonging 
to  the  receivership  proves  to  be  inadequate  for  that  pur- 
pose.^' A  distinction  will  be  seen  between  cases  where 
such  security  is  required  by  the  court  as  a  condition 
of  making  the  appointment  and  cases  where  the  appoint- 

1  Farmers  Loan  etc.  Co.  v.  Ore-  Pac.  706;  Chapman  v.  Atlantic 
gon  etc.  Co.,  31  Or.  237,  65  Am.  Trust  Co.,  119  Fed.  257,  56  C.  C.  A. 
St.    Rep.   822,   38   L.   R.  A.  424,   48       61. 

Pac.  706.  In    this    connection    see    also 

2  Atlantic  Trust  Co.  v.  Chapman,  Farmers  Nat.  Bank  v.  Backus,  74 
208  U.  S.  360,  13  Ann,  Cas.  1155,  Minn.  264,  77  N.  W.  142;  Atlantic 
52  L.  Ed.  528,  28  Sup.  Ct.  406.  Trust  Co.  v.  Chapman,  208  U.   S. 

3  Farmers  Loan  etc.  Co.  v.  Ore-  360,  13  Ann.  Cas.  1155,  52  L.  Ed. 
pon    etc.   Co.,   31   Or.    237,   65   Am.  528,  28  Sup.  Ct.  406. 

Et.    Rep.  822,   38   L.   R.   A.  424,   48 


GENERAL    GROUNDS    OP    APPOINTMENT.  63 

ment  is  made  without  such  conditions,  as  mil  be  more 
fully  discussed  when  we  consider  the  questions  relating 
to  the  payment  of  receivership  expenses.  The  court  cer- 
tainly has  a  right  to  withhold  the  remedy  of  a  receiver- 
ship or  impose  conditions  upon  its  duration  if  it  appears 
probable  that  the  fund  will  not  be  sufficient  to  meet  the 
legitimate  expenses  and  thereby  bring  the  court  into  dis- 
repute on  account  of  exacting  or  accepting  services  for 
which  it  can  not  compensate.  After  a  receiver  has  been 
appointed,  however,  it  is  his  duty  to  keep  the  court 
ad\ised  as  to  the  condition  of  the  estate  and  the  parties 
to  the  litigation  can  not  be  held  liable.  A  receiver  as 
soon  as  he  is  appointed  and  qualifies  is  brought  under 
the  sole  direction  of  the  court  to  which  he  owes  his 
appointment.  The  contracts  which  he  makes  or  the  trans- 
actions into  which  he  enters,  from  time  to  time,  under  the 
order  of  the  court  are  in  a  substantial  sense  the  contracts 
and  transactions  of  the  court.  The  liabilities  which  he 
incurs  are  liabilities  chargeable  upon  the  property  in 
the  possession  and  control  of  the  court  and  not  liabili- 
ties of  the  parties  to  the  pending  cause  since  they  have 
no  authority  over  him  and  can  not  control  his  acts.* 

§  20.    Appointment  of  Receiver  With  Consent  of  Parties. 

It  is,  of  course,  axiomatic  that  the  parties  to  a  litiga- 
tion can  not  by  consent  confer  jurisdiction  to  a  court  of 
a  case  over  which  it  otherwise  would  not  have  jurisdic- 
tion. Hence  an  appointment  of  a  receiver  in  a  case  in 
which  the  pleadings  do  not  state  a  cause  for  such  an 
appointment  will  not  be  validated  by  the  fact  that  the 
litigants  have  consented  to  it.^  Where  the  pleadings  show 

4  Atlantic  Trust  Co.  v.  Chapman,  Rep.  400,  4  Ann.  Cas.  59,  63  L.R.  A. 

208  U.  S.  360,  13  Ann.  Cas.  1155,  52  791,  94  N.  W.  136,  97  N.  W.  613. 

L.  Ed.  528,  28  Sup.  Ct.  406.  An  agreement  between  the  par- 

1  Elliott  V.   Superior  Court,   168  ties  to  a  suit  can  not  confer  juris- 

Cal    727    145  Pac.  101.  diction     to     appoint     a     receiver, 

Vila  V.  Grand  Island  etc.  Stor-  where  such  power  does  not  other- 
age  Co.,  68  Neb.  222,  110  Am.  St.  wise    exist.      Scott    v.    Hotchkiss, 


li-l 


LAW    OF    RECEIVERS. 


a  proper  case  for  tlie  appointment  of  a  receiver,  it  is  no 
objection  to  such  an  appointment  that  the  defendant  con- 
sented thereto  instead  of  putting  the  plaintiff  to  the  neces- 
sity of  determining  the  matter  by  means  of  a  contest,  pro- 
vided, of  course,  that  such  consent  was  not  the  result  of 
fraud  or  collusion  on  the  part  of  the  litigants.^ 


115  Cal.  89,  47  Pac.  45;  Baker  v. 
Varney,  129  Cal.  564,  79  Am.  St. 
Rep.  140,  62  Pac.  100;  Browning  v. 
Sire,  56  App.  Div.  399,  67  N.  Y. 
Supp.  798;  Whelpley  v.  Erie  Ry. 
Co.,  6  Blatchf.  271,  Fed.  Cas.  No. 
17504;  Hutchinson  v.  American 
Palace  Car  Co.,  104  Fed.  182. 

In  Atlantic  Trust  Co.  v.  Chap- 
man, 208  U.  S.  360,  13  Ann.  Cas. 
1155,  52  L.  Ed.  528,  28  Sup.  Ct.  406, 
a  receiver  for  a  canal  and  irriga- 
tion company  was  appointed  in  a 
suit  to  foreclose  a  mortgage  secur- 
ing bonds,  with  the  consent  of  the 
mortgagor. 

In  Pennsylvania  Steel  Co.  v. 
New  York  City  R.  Co.,  157  Fed. 
440,  the  court  said:  "There  is  no 
collusion  apparent  in  any  legal 
sense.  It  is  of  course  manifest 
that  complainants  and  defendants 
were  entirely  in  accord,  and  ar- 
ranged together  that  the  suit 
should  he  brought  to  the  federal 
court,  and  that  the  averments  of 
the  bill  should  be  admitted  by  the 
answer.  But  there  was  no  color- 
able assignment  of  some  claim  to 
a  citizen  of  another  state,  nor  any 
misrepresentation  or  distortion  of 
facts  to  mislead  the  court.  On  the 
contrary,  examination  of  the  books 
shows  that  the  financial  situation 
is  precisely  such  as  was  averred 
in  the  comjilaint." 

The  fact  that  a  receiver  is  ap- 


pointed by  a  consent  decree  does 
not  render  his  authority  subject  to 
collateral  attack  in  another  juris- 
diction. Jenkins  v.  Purcell,  29  App. 
D.  C.  209,  9  L.  R.  A.  (N.  S.)  1074. 

While  consent  of  parties  can  not 
confer  jurisdiction  on  the  courts  of 
the  United  States,  yet  the  parties 
may  admit  the  existence  of  facts 
which  show  jurisdiction  and  the 
courts  may  act  judicially  upon  such 
an  admission.  Railway  Co.  v.  Ram- 
sey, 22  Wall.  322,  22  L.  Ed.  823. 

Where  the  court  has  no  statu- 
tory jurisdiction  to  appoint  a  re- 
ceiver, authority  to  do  so  can  not 
be  conferred  by  consent  or  a  stipu- 
lation of  parties.  First  Nat.  Bank 
V.  Superior  Court,  12  Cal.  App.  335, 
107  Pac.  322. 

2  Guaranty  Trust  Co.  v.  Interna- 
tional Steam  Pump  Co.,  231  Fed. 
594,  145  C.  C.  A.  480. 

An  intervener  coming  into  the 
case  after  the  appointment  of  a 
receiver  can  not  challenge  the  jur- 
isdiction of  the  court  to  make  such 
appointment  in  a  creditor's  suit 
against  a  corporation  asking  the 
appointment  of  a  receiver,  where 
the  defendant  appeared  and  ad- 
mitted the  averments  of  the  bill, 
which  sufficiently  alleged  insol- 
vency, and  no  collusion  is  charged. 
Cincinnati  Equipment  Co.  v.  Deg- 
nan,  184  Fed.  834.  107  C.  C.  A.  158. 


GENERAL    GROUNDS    OF    APPOINTMENT. 


65 


In  fact,  it  is  a  well  established  practice  in  the  case  of 
large  corporations  which  are  hopelessly  insolvent  or  con- 
fronted with  an  unusual  financial  crisis,  to  have  a  receiver 
appointed  upon  a  bill  and  ans^^  er  in  which  the  defendant 
admits  the  jurisdictional  facts  warranting  the  appoint- 
ment of  a  receiver  and  joins  in  the  prayer  asking  for 
such  appointment.^   Of  course,  the  court  in  such  circum- 
stances must  be  astute  in  its  consideration  of  the  case 
so  as  to  be  certain  that  it  is  not  one  in  which  fraud  and 
collusion  exist.-*    It  generally  happens,  however,  that  in 
such   cases  the   facts   constituting  the   ground   for   the 
appointment  of  a  receiver  are  easily  ascertained  and 
often  of  such  notoriety  that  the  court  could  almost  have 
judicial  knowledge  of  their  existence.   One  of  the  leading 
cases  on  this  subject  is  that  of  the  Metropolitan  Rail- 
way Receivership,^  decided  by  the  United  States  Supreme 
Court,  in  which  it  was  contended  that  a  collusive  con- 
troversy was  raised  with  the  consent  of  the  parties  in 
order  to  confer  jurisdiction  upon  the  federal  court  to 
appoint  a  receiver.   The  case  involved  both  the  question 
whether  there  was  a  dispute  or  controversy  between  the 
parties  by  reason  of  the  answer  of  the  defendant  admit- 
ting the  allegations  of  the  complaint  and  whether  the 
facts  showed  collusion  on  the  part  of  the  litigants,  but 
Mr.  Justice  Peckham  in  rejecting  these  contentions  laid 
down  the  rules  in  such  cases  with  great  clearness.    He 
said:  ''Although  the  amount  involved  in  the  suit  in  the 
Circuit  Court  was  sufficient,  it  is  insisted  now  that  there 
was  no-  dispute  or  controversy  in  that  case  mthin  the 

3  Ex  parte  Equitable  Trust  Co.,  pending  cause,  or  on  a  bill  and  an 

231  Fed   571.  145  C.  C.  A.  457.  answer  by  the   defendant  joining 

A  federal  judge,  in  the  exercise  in    the    prayer    for    such    appoint- 

of  his  general  equity  powers  as  a  ment.    Horn  v.  Pere  Marquette  R. 

chancellor,    and    those    prescribed  Co.,  151  Fed.  626. 
by  Rev    St    638,  U.  S.  Comp.   St.  4  In  re  Reisenberg,  208  U.  S.  90, 

1901   p   519,  and  equity  rule  3,  has  52  L.  Ed.  403,  28  Sup.  Ct.  219. 
authority  at  chambers  to  make  an  r.  See  case  of  Gutterson  v.  Leba- 

order  appointing  a  receiver   in   a  non  Iron  etc.  Co.,  151  Fed.  72. 
I  Rec. — 5 


66  LAW    OF    RECEIVERS. 

meaning  of  the  statute,  because  the  defendant  admitted 
the  indebtedness  and  the  other  allegations  of  the  bill  of 
complaint,  and  consented  to  and  united  in  the  applica- 
tion for  the  appointment  of  receivers.  Notwithstanding 
this  objection,  we  think  there  was  such  a  controversy 
between  the  parties  as  is  contemplated  by  the  statute. 
In  the  bill  tiled  there  was  the  allegation  that  a  demand 
of  payment  of  a  debt  due  each  of  complainants  had  been 
made  and  refused.  This  was  not  denied,  and  had  not 
been.  There  was  therefore  an  unsatistied  demand  made 
by  complainants  and  refused  by  defendants  at  the  trme 
of  the  filing  of  the  bill.  We  think  that  where  there  is  a 
justifiable  chiim  of  some  right  made  by  a  citizen  of  one 
state  against  a  citizen  of  another  state,  involving  an 
amount  named  in  the  statute,  which  claim  is  not  satisfied 
by  the  party  against  whom  it  is  made,  there  is  a  con- 
troversy, or  dispute,  between  the  parties  wdthin  tiie  mean- 
ing of  the  statute.  It  is  not  necessary  that  the  defendant 
should  controvert  or  dispute  the  claim.  It  is  sufficient 
that  he  does  not  satisfy  it.  It  might  be  that  he  could 
not  truthfully  dispute  it,  and  yet,  if  from  inability  or, 
mayhap,  from  indisposition,  he  fails  to  satisfy  it,  it  can 
not  be  that  because  the  claim  is  not  controverted  the  fed- 
eral court  has  no  jurisdiction  of  an  action  brought  to 
enforce  it.  Jurisdiction  does  not  depend  upon  the  fact 
that  the  defendant  denies  the  existence  of  the  claim  made, 
or  its  amount  or  validity.  If  it  were  otherwise,  then  the 
Circuit  Court  would  have  no  jurisdiction  if  the  defendant 
simply  admitted  his  liability  and  the  amount  thereof  as 
claimed,  although  not  paying  or  satisfying  the  debt.  This 
would  involve  the  contention  that  the  federal  court  might 
be  without  jurisdiction  in  many  cases  where,  upon  bill 
filed,  it  was  taken  pro  confesso,  or  whenever  a  judgment 
was  entered  by  default.  These  are  propositions  which,  it 
seems  to  us,  need  only  to  be  stated  to  be  condemned." 

And  continuing,  the  learned  justice  in  answering  the 
contention  that  the  parties  had  collusively  presented  the 


GENERAL    GROUNDS    OF    APrOlNTMEXT.  67 

case  in  the  federal  court  instead  of  connnencing  it  in 
the  state  court,  said:  "We  can  find  no  evidence  of  col- 
lusion, and  the  Circuit  Court  found  there  was  none. 
It  does  appear  that  the  parties  to  the  suit  desired  that  the 
administration  of  the  railway  affairs  should  be  taken  in 
hand  by  the  Circuit  Court  of  the  United  States,  and  to 
that  end,  when  the  suit  was  brought,  the  defendant 
admitted  the  averments  in  the  bill,  and  united  in  the 
request  for  the  appointment  of  receivers.  This  fact  is 
stated  by  the  Circuit  Judge;  but  there  is  no  claim  made 
that  the  averments  in  the  bill  were  untrue,  or  that  the 
debts  named  in  the  bill  as  owing  to  the  complainants  did 
not  in  fact  exist ;  nor  is  there  any  question  made  as  to 
the  citizenship  of  the  complainants,  and  there  is  not  the 
slightest  evidence  of  any  fraud  practiced  for  the  purpose 
of  thereby  creating  a  case  to  give  jurisdiction  to  the  fed- 
eral court.  That  the  parties  preferred  to  take  the  subject-, 
matter  of  the  litigation  into  the  federal  courts,  instead 
of  proceeding  in  one  of  the  courts  of  the  state,  is  not 
wrongful.  So  long  as  no  improper  act  was  done  by  which 
the  jurisdiction  of  the  federal  court  attached,  the  motive 
for  bringing  the  suit  there  is  unimportant."^ 

§  21.    Effect  of  Statutory  Provisions  on  the  Subject. 

It  would  be,  of  course,  impracticable  in  a  book  intended 
for  general  use  in  the  different  states  to  attempt  to  dis- 
cuss in  detail  the  various  statutory  provisions  relating 
to  the  subject  of  receivers.  Such  statutory  provisions 
insofar  as  they  are  disclosed  by  the  decisions  will  be  con- 
sidered as  they  arise.  There  is  a  great  degree  of  simi- 
larity between  the  statutory  provisions  of  the  different 

6  The  court  cited  the  following  448,    457,    24    Sup.    Ct.    Rep.    269; 

cases:      Dickerman    v.     Northern  Blair  v.  Chicago,  201  U.  S.  400-448, 

Trust    Co.,    176   U.    S.    181-190,    44  50  L.  Ed.  801-821,  26  Sup.  Ct.  Rep. 

L.    Ed.    423-430,    20    Sup.    Ct.    Rep.  427;    Smithers  v.  Smith,  204  U.  S. 

311;   South  Dakota  v.  North  Caro-  632,  644,  5i  L.  Ed.  656,  661,  27  Sup. 

lina,  192  U.  S.  286,  311,  48   L.   Ed.  Ct.  Rep.  297. 


68 


LAW    OF    RECEIVERS. 


states,  and  in  many  cases  sncli  provisions,  or  at  least  the 
greater  part  of  them,  are  merely  declaratory  of  the  gen- 
eral rules  respecting  the  subject  prevailing  in  the  courts 
of  equity  prior  to  the  statutory  declarations.^   The  great- 


1  In  Price  v.  Bankers  Trust  Co., 
(Mo.)  178  S.  W.  745,  the  court  said: 
"In  tliis  view  we  are  mindful  of  tlie 
statute    (section  2018,  Rev.  Stats. 
1909)  which  relegates  the  appoint- 
ment of  a  receiver  to  the  discretion 
of  the  judge  or  court  nisi,  by  pro- 
viding  that   such    court  or   judge 
'shall    have    power    to    appoint    a 
receiver,   whenever   such   appoint- 
ment shall  be  deemed  necessary.' 
This  statute  is  but  declaratory  of 
the  rule   and  practice  which  had 
long    prevailed    in    equity,    before 
the  enactment  of  the  statute.   The 
discretion  thus  lodged  in  the  courts 
or  judges  is  a  sound  judicial  dis- 
cretion 'to  be  exercised  for  the  pro- 
motion of  justice  where  no  other 
adequate     remedy     exists'     (High 
on  Receivers,  7),  and  not  an  arbi- 
trary or  capricious  liberty  bounded 
by   no  rules   and   limited  only   by 
the  varying  temperaments  of  the 
ephemeral  incumbent  of  the  judi- 
cial   office.    No    one   will    contend 
that  a  power  more  comprehensive 
than  the  analogous  attachment  at 
law  ought  to  be  committed  to  the 
courts  without  any  rule  by  which 
to  measure  discretion  except  the 
'length  of  the  chancellor's  foot.'  " 
In  Jones  v.  Schaff  Bros.  Co.,  187 
Mo.  App.   597,  174   S.  W.   177,  the 
court  said:     "The  appointment  of 
a  receiver  is  not  the  ultimate  end 
and   object   of   a  suit.    The   court 
can   not  appoint  a  receiver   upon 
the  ex  parte  application  of  the  cor- 
poration itself.    There  must  be  a 
proceeding  pending.    State  ex  rel. 


V.  Ross,  122  Mo.  4.35,  loc.  cit.  456, 
461,  25  S.  W.  947,  23  L.  R.  A.  534; 
State  ex  rel.  v.  Reynolds,  209  Mo. 
161,  loc.  cit.  185,  107  S.  W.  487,  15 
L.  R.  A.  (N.  S.)  963,  123  Am.  St. 
Rep.  468,  14  Ann.  Cas.  198.  This  is 
clearly  recognized  by  every  statute 
authorizing  the  appointment  of  a 
receiver  of  which  we  have  any 
knowledge.  They  are  sections 
1081,  1171,  2018,  2196,  2197,  2323, 
2533,  3012,  3153,  3365,  3429,  3444, 
3492,  and  7923,  Rev.  St.  Mo.  1909. 
There  may  possibly  seem  to  be 
two  exceptions  to  the  above  state- 
ment, that  of  section  3492  and  sec- 
tion 3429,  the  former  of  which  pro- 
vides that  a  receiver  may  be  ap- 
pointed on  the  application  of  a 
shareholder  of  a  bond  investment 
company,  and  the  latter  that  a 
receiver  may  be  appointed  for  a 
co-operative  company  upon  the  ap- 
plication of  the  supervisor  of  build- 
ing and  loan  associations.  But 
sections  3494  and  3430  provide,  in 
these  two  cases,  for  a  proceeding  to 
be  instituted  by  the  Attorney  Gen- 
eral and  for  process  to  be  issued 
as  in  other  actions.  Sections  2996- 
2999,  Rev.  St.  Mo.  1909,  provide 
a  means  whereby  a  corporation 
may  have  itself  dissolved  and  its 
affairs  wound  up  by  the  directors 
under  the  supervisory  control  of 
the  court,  but  these  have  no  refer- 
ence to  the  appointment  of  a  re- 
ceiver, and  even  they  require 
notice  to  all  creditors  and  others 
interested  before  the  court  has 
power  to  finally  act.    So  that  there 


GENERAL    GROUNDS    OF    APPOINTMENT. 


6J> 


est  variations  in  statntory  pro\asions  on  the  subject  of 
receivers  will  be  found  to  be  among  those  touching  the 
appointment  of   receivers   for   corporations^   a   subject 


is   no   known    statutory   authority 
given  a  court  to  appoint  a  receiver 
upon  the  mere  ex  parte  application 
of  an  insolvent  corporation  to  take 
charge  of  and  manage  its  affairs. 
And  a  court  of  equity  has  no  in- 
herent power  to  appoint  such  re- 
ceiver except  as  an  incident  to  and 
in    a    pending    suit.    Whitney    v. 
Hanover  National  Bank,  71  Miss. 
1009,  15  So.  33,  23   L.   R.  A.  531; 
Jones  V.  Bank  of  Leadville,  10  Colo. 
464,  17  Pac.  272;  Mann  v.  German- 
Am'.  Inv.  Co.,  70  Neb.  454,  97  N.  W. 
600;   Texas  etc.  R.  Co.  v.'  Gay,  86 
Tex.  571,  26  S.  W.  599,  25  L.  R.  A. 
52;    34    Cyc.    29.     There    may    be 
exceptions  to  this  rule,  but,  if  there 
are,  they  do  not  come  within  the 
purview     of     the     facts     involved 
herein." 

Code  provisions  do  not  as  a  gen- 
eral rule  alter  the  equitable  juris- 
diction of  the  court  to  appoint. 
Skinner  v.  Maxwell,  66  N.  C.  45. 

Equity  has  power  to  appoint  a 
receiver  on  the  grounds  prescribed 
by  Rev.  Codes,  sec.  4329,  subds. 
2,  5,  6,  to  take  charge  of  the  prop- 
erty and  to  care  for  and  protect 
same.  Commercial  Trust  Co.  v. 
Idaho  Brick  Co.,  25  Idaho  755,  139 
Pac.  1004. 

Iowa  Code,  sec.  3822,  by  its  ex- 
press'  provisions,  authorizes  the 
appointment  of  a  receiver  by  a 
judge  in  vacation,  on  petition  of 
either  party,  where  he  shows  that 
he  has  a  probable  right  to  or  inter- 
est in  the  property  in  controversy, 
and  that  the  property  is  in  danger 
of  being   lost,   materially   injured, 


or   impaired.     McKee    v.    Murphy, 
138  Iowa  322,  113  N.  W.  499. 

Iowa  Code,  sec.  3822,  authorizing 
the  appointment  of  a  receiver,  does 
not  authorize  the  appointment  of 
a  receiver  where  no  equitable 
ground  for  appointment  as  a  prin- 
cipal foundation  for  the  relief 
asked  for  appears.  Stockholders 
of  Jefferson  County  Agricultural 
Ass'n  v.  Jefferson  County  Agricul- 
tural Ass'n,  155  Iowa  634,  Ann.  Cas. 
1914B,  63,  136  N.  W.  672. 

2  In   the   case  of  Havemeyer  v. 
Superior  Court,  84  Cal.  327,  24  Pac. 
121,  18  Am.  St.  Rep.  192,  10  L.  R.  A. 
627,   the  court  said:     "In   the  ab- 
sence of  any  statute  regulating  the 
matter,    a  court   of   equity    would 
have  undoubted  right,  in  a  proper 
proceeding  instituted  by  a  creditor 
or  a  stockholder,  to  appoint  a  re- 
ceiver to  administer  the  property. 
But  in   many   of  the   states,   stat- 
utes  have   been   passed   expressly 
providing  for  the  appointment  of 
receivers,    or    trustees    exercising 
the  same  functions,  though  some- 
times  called  by  other  names.    In 
all  cases  it  is  made  their  duty  to 
collect  the  assets,  pay  the  debts, 
and  distribute  the  surplus  pro  rata 
to    the    stockholders.     As    this    is 
precisely  what   a  court  of  equity 
would  have  done  in  the  absence  of 
a  statute,  it  is  to  be  inferred  that 
the  motive  of  such  legislation  has 
been  to  accomplish  some  other  ob- 
ject—some object,  that  is  to  say, 
for  which  express  legislation  was 
necessary.    This  inference  is  fully 
justified  and  amply  borne  out  by 
reference  to  the  different  statutes. 


70 


LAW   OF   RECEIVERS. 


which  will  be  considered  when  discussing  the  subject  of 
corporations. 

As  has  been  shown  before,  the  jurisdiction  of  the  Court 
of  Chancery  of  England  to  appoint  receivers  was  exer- 
cised for  the  purpose  of  enforcing  justice  in  cases  in 
which  it  was  shown  that  the  remedies  to  be  found  in  the 
courts  of  ordinary  jurisdiction  were  inadequate  for  the 
purpose.  The  exercise  of  the  right  was  one  founded 
on  the  inherent  function  of  a  court  of  equity.^  This 
inherent  power  of  a  court  of  equity  is  like  that  of  any 
power  which  is  essential  to  the  exercise  of  a  certain  func- 


They  seem  to  have  been  enacted 
with  the  object,  in  some  instances, 
of  abrogating  the  old  law  of  for- 
feiture, and  reversion;  in  others, 
of  committing  the  administration 
to  other  courts  than  courts  of 
equity;  in  others  to  provide  uni- 
form rules  of  procedure,  as  to  giv- 
ing notice  to  creditors,  etc.,  to 
take  the  place  of  rules  of  court 
and  specific  orders  to  be  made  by 
the  chancellor  in  each  particular 
case;  in  others,  to  keep  the  matter 
out  of  courts  altogether,  as  by 
allowing  the  dissolved  corporation 
to  continue  its  existence  for  a  term 
for  purposes  of  liquidation,  but  for 
no  other  purpose.  The  whole  mass 
of  this  legislation  seems  to  be  per- 
vaded by  the  one  idea  of  simplify- 
ing, expediting,  and  cheapening 
the  means  of  accomplishing  the 
one  object  of  transferring  to  the 
stockholders  of  a  defunct  corpora- 
tion their  full  share  of  its  surplus 
assets.  There  is,  from  beginning 
to  end,  no  suggestion  of  added  pen- 
alties or  punishment  after  death. 
In  New  York,  as  we  have  seen, 
there  was  no  other  provision,  and 
the  appointment  of  a  receiver  was 
made  obligatory  in  all  cases  of  dis- 


solution, whether  voluntary  or  in- 
voluntary. That  was  the  rule,  to 
which  there  was  no  exception. 
Under  our  codes,  on  the  contrary, 
the  rule  is  not  to  appoint  a  re- 
ceiver, but  to  leave  the  whole 
matter  of  liquidation  and  distribu- 
tion to  the  exclusive  control  of  the 
directors  of  the  corporation  in 
office  at  the  date  of  dissolution. 
The  appointment  of  a  receiver  is 
the  exception,  not  the  rule,  and  is 
not  to  be  made  unless  some  party 
interested,  either  a  creditor  or  a 
stockholder,  can  show  that  for  the 
protection  of  his  rights  the  ap- 
pointment of  a  receiver  and  the 
administration  of  the  assets  under 
the  control  and  superintendence  of 
a  court  of  equity  is  necessary; 
and  even  then  no  receiver  will  be 
appointed  upon  his  ex  parte  appli- 
cation without  requiring  ample 
security  by  his  undertaking  with 
sufficient  sureties  for  all  damages 
that  may  be  caused  by  the  appoint- 
ment if  it  shall  turn  out  that 
it  was  made  without  sufficient 
cause." 

3  Hopkins  v.  Worcester  etc. 
Canal,  L.  R.  6  Eq.  447;  Cupit  v. 
Jackson,  13  Price  734. 


GENERAL    GROUNDS    OF   APPOINTMENT.  71 

tion.    It  is  implied  from  the  very  nature  of  a  court  of 
equity.  Hence  it  is  laid  down  as  a  rule  that  the  power  to 
appoint  receivers  is  inherent  to  courts  of  equity.^    The 
power  of  a  court  of  equity  to  appoint  a  receiver  in  cases 
which  come  within  those  principles  which  make  its  duty 
inherent  is  exercised  without  the  necessity  for  statutory 
authority,^  and  is  in  fact  independent  of  statutes.*^  In  the 
well  known  English  work  of  Mr.  Kerr  on  Receivers,  in 
stating  the  rule  in  England,  he  says;  "The  courts  of 
common  law  had  not,  under  the  former  procedure,  juris- 
diction to  appoint  a  receiver.  But  by  the  Judicature  Act 
of  1873,  36  &  37  Vict.,  chap.  66,  sec.  16,  all  the  jurisdiction 
of  the  Court  of  Chancery  was  transferred  to  the  High 
Court  of  Justice ;  and  by  sec.  25,  subsec.  8  of  that  act  it  is 
declared  that  a  receiver  may  be  appointed  by  an  interloc- 
utory order  of  the  court  in  all  cases  in  which  it  shall 
appear  to  the  court  to  be  just  and  convenient  that  such 
order  should  be  made ;  and  that  any  such  order  may  be 
made  either  unconditionally,  or  upon  such  terms  and  con- 
ditions as  the  court  shall  think  fit.   The  effect  of  the  sub- 
section is  to  enlarge  very  much  the  powers  Avhich  the 
Court   of    Chancery    formerly    possessed."    Under    this 

4  Bitting  V.   Ten   Eyck,   85   Ind.  dental   to  the   jurisdiction   of  tlie 

360;  Folsom  v.  Evans,  5  Minn.  418;  chancery  court.    It  did  not  depend 

Miller  v.  Perkins,  154  Mo.  629,  55  upon  statute  and  was  not  affected 

S.  W.  874;  Decker  V.  Gardner,  124  by    the    character   of    the    parties 

N.  Y.  334,' 26  N.  E.  814,  11  L.  R.  A.  before  it,  whether  an  individual  or 

480;  Skinner  V.  Maxwell,  66  N.  C.  corporation   or   by   the   nature    of 

47-  Barbour  V.  National  Ex.  Bank,  the  property.     Decker  v.  Gardner, 

45' Ohio  St.  133,  12  N.  E.  5;   Chi-  124  N.  Y.  334,  11  L.  R.  A.  4S0,  26 

cago  etc.  Oil  Co.  v.  United  States  N.  E.  814.  , 

Petroleum  Co.,  57  Pa.  St.  83;  Smith  6  State  v.  Farmers  etc.  Ins.  Co.. 

V  Butcher,  28  Graft.  (Va.)  144.  90  Neb.  664,  134  N.  W.  284,  Ann. 

5  Hillsborough  Grocery  Co.  V.  In-  Cas.    1913B,    643;    Slover   v.    Coal 

galls,  60  Fla.  105,  53  So.  930:  Bank  Creek  Coal  Co.,  113  Tenn.  421,  43o, 

of  Mississippi  v.  Duncan,  52  Miss.  106  Am.  St.  Rep.  851,  68  L.  R.  A. 

740;   Murphy  v.  Fidelity  Mut.  etc.  852,  82  S.  W.  1131. 
Co  '  69  Neb    489,  95  N.  W.  1022;  7  Citing:    "Anglo-Italian  Bank  v. 

Battle  V.  Davis,  66  N.  C.  252.  Davies,  9  Ch.  Div.  275,  at  p.  286. 

The  power  of  appointing  a  re-  per  .lersel.  M.  R.;  ib.  at  p.  293,  per 

ceiver  pendente  lite  was  one  inci-  Cotton,  L.  J." 


72  I>AW    OF    RECEIVERS. 

enactment  there  is  no  limit  to  the  power  of  the  court  to 
appoint  a  receiver  on  an  interlocutory  application,  except 
that  such  power  is  only  to  be  exercised  where  'just  or  con- 
venient.'^ The  words  'just  and  convenient'  must,  how- 
ever, be  construed  with  reference  to  the  existing  law  of 
the  country.  They  only  empower  the  court  to  appoint  a 
receiver  in  aid  of  existing  rights.''  The  act  does  not 
empower  the  court  to  appoint  a  receiver  in  cases  where 
prior  to  the  act  it  had  no  jurisdiction  to  do  so.^^ 
It  relaxed  certain  inconvenient  rules,  but  it  did  not  alter 
the  principles  on  which  the  jurisdiction  of  the  Court 
of  Chancery  rested. ^^  The  court  will  not  appoint  a 
receiver  where  the  appointment  might  prejudice  existing 
rights.  "^^ 

The  primary  purpose  in  all  circumstances  in  which  a  re- 
ceiver is  appointed  is  to  protect  and  safeguard  the  prop- 
erty which  is  the  subject-matter  of  the  litigation  where 
there  is  no  other  adequate  method  of  doing  so  in  order 
that  the  work  of  the  court  in  determining  the  litigation 
will  not  be  an  idle  ceremony.^^  Hence  a  receivership  pro- 
ceeding implies  the  exercise  of  equitable  powers  which  a 
common  law  court  does  not  possess. ^^  Consequently  when- 
ever a  common  law  court  appoints  a  receiver  it  is  because 
of  some  statutory  authority  to  do  so,^^  and  in  most  of 

8  Citing:  "Gawthorpe  v.  Gaw-  12  Citing:  "Re  Wells,  45  Ch! 
thorpe,  W.  N.  [1878]  91,  per  Jersel,      Div.  5G9." 

M.   R.;    Coney  v.   Bennett,   29  Ch.  i:!  See  Battle  v.  Davis,  66  N.  C. 

Div.   993;    see   Real   and   Personal  252. 

Advance  Co.  v.  Macarthy,  27  W.  R.  i4  Oehme  v.  Rucklehaus,  50  N.  J. 

706;    Oliver  v.  Lowther,  28  W.  R.  L.  84,  11  Atl.  145. 

381."  ir.  Myres  v.  PYankenthal,  55  111. 

9  Citing:  "Philipps  v.  Jones,  28  App.  390;  Murphy  v.  Fidelity  Mut. 
Sol.  J.  360."  etc.    Co.,    69    Neb.    489,    95   N.    W. 

10  Citing:  "Holmes  v.  Millage  1022;  Miller  v.  Perkins,  154  Mo. 
[1893],  1  Q.  B.  551;  Harris  v.  Beau-      629;   55  S.  W.  874. 

champ  [1894],  1  Q.  B.  801."  In  the  absence  of  statutory  aii- 

n  Citing:     "Lindley,    L.    J.,    in  thority,  a  common  law  court  will 

Holmes  v.  Millage  [1893],  1  Q.  B.  not  appoint  a  receiver.    Walmsley 

557."  v.  Mundy,  13  Q.  B.  Div.  812. 


GENERAL    GROUNDS    OF    APPOINTMENT. 


73 


such  cases  it  will  be  found  that  the  statutory  provisions 
have  simply  enlarged  the  circumstances  under  which  a 
receiver  mil  be  appointed.  It  will  generally  be  found 
that  statutory  provisions  upon  the  subject,  in  addition 
to  giving  statutory  expression  to  the  rules  which  have 
immemorially  existed  in  chancery  practice,  have  added 
some  provisions  for  the  appointment  of  a  receiver  after 
the  rendition  of  judgment  in  order  to  carry  the  judgment 
into  effect,^*'  or  provided  for  the  appointment  of  a  receiver 
in  circumstances  which  do  not  constitute  a  pending  suit, 
such  as  a  special  proceeding  to  forfeit  a  charter  or  fran- 
chise or  dissolve  a  corporation.^'  Sometimes  such  statu- 
tory provisions  are  merely  regulatory  of  the  manner  in 
which  the  appointment  should  be  made  for  the  purposes 
of    protecting    the    rights    of    the    defendant,^ «    as,    for 


10.  Rev.  Codes,  section  6698,  pro- 
viding  for   the  appointment   of   a 
receiver  after  judgment  to  carry 
the  judgment  into  effect,  does  not 
authorize  the  appointment  of  a  re- 
ceiver   when    a    money    judgment 
has    been    recovered    in    a   simple 
action  at  law,   since  the   creditor 
can    himself    take    the    necessary 
steps  to  enforce  the  judgment.  For- 
sell  V.  Pittsburg  &  Montana  Cop- 
per Co.,  42  Mont.  412,  113  Pac.  479. 
The  power  of  a  court  to  appoint 
a  receiver  exists  only  in  cases  pro- 
vided by  statute;  hence  a  statute 
providing    for    such    appointment 
"after  judgment  to  carry  the  judg- 
ment into  effect"   applies  only  to 
cases  where  the  judgment  affects 
specific  property,  and  has  no  appli- 
cation  to    a   simple    money    judg- 
ment, which  can  be  enforced  by  a 
writ  of  execution.   White  v.  White, 
130  Cal.  597,  80  Am.  St.  Rep.  150, 
62  Pac.  1062. 

IT  People  V.  Washington  Ice  Co., 
18  Abb.  Pr.  (N.  Y.)  383;  East  Line 


etc.  Ry.  Co.  v.  State,  75  Tex.  434, 
12  S.  W.  690;  Texas  Trunk  R.  Co. 
V.  State,  83  Tex.  1,  18  S.  W.  199. 

An  interesting  case  of  statutory 
discussion  in  a  case  of  this  char- 
acter is  that  of  the  case  of  Have- 
meyer  v.  Superior  Court,  84  Cal. 
327,  18  Am.  St.  Rep.  192,  10  L.  R.  A. 
627,  24  Pac.  121,  in  which  compari- 
sons were  made  between  the  code 
provisions  of  California  and  those 
of  New  York  in  reference  to 
receivers  for  corporations,  from 
whence  the  California  statute  was 
derived,  though  varied  in  phrase- 
ology. 

IS  Where  by  statute  the  court 
must  sanction  the  filing  of  a  bill 
in  equity  praying  extraordinary  re- 
lief, it  has  implied  authority,  in 
order  to  preserve  the  status  upon 
allowing  such  bill,  to  appoint  a 
temporary  receiver  of  the  property 
involved  in  the  litigation.  Young 
V.  Hamilton,  135  Ga.  339,  69  S.  E. 
r,93,  Ann.  Cas.  1912A,  144,  31 
L.  R.  A.  (N.  S.)  1057. 


74 


LAW   OF   RECEIVERS. 


instance,  in  requiring  certain  bonds  to  be  furnished  by 
the  plaintiff  as  a  condition  for  the  making  of  an  ex  patte 
appointment  or  upon  the  part  of  the  receiver  himself  ;^^ 
while  in  other  instances  they  enlarge  the  jurisdiction  of 
the  court  to  appoint  receivers  in  a  general  way.-^  Some- 
times the  statutory  provisions  on  the  subject  are  framed 
with  a  view  to  allowing  the  appointment  of  a  receiver 
whenever  justice  requires  such  a  remedy,  regardless  of 
the  form  of  the  action.^^  In  some  states  the  statutes 
on  the  subject  after  making  specific  provisions  for  the 
appointment  of  receivers  in  certain  cases  and  in  certain 
circumstances  contain  a  provision  that  a  receiver  may  be 
appointed  ''in  all  other  cases  w^here  receivers  have  here- 
tofore been  appointed  by  the  usages  of  the  courts  of 
equity,"-^  or  phrases  of  like  import,  and  under  such  stat- 


19  Lee  V.  Stevens,  22  Ida.  670, 
127  Pac.  680;  Staar  v.  Moy  Tong 
Koon,  145  111.  App.  341. 

20  John  L.  Roper  Lumber  Co.  v. 
Wallace,  93  N.  C.  22. 

21  See  section  1222  of  the  code. 
Hellebush  v.  Blake,  119  Ind.  349, 
21  N.  E.  976. 

22  In  Ward  v.  Inter-Ocean  Oil 
etc.  Co..  (Okl.)  153  Pac.  115,  the 
court,  in  construing  the  effect  of 
such  a  clause,  said:  "In  this  state, 
while  we  have  a  statute  (section 
4979.  Rev.  Laws  1910),  in  specific 
terms,  authorizing  the  appoint- 
ment of  a  receiver  in  certain 
cases,  yet  the  same  statute  au- 
thorizes their  appointment  'in  all 
other  cases  where  receivers  have 
heretofore  been  appointed  by  the 
usages  of  the  courts  of  equity.' 
And  so,  after  all,  in  deciding  ques- 
tions arising  under  this  head,  the 
court  must  look  for  guidance  to 
the  established  usages  and  cus- 
toms heretofore  prevailing  in  the 
courts  of  equity.   In  such  courts  it 


is  well  established  that  in  order 
to  invoke  this  extraordinary  rem- 
edy— the  appointment  of  a  receiver 
— the  court  must  have  before  it 
facts,  proven  or  admitted  by  the 
pleadings,  sufficient  to  satisfy  it 
that  the  property  can  be  man- 
aged and  preserved  more  advan- 
tageously to  the  interested  parties 
by  the  court,  through  its  agent,  the 
receiver,  than  by  the  litigants  or 
either  of  them.  In  this  case,  how- 
ever, it  seems  to  us  that,  taking 
the  facts  as  they  stand  established 
by  the  averments  of  the  petition, 
together  with  the  admissions  of 
the  answer,  that  the  court  acted 
properly  in  putting  a  receiver  in 
charge.  Neither  this  court  nor  the 
court  below,  when  passing  upon 
the  necessity  of  a  receiver,  was 
trying  the  title,  as  between  these 
two  claimants,  to  the  land  in- 
volved. That  was  a  question  in  the 
original  suit;  the  one  necessary 
and  pivotal  point  to  be  determined 
in  it.  When  the  court  came  to  con- 


GENERAL    GROUNDS    OF    APPOINTMENT. 


75 


iitory  provisions  it  is  Leld  that  tlit^  appointment  must  be 
made  under  the  autliority  of  some  one  of  tlie  specific  cases 


sider  the  question  of  a  receiver- 
ship, it  then  became  its  duty  to 
(1)  inquire  whether,  from  the  in- 
formation before  it,  plaintiff  ap- 
peared to  have  a  valid  interest  in 
the  property  involved;  and  (2)  if 
so,  whether  the  property  was 
being  used  in  such  a  way  as 
to  probably  result  in  irreparable 
loss  to  plaintiff,  in  case  he  should 
finally  prevail,  or  whether  or  not  a 
receiver,  if  appointed,  could  pre- 
serve the  property  during  the 
pendency  of  the  litigation,  so  as 
to  deliver  it  to  the  successful 
party  at  the  end  thereof,  better 
and  more  surely  than  to  leave  it  in 
the  hands  of  the  defendant." 

So  also  in  Shaw  v.  Shaw,  51  Tex. 
Civ.  55,  112  S.  W.  124,  under  Rev. 
St.  1895,  art.  1465,  1-3,  which  pro- 
vides for  the  appointment  of  re- 
ceivers in  certain  specified  cases, 
but  in  another  section  provided  for 
the  appointment  in  all  other  cases 
where  receivers  have  heretofore 
been  appointed  by  the  usages  of 
the  court  of  equity,  the  court  held 
that  the  latter  language  was  not 
a  limitation  on  the  right  given  by 
the  preceding  sections,  but  an  ex- 
tension of  it,  and  when  the  facts 
in  a  particular  case  justify  the 
appointment  under  the  other  sec- 
tions, the  right  is  a  legal  one,  and 
not  dependent  upon  the  general 
rules  of  practice  in  courts  of 
equity. 

Under  Code  Civ.  Proc,  section 
564,  subd.  6,  providing  for  appoint- 
ment of  receivers  in  all  cases 
where  receivers  have  been  ap- 
pointed by  usages  of  courts  of 
equity,    receiver    can    not    be    ap- 


pointed in  a  partnership  case  in- 
volving merely  legal  rights  on  a 
mere  showing  that  defendants 
were  largely  indebted  and  their 
property  would  be  better  con- 
served by  appointment  of  receiver. 
First  Nat.  Bank  v.  Lassen  County 
Superior  Court,  12  Cai.  App.  335, 
107  Pac.  322. 

Where  the  complaint  for  the  ap- 
pointment of  a  receiver  was  within 
one  of  the  preceding  subdivisions 
of  Code  Civ.  Proc,  sec.  564,  the  ap- 
pointment could  not  be  justified 
under  Subd.  6,  which  authorized 
the  appointment  in  cases  where 
receivers  had  previously  been  ap- 
pointed in  equity.  Dabney  Oil  Co.^ 
V.  Providence  Oil  Co.  of  Arizona, 
22  Cal.  App.  233,  133  Pac.  1155. 

And  where  such  a  statute  pro- 
vides that  a  receiver  may  be 
appointed  "whenever  such  appoint- 
ment shall  be  deemed  necessary," 
it  is  held  that  the  statute  is  merely 
declaratory  of  the  rule  and  prac- 
tice which  had  long  prevailed  in 
equity.  Price  v.  Bankers  Trust  Co., 
(Mo.)  178  S.  W.  745. 

The  New  York  Code  of  1848  had 
a  provision  authorizing  the  ap- 
pointment of  receivers  "in  such 
other  cases  as  are  now  provided 
by  law  or  may  be  in  accordance 
with  the  existing  practice  except 
as  otherwise  provided  in  this  act." 
The  court  held  that  the  inherent 
power  of  chancery  courts  to  ap- 
point receivers  in  mortgage  fore- 
closures continued  as  theretofore. 
It  was  also  held  that  the  intention 
of  the  code  was  not  to  abolish  the 
old  practice  in  such  respects  and 
was  not  exclusive,  but  permissive 


76 


LAW   OF   RECEIVERS. 


or  circumstances  mentioned  in  the  statute  or  placed  under 
the  general  chancery  rules,  in  which  case  the  appoint- 
ment ^vill  then  be  dependent  upon  the  principles  of  equi- 
table jurisprudence  established  by  courts  of  chancery  in 
the  making  of  such  appointments.  It  will  be  observed 
that  the  courts  in  proceeding  under  the  authority  of  the 
statutory  pro^dsions  in  force  construe  such  provisions 
with  reference  to  the  decisions  of  the  courts  on  the  gen- 
eral subject  and  inject  the  spirit  of  the  chancery  rules  in 
their  construction  of  the  statutes.^^ 


and     declaratory.     Hollenbeck     v, 
Donnell,  94  N.  Y.  342. 

In  Colwell  V.  Garfield  Nat.  Bank, 
119  N.  Y.  409,  23  N.  E.  739,  the 
court  said:  "We  need  not  deter- 
mine in  this  case  whether  the  jur- 
isdiction of  the  Supreme  Court  to 
appoint  receivers  can  be  exercised 
only  in  the  cases  and  under  the 
circumstances  prescribed  by  sec- 
tion 713  or  by  other  statutes.  But 
in  cases  where  the  provisions  of 
section  713  are  applicable  and  the 
statutory  provisions  furnish  an 
adequate  remedy,  the  power  of  the 
court  is,  we  think,  limited  by  that 
section,  and  it  must  proceed  in  the 
manner  pointed  out  thereby  or 
else  its  orders  will  be  void." 

In  Idaho  the  statute  also  pro- 
vides: "In  all  other  cases  where 
receivers  have  heretofore  been  ap- 
pointed by  the  usages  of  courts  of 
equity."  Commercial  Trust  Co.  v. 
Idaho  Brick  Co.,  25  Ida.  755,  139 
Pac.  1004. 

Similar  provisions  in  Washing- 
ton. Oleson  V.  Bank  of  Tacoma, 
15  Wash.  148,  45  Pac.  734. 

2.3  See  Hartnett  v.  St.  Louis  Min. 
etc.  Co.,  51  Mont.  395,  153  Pac.  437. 

The  discretion  as  to  the  appoint- 
ment of  a  receiver  pursuant  to 
Civ.  Code,  sec.  298,  providing  that 


it  "may"  be  done  on  motion  of  a 
party  to  an  action  who  shows  a 
right  to  the  property  involved,  and 
that  it  is  in  danger  of  being  lost 
or  removed,  is  not  unlimited,  and 
so  where  the  remedies  provided 
by  sections  180-184,  by  claim  and 
delivery  and  by  special  attach- 
ment, are  open  to  plaintiff,  and  it 
is  not  shown  that  defendant  is 
insolvent,  or  some  other  reason 
exists,  rendering  the  other  reme- 
dies inadequate,  the  appointment 
of  a  receiver  in  such  case  is  un- 
authorized. McClure  v.  McGee,  32 
Ky.  Law.  Rep.  1318,  108  S.  W.  341. 
It  is  a  well  settled  rule  that 
where  a  new  remedy  is  given  by 
statute  other  than  to  enforce  a 
new  right,  it  is  cumulative  unless 
there  is  something  in  the  law  con- 
ferring it  clearly  indicating  the 
contrary.  Morgan  v.  South  Mil- 
waukee Lake  View  Co.,  100  Wis. 
465,  76  N.  W.  354. 

In  North  Carolina  it  is  held 
that  the  code  provisions  do  "not 
materially  alter  the  equitable  jur- 
isdiction" of  the  courts.  Skinner 
V.  Maxwell,  66  N.  C.  45. 

Rev.  Stats.  1909,  §  2018,  is  merely 
declaratory  of  the  equitable  rule 
that  a  judge  has  sound  judicial 
discretion    to    appoint    a    receiver 


GENERAL    GROUNDS    OF    APPOINTMENT.  77 

Perhaps  the  greatest  statutory  innovations  in  respect 
to  receiverships  have  occurred  in  connection  witli  the 
appointment   of   receivers    for   corporations,    and    laws 
relating  to  such  appointments  have  sometimes  been  con- 
fusing, on  account  of  being  in  conflict  with  other  statu- 
tory provisions  providing  for  the  dissolution  of  corpora- 
tions.   Consequently  where  the  effect  of  the  receiversliip 
is  the  winding  up  of  the  corporation,  particular  attention 
must  be  observed  to  see  that  the  proceeding  is  not  one 
covered  by  the  ordinary  dissolution  statutes,  and  if  a 
receiver  is  sought  some  facts  must  exist  which  appeal  to 
the  chancery  side  of  the  court  or  specifically  bring  it 
within  the  statutory  provisions.     It  is  our  opinion  that 
although  a   statute  may  add  circumstances  in  which  a 
receiver  may  be  appointed,  it  can  not  take  away  the 
power    to    make    such    appointments    in     cases    where 
the  facts  warrant  a  receiver  under  the  general  rules  of 
equitable  jurisprudence,  at  least  in  any  state  where  it 
is   recognized   that   courts   have   the   powers    generally 
accorded  to  courts  of  equity.     To  take  away  the  power 
of  appointment  in  such  cases  would  be  to  deprive  a  court 
of  equity  of  one  of  the  powers  essential  to  its  existence 
as  such  a  court.     We  do  not  doubt,  however,  that  it  is 
within  the  power  of  such  statutory  provisions  to  regulate 
the  exercise  of  the  power,  but  with  a  regard  to  the  dis- 
tinction between  mere  regulation  and  a  destruction  of  the 
power.    The  matter  is  somewhat  similar  to  the  inherent 
power  of  a  court  to  protect  the  exercise  of  its  inherent 
functions  by  a  resort  to  contempt  proceedings. 

There  are  certain  kinds  of  receivership  proceedings 
which  are  not  the  exercise  of  chancery  powers  but  merely 
appointments  by  courts  of  law  as  successive  steps  in  an 

only  for  the  promotion  of  justice,  power  in  the  court.  Price  v.  Bank- 
where  no  other  adequate  remedy  ers'  Trust  Co.,  (Mo.)  178  S.  W. 
exists,  and  does  not  vest  arbitrary      745. 


78 


LAW    OF    RECEIVERS. 


action   at  law  irrespective  of   equitable  considerations 
such  as  in  supplementary  proceedings  and  the  like.-^ 


24  Pacific  Bank  v.  Robinson,  57 
Cal.  520,  40  Am.  Rep.  120;  Habe- 
nicht  V.  Llssak,  78  Cal.  351,  12  Am. 
St.  Rep.  63,  5  L.  R.  A.  713,  20  Pac. 
874;  Kimbrough  v.  J.  K.  Orr  Shoe 
Co.,  98  Ga.  537,  25  S.  E.  576;  Flint 
V.  Zimmerman,  70  Minn.  346,  73 
N.  W.  175;  Tvedt  v.  Mackel,  67 
Minn.  24,  69  N.  W.  475;  Colton  v. 
Bigelow,  41  N.  J.  L.  266;  Rodman 
V.  Henry,  17  N.  Y.  482;  Strong  v. 
Epstein,  14  Abb.  N.  C.  (N.  Y.)  322; 
Ward  V.  Petrie,  157  N.  Y.  301,  68 
Am.  St.  Rep.  790,  51  N.  E.  1002; 
Corbin  v.  Berry,  83  N.  C.  27; 
Sparks  v.  Davis,  25  S.  C.  381;  Sec- 
ond Ward  Bank  v.  Upmann,  12 
Wis.  499. 

Where  the  assets  of  a  debtor 
were  about  to  be  placed  beyond  a 
creditors  reach,  his  right  to  a  re- 
ceiver does  not  rest  alone  in 
equity,  but  also  exists  under  the 
express  provision  of  Vernon's 
Sayles's  Ann.  Civ.  St.  1914,  art. 
2128.  Bond-Reed  Hardware  Co.  v. 
Walsh  (Tex.  Civ.  App.),  181  S.  W. 
248. 

A  receiver  may  be  appointed  in 
a  law  action  if  such  appointment 
is  authorized  by  statutory  provis- 
ions. Paine  v.  Mueller,  150  Iowa 
340,  130  N.  W.  133. 

In  respect  to  a  case  of  an  ordi- 
nary action  at  law  for  the  recovery 
of  a  money  judgment,  the  power 
to  appoint  a  receiver,  if  it  exists  at 
all  in  any  given  case,  exists  by 
virtue  of  some  statutory  enact- 
ment. Miller  v.  Perkins,  154  Mo. 
629,  55  S.  W.  874. 


Civ.  Code  1895,  §  2716,  authorizing 
a  receiver  for  an  insolvent  trader 
at  the  instance  of  a  creditor  with- 
out lien  or  judgment,  is  in  deroga- 
tion of  the  common  law  and  must 
be  strictly  construed.  Farmers' 
Union  Warehouse  Co.  v.  Coweta 
Fertilizer  Co.,  133  Ga.  132,  65  S.  E. 
291. 

The  fact  that  Code  Pub.  Gen. 
Laws  1904,  art.  16,  §  192,  provides 
that  the  court  may  at  any  stage 
of  the  cause,  or  matter  concern- 
ing real  or  personal  property,  on 
its  own  motion,  or  on  application, 
pass  such  order  as  it  may  see  fit 
with  regard  to  the  possession  of 
the  property  pendente  lite,  or  the 
receipt  of  the  income  of  the  same, 
and  gave  a  right  of  appeal  as  pro- 
vided in  section  191,  which  author- 
ized an  appeal  in  such  manner  and 
on  such  terms  as  is  allowed  in  the 
case  of  injunction,  and  that  sec- 
tion 190  provides  that  the  court 
can  at  any  stage  of  a  cause  or 
matter  on  its  own  motion,  or  on 
application,  order  a  mandate  or 
injunction  as  therein  provided, 
does  not  abolish  the  rules  relating 
to  the  appointment  of  receivers, 
and  it  is  only  when  there  is 
enough  shown  in  the  proceedings 
to  authorize  such  appointment 
that  the  court  can  act  on  its  own 
motion,  or  where  the  proceedings 
and  application  are  sufficient  for 
that  purpose.  Baker  v.  Baker,  108 
Md.  269.  129  Am.  St.  Rep.  439,  70 
Atl.  418. 


GENERAL    GROUNDS    OF    APPOINTMENT.  79 

§  22.    Effect  of  Combining  Legal  and  Equitable  Powers  in  One 
Court. 

Where  the  same  court  possesses  both  legal  and  equi- 
table powers,  the  exercise  of  the  power  to  appoint  a  re- 
ceiver is  regarded  as  an  exercise  of  its  equitable  juris- 
diction.i  And  under  the  uniform  procedure  acts  allowing 
a  plaintiff  to  seek  both  legal  and  equitable  relief  in  one 
action,  the  appointment  of  a  receiver  can  not  be  sought 
under  circumstances  where  it  would  not  have  been  made 
prior  to  such  act.^ 

The  fact  that  the  appointment  of  a  receiver  in  an 
action  at  law  is  authorized  by  a  statute  will  not  prevent 
a  court  which  has  both  legal  and  equitable  jurisdiction 
from  exercising  its  equitable  jurisdiction  in  a  case  which 
sets  up  facts  furnishing  ground  for  the  appointment  of 
a  chancery  receiver.^ 

§  23.    Appointment  of  Receiver  by  Executive  Officers. 

The  appointment  of  a  receiver  has  been  held  to  be 
properly  made  by  a  governor  under  a  statute  allowing 
him  to  appoint  a  receiver  for  a  certain  specified  insolvent 
bank.  Such  a  statute  was  held  not  to  constitute  a  vio- 
lation of  the  constitutional  limitations  respecting  the 
province  of  the  different  departments  of  the  government 
inasmuch  as  such  an  appointment  of  a  receiver  did  not 
constitute  a  decree  or  judgment  affecting  property  inter- 
ests nor  decide  any  judicial  rights.^ 

1  Folsom  V.  Evans,  5  Minn.  418;  v.  Provident  Sav.  Life  Assur.  Soc, 
Sloan  V.  Moore.  37  Pa.  St.  217.  126  Ga.  50.  54  S.  E.  929. 

Courts  invested  with  the  power  3  Washington  Iron  Works  v.  Jen- 

of  both  courts  of  equity  and  law  sen,  3  Wash.  584.  28  Pac.  1019. 

have  an  inherent  power  to  appoint  i  In  Carey  v.  Giles,  9  Ga.  253,  an 

a  receiver  in  all  cases  pending  in  appointment  of  a  receiver  by  the 

such    courts    of    equitable    cogni-  governor  of  the   state,  under  the 

zance.    Cox  v.  Volkert,  86  Mo.  505;  provisions  of  an  act  of  the  legisla- 

Miller  v.  Perkins,  154  Mo.  629,  55  ture   authorizing   the   governor  to 

S   W    874.  appoint    a    receiver    of    a    certain 

2  Virginia-Carolina  Chemical  Co,  named    insolvent    bank,    was   aus- 


80  LAW   OP   RECEIVERS. 

The  appointment  of  a  receiver  of  a  national  bank  b)- 
the  Comptroller  is  also  an  instance  of  the  appointment 
of  a  receiver  by  an  executive  officer  and  without  the  inter- 
position of  a  court.  The  appointment  of  the  receiver  by 
the  Comptroller  under  such  circumstances  is  a  depart- 
mental and  not  a  judicial  act  and  the  courts  have  no  con- 
trol over  the  making  of  such  an  appointment.  The  right 
of  the  Comptroller  to  make  the  appointment  is  the  result 
of  an  act  of  Congress.^ 

§  24.    Right  to  Appoint  Receiver  Without  Resorting  to  a  Court. 

Sometimes  a  person  is  appointed  a  receiver  of  prop- 
erty ^dthout  resorting  to  a  court  as  the  result  of  an 
agreement  made  at  the  time  of  the  appointment  or  as  a 
result  of  some  prior  contract  providing  for  his  appoint- 
ment under  certain  circumstances.  Such  a  receiver  or 
liquidator,  as  he  is  sometimes  called,  occupies  no  official 
position  and  must  yield  to  a  receiver  appointed  by  a 
court  and  render  an  accounting  to  him.^    Such  a  receiver, 

tained.  It  was  conceded  that  if  the  2  Bushnell  v.   Leland,  164   U.   S. 

appointment  of  a  receiver  was   a  684,  41  L.  Ed.  598,  17  Sup.  Ct.  209; 

judicial  act,  the  act  of  the  legisla-  Price     v.     Abbott,     17     Fed.     506; 

ture    was    unconstitutional.     The  Washington  Nat.  Bank  v.  Eckels, 

court  in  so  holding  said:    "It  was  57  Fed.  870. 

not  a  case  of  controversy  between  1  Liquidators     of    an     insolvent 

party  and  party;   nor  is  there  any  bank  appointed  by  the  stockhold- 

decree  or  judgment  affecting  title  ers  occupy  no  ofRcial  position,  and 

to     property;     it     determines     no  receivers    subsequently    appointed 

right,  legal  or  equitable.    The  re-  are   the   proper  persons   to   main- 

ceiver   is   merely    to   collect,   hold  tain  actions  against  them   for  an 

and    disburse    the    assets    of    the  accounting.     Leidigh-Dalton   Lum- 

bank    for    the   benefit   of   all    con-  her  Co.  v.  Houck,  138  La.  159,  70 

cerned;  and  it  is  in  the  power  of  So.  72. 

the   courts   to    direct   and    control  The  appointment  of  a  receiver 

him  in  the  proper  execution  of  his  of  a   national  bank  by  the  comp- 

duties."  troller  is  also  an  instance  of  a  non- 

A  law  allowing  the  governor  to  judicial  appointment  of  a  receiver, 

appoint  a  receiver  to  collect  cer-  See  section  23.  supra, 

tain  taxes  is  adverted  to  in  Loague  In  re  Henry  Pound,  Son  &  Hutch- 

v.    Brownsville    Taxing    Dist.,    29  ins,  42  Ch.  D.  402,  it  was  held  that 

Fed.  742.  but  no  argument  is  made  the  court  would  not  interfere  with 

in  regard  to  the  question.  the  right  of  debenture  holders  to 


GENERAL    GROUNDS    OF    APPOINTMENT. 


81 


who  may  properly  be  called  a  contractual  receiver,  is 
merely  an  agent  of  the  parties  appointing  him.-  The 
practice  of  making  such  appointments  is  quite  common 
in  England  and  is  often  provided  for  m  voluntary  disso- 
lution proceedings  respecting  a  partner ship,=*  and  par- 
ticularly in  connection  with  mortgages  *  and  other  inden- 
tures in  which  the  rights  of  the  parties  to  property  or  a 
fund  are  not  terminated.^  In  fact,  the  right  of  the  parties 
to  a  mortgage  to  provide  for  such  a  receiver  is  expressly 
recognized  by  statute  in  England,*'  but  where  he  is  ap- 
pointed under  the  terms  of  the  statute,  the  terms  of  the 
statute  are  the  limits  of  his  authority  in  the  same  manner 
as  if  the  statute  was  written  into  the  mortgage  or  other 
instrument.^ 


appoint  the  receiver  provided  for 
under  the  terms  of  this  security. 

The  receiver  to  be  appointed 
under  such  circumstances  is  lim- 
ited to  the  purposes  of  the  con- 
tract under  which  he  is  appointed. 
Re  Masltelyne  British  Type 
Writer  [1895],  1  Ch.  133. 

2  Jefferys  v.  Dicl^son,  L.  R.,  1  Ch. 
183;  Law  v.  Glen,  L.  R.,  2  Ch.  G34; 
Owen  &  Co.  v.  Cronk  [1895],  1 
Q.  B.  265;  Gosling  v.  Gaskell 
[1897],  A.  C.  575;  In  re  Vimbos 
[1900],  1  Ch.  470. 

Where  a  trust  deed,  executed  to 
secure  the  debentures  of  a  com- 
pany, authorizes  the  trustees  to 
appoint  a  receiver  in  certain  cir- 
cumstances, such  receiver  is  re- 
garded as  the  agent  of  the  company 
and  is  not  held  personally  respon- 
sible for  the  expenses  incurred  by 
the  receivership.  Owen  &  Co.  v. 
Cronk  [1895],  1  Q.  B.  265;  Gos- 
ling V.  Gaskell  [1897],  A.  C.  575. 

3  Prior  V.  Bagster  W.  N.  [1887], 
194,  57  L.  T.  761. 

4  Houldsworth  v.  Yorkshire  etc. 

I  Rec. — 3 


Ass'n  [1903],  2  Ch.  284;  Tilings- 
worth  v.  Houldsworth  [1904],  A.  C. 
355;  Craghan  v.  Maffett,  26  L.  R. 
Ir.  671;  Re  Hale-Lilley  v.  Foad 
[1899],  2  Ch.  107. 

For  forms  of  mortgages  provid- 
ing for  such  receivers,  see  2  Key 
&  Elphinstone's  Precedents,  8th 
ed.,  pp.  53,  167  and  251;  also 
Palmer's  Company  Precedents, 
part  3,  9th  ed.,  pp.  243,  285,  295, 
402  and  403. 

5  Cradock  v.  Scottish  Provident 
Institutions,  W.  N.  [1893]  146, 
W.  N.  [1894]  88,  in  connection 
with  an  agreement  to  pay  an  an- 
nuity. 

6  23  and  24  Vict.,  ch.  145;  44  and 
45  Vict,  ch.  41. 

7  Where  the  receiver  is  provided 
for  in  the  mortgage  merely  in  the 
terms  of  the  conveyancing  act  of 
1881,  his  duties  and  powers  are 
limited  by  the  terms  of  the  act. 
White  V.  Metcalf  [1903],  2  Ch.  567; 
In  re  Delia  Rocella's  Estate,  29 
L.  R.  Ir.  464;  Woolston  v.  Ross 
[1900],  1  Ch.  788. 


82  LAW   OF   RECEIVERS. 

§25.   Effect  of  Defendant  Offering  to  Furnish  Security   to 
Protect  Plaintiff. 

As  we  have  shown  before,^  it  is  within  the  power  of 
the  court  to  refuse  to  appoint  a  receiver  on  condition 
that  the  defendant  furnish  a  bond  to  secure  the  plaintiff 
in  the  event  of  his  recovery  and  also  in  cases  where  the 
receivership  fund  is  of  doubtful  value  to  require  a  bond 
to  secure  the  payment  of  the  expenses  of  the  receivership, 
but  cases  arise  in  which  the  defendant  without  being  so 
required  offers  to  furnish  a  bond  to  secure  the  plaintiff. 
In  some  states  the  right  to  furnish  such  a  bond  is  given 
by  statute  and  it  naturally  follows  that  where  the  defend- 
ant in  such  states  brings  himself  clearly  within  the  statu- 
tory provisions,  no  receiver  should  be  appointed.-  Re- 
gardless of  statutory  provisions  allowing  such  a  bond, 
it  is  quite  clear  that  if  it  appears  to  the  court  that  the 
rights  of  the  plaintiff  will  be  amply  protected  by  the 
furnishing  of  such  security,  or  in  other  words  that  there 
is  no  great  probability  of  the  plaintiff  suffering  any 
irreparable  injury  by  the  failure  of  the  court  to  appoint 
a  receiver,  the  court  will  refuse  to  appoint  one.^  The 
matter  is  one  resting  in  the  discretion  of  the  court  and 
must  be  decided  in  view  of  the  circumstances  of  each 
case.  The  question  frequently  arises  in  controversies 
between  partners  or  in  cases  in  which  a  partnership  is 
claimed  by  one  party  and  denied  by  the  other.^ 

1  See  sections  15  and  16,  supra,  in   lieu  of  appointing  a  receiver. 

2  Roberts  v.  Pipkin,  63  S.  C.  252,  Valentine  v.  Muir,  121  N.  Y.  Supp. 
41  S.  E.  300.  704. 

3  Where  it  is  sought  to  appoint  A  receiver  should  not  be  ap- 
a  receiver  of  crops  which  are  pointed  for  property  in  the  hands 
about  to  be  harvested,  such  ap-  of  a  trustee  for  creditors,  who 
pointment  should  be  refused  where  offers  to  file  a  bond  in  double  the 
the  defendant  offers  to  give  a  bond  value  of  the  property,  to  in- 
to fully  secure  the  plaintiff  from  demnify  all  persons  interested, 
any  loss.  Stephens  v.  Kaga,  142  Branch  v.  Ward,  114  N.  C.  148, 
Ind.  523,  41  N.  E.  930.  19  S.  E.  104. 

It   is    within   the   power   of  the  ^  Likewise  where  the  existence 

court  to  allow  a  bond  to  be  given      of  a  partnership  is  denied  and  the 


GENERAL    GROUNDS    OF    APPOINTMENT. 


83 


Of  course  it  must  be  remembered  in  cases  of  this  sort 
tliat  a  receiver  may  be  appointed  regardless  of  the  fact 
that  the  defendant  is  perfectly  solvent  where  elements 
of  irreparable  injury  are  probable,^  or  other  circum- 
stances exist  which  make  the  appointment  of  a  receiver 
proper  under  the  general  principles  of  the  law  appli- 
cable to  the  subject  of  receivers. 


defendant  offers  to  produce  secu- 
rity to  pay  any  sum  found  to  be 
due  to  the  plaintiff,  it  is  proper 
to  discharge  the  receiver  upon  the 
filing  of  such  security,  since  the 
rights  of  the  parties  will  be  prop- 
erly safeguarded.  Popper  v.  Schei- 
der,  7  Abb.  Pr.  (N.  S.)  (N.  Y.)  56, 
38  How.  Pr.   (N.  Y.)   34. 

Where  partnership  assets  were 
sold  by  one  partner  to  one  who 
was  solvent,  and  the  nonconsent- 
ing  partner  sued  to  set  the  sale 
aside  and  asked  the  appointment 
of  a  receiver,  and  the  purchaser 
offered  to  give  a  sufficient  bond  to 
obey  the  orders  of  the  court  in  the 
matter  and  satisfy  any  judgment 


rendered  against  him,  and  it  was 
not  clear  that  the  sale  was  fraud- 
ulently made,  it  is  improper  to 
appoint  a  receiver.  Saverios  v. 
Levy,  40  Hun  639,  1  N.  Y.  St.  Rep. 
758. 

In  a  suit  between  partners, 
where  one  partner  offers  to  give 
adequate  security  against  loss, 
there  is  insufficient  ground  for  the 
appointment  of  a  receiver.  Bu- 
chanan V.  Comstock,  57  Barb. 
(N.  Y.)  568. 

5  Mead  v.  Burk,  156  Ind.  577,  60 
N.  E.  338;  Mannos  v.  Bishop-Bab- 
cock-Becker  Co.,  181  Ind.  343,  104 
N.  E.  579. 


CHAPTER  III. 


GENERAL,   EFFECT    OF    THE   APPOINTMENT    OF   A    RECEIVER    AND 
DUTIES   THEREUNDER. 


§26.    Status  of  the  Receiver  Respecting  Receivership  Prop- 
erty. 

The  appointment  of  a  receiver  pending  the  litigation 
does  not  in  any  way  determine  the  rights  of  the  parties 
to  the  litigation.^  He  is  but  the  arm  of  the  court  to 
take  care  of  and  administer  the  property  placed  under 
his  charge  as  receiver  as  the  court  may  from  time  to 
time  direct.-     Property  in  his  hands  is  in  custodia  legis 


1  Chicago  Title  &  Trust  Co.  v. 
Chapman,  132  111.  App.  55;  Howell 
V.  Hough,  46  Kan.  152,  26  Pac.  436; 
Harman  v.  McMullin,  85  Va.  187, 
7  S.  E.  349. 

The  mere  appointment  deter- 
mines no  right  existing  at  the 
time.  Chase's  Case,  1  Bland  (Md.) 
206,  17  Am.  Dec.  277. 

The  appointment  terminates  no 
right  as  between  the  parties,  nor 
does  it  affect  the  title.  The  court 
proceeds  to  determine  the  rights 
of  the  parties  upon  the  same  prin- 
ciples as  if  no  change  of  posses- 
sion had  occurred.  Davis  v.  Bon- 
ney,  89  Va.  755,  17  S.  E.  229. 

2  International  Trust  Co.  v. 
Decker  Bros.,  152  Fed.  78,  82, 
81  C.  C.  A.  302,  11  L.  R.  A,  (N.  S.) 
152. 

A  receiver  appointed  upon  the 
application  of  a  secured  creditor 
has  no  right  to  the  custody  of 
funds  not  arising  from  the  prop- 
erty which  has  been  pledged  as 
security,   and   which   may   be   ap- 


plied upon  the  claims  of  general 
unsecured  creditors,  if  any.  The 
possession  in  such  case  is  co- 
extensive with  the  rights  or  lien 
of  the  plaintiff,  and  as  to  the 
owner  of  the  property  or  creditors 
can  not  go  beyond  that.  Wormser 
V.  Merchants'  Nat.  Bank,  49  Ark. 
117,  4  S.  W.  198. 

The  right  of  custody  extends 
only  to  the  property  which  is  the 
subject-matter  of  the  litigation. 
In  a  proceeding  under  a  general 
creditors'  bill  of  course  the  re- 
ceiver is  entitled  to  the  entire 
property,  as  in  the  case  of  bank- 
ruptcy and  insolvency,  or  pro- 
ceedings to  wind  up  banks,  etc. 
Noyes  v.  Rich,  52  Me.  115.  But 
in  case  of  a  mortgage  foreclosure 
the  right  to  possession  extends 
only  to  the  property  mortgaged. 
Idem. 

He  is  but  an  arm  of  the  court 
to  take  care  of  and  administer  the 
property,  assets,  and  estate  in  suit, 
to  do  with  it  as  the  law  may  direct 


(84) 


EFFECT    OF    APPOINTMENT    AND    DUTIES. 


85 


and  the  court  in  the  event  that  it  determines  that  it  had 
no  jurisdiction  to  appoint  the  receiver^'  still  has  juris- 


for  the  benefit  of  the  parties  con- 
cerned. While  in  theory  he  can 
do  nothing  without  the  court's 
order  or  sanction,  he  has,  however, 
in  matters  of  management  and 
manner  of  disposition  of  the  es- 
tate, a  large  discretion.  Coy  v. 
Title  Guarantee  &  Trust  Co.,  198 
Fed.  275. 

Whatever  he  does  under  order 
of  the  court  regarding  the  property 
in  his  hands  is  the  act  of  the 
court.  His  possession  is  not  altered 
by  an  order  vacating  the  appoint- 
ment of  the  receiver  and  substi- 
tuting another  person  in  that  posi- 
tion. State  ex  rel.  Sullivan  v. 
Reynolds,  209  Mo.  161,  15  L.  R.  A. 
(N.  S.)  963,  123  Am.  St.  Rep.  468, 
14  Ann.  Cas.  198,  107  S.  W.  487, 
492. 

The  order  of  appointment  not 
only  creates  the  office  of  receiver, 
but  fills  the  office  so  created.  In 
fact  neither  the  office  nor  the  ap- 
I  ointee  can  exist  in  this  particular 
class  of  offices  without  the  other. 
Thurber  v.  Miller,  11  S.  D.  124, 
75  N.  W.  900. 

A  judgment  appointing  a  re- 
ceiver never  terminates  a  cause. 
It  remains  the  duty  of  the  court 
to  make  whatever  orders  may  be 
necessary  from  time  to  time  to 
settle  the  rights  of  all  the  parties 
claiming  an  interest  in  the  estate, 
and  any  such  order,  if  final  in  its 
nature,  as  to  the  particular  parties 
and  matters  affected  by  it,  may  be 
the  subject  of  a  separate  appeal. 
Barber  v.  International  Co.,  74 
Conn.  652,  92  Am.  St.  Rep.  246, 
51  Atl.  857. 

In  a  legal  sense,  property  placed 
by  a  court  in  the  hands  of  a  re- 


ceiver is  not  in  the  receiver's  pos- 
session, but  in  the  court's  through 
such  receiver  as  its  officer.  McKin- 
non-Young  Co.  v.  Stockton,  55  Fla. 
708,  46  So.  87. 

He  holds  the  funds  in  his  hands 
subject  to  the  orders  of  the  court, 
having  supervision  over  the  receiv- 
ership, and  all  persons  dealing 
with  him  are  chargeable  with 
knowledge  thereof.  Stone  v.  St. 
Louis  Union  Trust  Co.,  183  Mo. 
App.  261,  166  S.  W.  1091. 

He  is  an  officer  of  the  court  that 
appoints  him,  and  derives  his  au- 
thority from  its  orders,  and  is 
accountable  to  it  alone  for  the 
faithful  performance  of  his  office. 
City  Bank  of  Wheeling  v.  Bryan, 
(W.  Va.)  86  S.  E.  8. 

.•!  Beardsley  Co.  v.  V.  E.  Ash- 
down  &  Co.,  73  W.  Va.  132,  80  S.  E. 
128. 

Property  in  the  actual  or  con- 
structive possession  of  a  receiver 
is  in  custodia  legis,  and  can  not 
be  interfered  with  without  leave 
of  court.  Pelletier  v.  Greenville 
Lumber  Co.,  123  N.  C.  596,  68  Am. 
St.  Rep.  837,  31  S.  E.  855. 

Property  placed  in  the  hands  of 
a  receiver  is  in  custodia  legis,  and 
in  the  exclusive  control  of  the 
court  appointing  him.  City  Bank 
of  Wheeling  v.  Bryan,  (W.  Va.)  86 
S.  E.  8. 

Money  or  property  in  the  receiv- 
er's hands  is  in  custodia  legis. 
Delany  v.  Mansfield,  1  Hogan  234. 
A  mere  order  that  a  receiver 
shall  be  appointed  to  take  charge 
of  the  goods  of  defendant  does 
not  place  such  goods  in  custodia 
legis.  Dutcher  v.  Culver,  24  Minn. 
581. 


86 


LAW   OF   RECEIVERS. 


diction  to  restore  the  property  to  the  owner  or  person 
having  the  legal  title  to  it.  He  is  a  person  indifferent  as 
between  the  parties  to  the  litigation  and  holding  the 
property  for  the  benefit  of  all  of  them,  but  his  possession 
is  really  that  of  the  court.^  The  title  to  the  property- 
does  not  change  by  reason  of  his  appointment  ^  and  he 


The  control  of  all  controversies 
affecting  the  property  after  the 
appointment  of  a  receiver  lies  in 
the  court.  Howell  v.  Hough,  46 
Kan.  152,  26  Pac.  436. 

Possession  is  not  essential  to 
place  the  exclusive  right  to  control 
the  property  in  the  power  of  the 
court  appointing  the  receiver.  Re- 
genstein  v.  Pearlstein,  30  S.  C.  192, 
8  S.  E.  850. 

A  "receiver"'  is  an  oflficer  of  the 
court  that  appoints  him,  and  de- 
rives his  authority  from  its  orders, 
and  is  accountable  to  it  alone  for 
the    faithful    performance    of    his 

office.     City  Bank  of  Wheeling  v. 

Bryan,  (W.  Va.)  86  S.  E.  8. 

4  Green  v.  Coast  Line  R.  Co., 

97  Ga.  15,  54  Am.  St.  Rep.  379,  33 

L.  R.  A.  806,  24  S.  E.  814. 

State  v.  Norfolk  &  S.  R.  Co.,  152 

N.    C.    785,    21    Ann.    Cas.    692,    26 

L.  R.  A.  (N.  S.)   710,  67  S.  E.  42. 
Ordinarily  the  appointment  of  a 

receiver  does  not  vest  in  him  any 

title  to  the  property  involved,  but 

only  the  right  of  possession.   Gates 

V.  Smith,  176  Ala.  39,  57  So.  438. 
nCrine    v.    Davis,    68    Ga.    138; 

Southern    Bank    of    Kentucky    v. 

Ohio  Ins.  Co.,  22  Ind.  181;  Ellis  v. 

Boston   etc.  R.  Co.,   107   Mass.   1; 

Bell    V.    American    Protective 

League,  163  Mass.  558,  47  Am.  St. 

Rep.  481,  28  L.  R.  A.  452,  40  N.  E. 

857;  First  Nat.  Bank  of  Detroit  v. 

E.  T.  Barnum  Wire  etc.  Works,  60 

Mich.  487,  27  N.  W.  657;  Maynard 


V.  Bond,  67  Mo.  315;  Heiman  v. 
Fisher,  11  Mo.  App.  275;  Owen  v. 
Kellogg  (Owen  v.  Homeopathic 
Mut.  L.  Ins.  Co.),  56  Hun  (N.  Y.) 
455,  10  N.  Y.  Supp.  75;  Pringle  v. 
Woolworth,  90  N.  Y.  502;  Attorney 
General  v.  Atlantic  etc.  Ins.  Co., 
100  N.  Y.  279,  3  N.  E.  193;  Ex 
parte  Dunn,  8  S.  C.  207;  Beverley 
V.  Brooke,  4  Grat.  (Va.)  187;  Mur- 
tey  V.  Allen,  71  Vt.  377,  76  Am.  St. 
Rep.  779,  45  Atl.  752;  State  v.  Su- 
perior Court  of  Snohomish  County, 

7  Wash.  77,  34  Pac.  430;  State  v. 
Superior  Court  of  Chehalis  County, 

8  Wash.  210,  25  L.  R.  A.  354,  35 
Pac.  1087;  Wiswall  v.  Sampson,  14 
How.  (55  U.  S.)  52,  14  L.  Ed.  322; 
Union  Nat.  Bank  v.  Bank  of  Kan- 
sas City,  136  U.  S.  223,  34  L.  Ed. 
341,  10  Sup.  Ct.  1013;  Pennsylva- 
nia Steel  Co.  v.  New  York  City  R. 
Co.,  198  Fed.  721,  117  G.  C.  A.  503, 
reversing  decrees  (C.  C.) ;  In  re 
New  York  City  R.  Co.,  188  Fed. 
339,  and  (C.  C.)  Pennsyl-'^ania 
Steel  Co.  V.  New  York  City  R.  Co., 
188  Fed.  343;  modifying  decrees 
(C.  C.)  Pennsylvania  Steel  Co.  v. 
New  York  City  R.  Co.,  189  Fe':l. 
661,  190  Fed.  609,  and  (D.  C.)  189 
Fed.  661,  194  Fed.  543. 

As  a  rule  the  receiver  takes  no 
title  to  the  property.  Matthews  v. 
Cooper,  49  N.  Y.  St.  Rep.  792,  796, 
21  N.  Y.  Supp.  71. 

The  appointment  does  not  in 
any  manner  change  the  title  to 
or  right  of  possession  of  the  prop- 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


87 


consequently  obtains  no  greater  rights  to  a  fund  in 
the  hands  of  a  third  person  than  has  the  party  for  whom 
he    is    receiver,^    but    he    has    the    same    rights    wliich 


erty,  but  merely  places  in  the 
receiver  its  custody  for  the  bene- 
fit of  the  party  ultimately  found 
to  be  entitled  to  it.  Union  Nat. 
Bank  v.  Bank  of  Kansas  City,  136 
U.  S.  223,  34  L.  Ed.  341,  10  Sup.  Ct. 
1013;  Owen  v.  Kellogg,  56  Hun 
4.55.  10  N.  Y.  Supp.  75. 

The  receiver  is  the  hand  of  the 
law  and  the  law  conserves  and  en- 
forces rights  —  never  desti'oys 
them.  His  appointment  determines 
no  right  and  in  no  way  affects  the 
title  of  any  party  to  the  property 
in  litigation.  Von  Roun  v.  San 
Francisco  Superior  Court,  58  Cal. 
358.  He  holds  the  property  sub- 
ject to  all  liens  of  every  kind. 

While  property  is  in  the  hands 
of  a  receiver,  or  under  the  control 
of  the  court,  no  execution  can  be 
levied  upon  it;  but  the  fi.  fa.  cre- 
ates a  lien  thereon.  Davis  v.  Bon- 
ney,  89  Va.  755,  17  S.  E.  229. 

A  receiver  is  an  officer  of  the 
court,  but  his  appointment  deter- 
mines no  right,  nor  does  it  affect 
the  title  of  the  property  in  any 
way;  it  will  not  prevent  the  run- 
ning of  the  statute  of  limitations. 
His  holding  is  the  holding  of  the 
court  for  him  from  whom  the  pos- 
session was  taken.  He  is  appointed 
on  behalf  of  all  parties  and  if  any 
loss  arises  from  deficiency  in  his 
accounts  the  estate  must  bear  it. 
Ellicott  V.  United  States  Ins.  Co., 
7  Gill  (Md.)  307. 

If  the  appointment  of  a  receiver 
interferes  with  the  rights  of  a 
stranger  to  the  suit,  he  may  apply 
to  the  court  for  the  protection  of 
his  rights,  though  he  can  not  have 


the  benefit  of  the  receivership. 
Howell  v  Ripley,  10  Paige  (N.  Y.) 
43. 

A  receiver  of  the  effects  of  an 
insolvent  auctioneer  was  ap- 
pointed. The  auctioneer  had  sold 
goods  for  a  party  and  with  his 
knowledge  and  consent  deposited 
the  money  arising  therefrom  to  his 
general  account  at  the  bank.  After 
the  appointment  and  notice  thereof 
to  the  bank,  the  auctioneer  drew  a 
check  in  favor  of  this  principal 
for  the  amount  due  him  and  gave 
him  an  assignment  of  an  amount 
on  demand  equal  to  the  amount  of 
the  check.  Held,  that  the  principal 
thereby  gained  no  right  to  the 
moneys  on  deposit,  nor  of  action 
against  the  bank.  All  title  to  the 
moneys  passed  to  the  receiver  on 
the  day  of  his  appointment  and  by 
virtue  thereof.  Levy  v.  Cavanagh, 
2  Bosw.  (N.  Y.)  100.  ' 

The  appointment  of  a  receiver 
in  a  suit  to  foreclose  a  mortgage 
against  a  lessee  will  not  deprive 
the  lessor  of  the  right  to  obtain 
possession  of  the  premises  under 
the  forcible  entry  and  detainer 
statute.  Woodward  v.  Winehill, 
14  Wash.  394,  44  Pac.  860. 

A  receiver  holds  the  property 
coming  into  his  hands  by  the  same 
right  as  the  person  for  whose 
property  he  is  the  receiver.  Law- 
son  V.  Warren,  34  Okl.  94.  Ann 
Cas.  1914C,  139,  42  L.  R.  A.  (X.  S.) 
183,  124  Pac.  46. 

0  McBride  v.  American  Ry.  etc. 
Co.,  60  Tex.  Civ.  App.  226,  127 
S.  W.  229. 

The  general   rule  is  well  estab- 


88 


LAW   OF   RECEIVERS. 


such  party  has  in  it.     In  other  words,  a  receiver  holds 
the  property  coming  into  his  hands  by  the  same  right 


lished  that  a  receiver  takes  the 
title  of  the  corporation  or  individ- 
ual whose  receiver  he  is  and  that 
any  defense  which  would  have 
heen  good  against  the  individual 
or  corporation  may  be  asserted 
against  the  receiver.  Republic 
Life  Ins.  Co.  v.  Swigert,  135  111. 
150,  12  L.  R.  A.  328,  25  N.  E.  6S0; 
Hyde  v.  Lynde,  4  N.  Y.  387;  Hig- 
gins  v.  Gillesheiner,  26  N.  J.  Eq. 
308. 

But  to  this  rule  there  is  a  well 
recognized  exception  which  per- 
mits a  receiver  of  an  insolvent 
individual  or  corporation  in  the 
interest  of  creditors  to  disaffirm 
dealings  of  the  debtor  in  fraud 
of  their  rights,  but  as  we  have 
seen  elsewhere,  this  rule  Is  de- 
pendent upon  statutory  powers 
and  not  upon  the  inherent  equity 
powers  of  the  court.  Pittsburg 
Carbon  Co.  v.  McMillin,  119  N.  Y. 
46,  7  L.  R.  A.  46,  23  N.  E.  530; 
Gillet  V.  Moody,  3  N.  Y  479;  Por- 
ter V.  Williams,  9  N.  Y.  142,  59 
Am.  Dec.  519;  Curtis  v.  Leavitt, 
15  N.  Y.  9,  108. 

Under  the  Michigan  voluntary 
assignment  law  the  receiver  gets 
no  better  title  than  the  assignee 
had.  In  general  the  rights  and 
powers  of  the  person  or  corpora- 
tion over  whose  property  the  re- 
ceivership extends,  measures  the 
rights  and  powers  of  the  receiver 
in  his  relation  to  third  parties, 
and  all  causes  of  action,  or  de- 
fenses, existing  in  favor  of  the 
former  are  available  to  the  latter. 
Wisconsin  Marine  &  F.  Ins.  Co. 
Bank  v.  Manistee  Salt  &  L.  Co., 
77  Mich.  76,  43  N.  W.  907;  Farring- 


ton  V.  Sexton,  43  Mich.  454,  5  N.W. 
654;  Lentz  v.  Flint  &  P.  M.  R.  Co., 
53  Mich.  444,  19  N.  W.  138;  Byles 
v.  Kellogg,  67  Mich.  318,  34  N.  W. 
671. 

Under  Pub.  Laws  1905,  ch.  85,  3, 
receiver  held  to  succeed  only  to 
the  rights  of  the  defendant  in  the 
receivership  suit,  and  not  to  the 
rights  of  creditors.  Folsom  v. 
Smith,  113  Me.  83,  92  Atl.  1003. 

A  receiver  occupies  the  position 
of  the  debtor  so  far  as  the  pro- 
ceeds of  the  fund  or  property  are 
concerned.  Crine  v.  Davis,  68  Ga. 
138. 

Seizure  of  a  debtor's  property 
as  property  of  another  by  third 
person  is  ineffectual  as  against 
owner's  receiver.  Generotzky  v. 
Barnay  Hotel  Co.,  85  N.  J.  Eq.  63, 
95  Atl.  865. 

A  court  may  appoint  a  receiver 
to  take  possession  of  property, 
whether  the  property  is  in  the  im- 
mediate possession  of  the  defen- 
dant or  his  agent,  and  may  order 
the  agent  or  employees  of  defen- 
dant, though  not  parties  to  the 
record,  to  deliver  the  specified 
property  to  the  receiver.  Severns 
V.  English,  19  Okl.  567,  101  Pac. 
750. 

A  subcontractor  of  a  firm  of  con- 
tractors for  a  courthouse  for  a 
county  in  Wisconsin,  who  brings 
suit  as  authorized  by  statutes, 
against  the  county  and  the  firm 
more  than  a  month  before  the 
filing  of  a  bill  for  the  dissolution 
of  the  firm  and  an  accounting,  ac- 
quires priority  over  other  creditors 
in  the  fund,  and  he  may  prosecute 
the  action  to  judgment  and  enforce 


EFFECT    OP    APPOINTMENT    AND    DUTIES. 


89 


and  title  as  the  person  for  whose  property  he  is  receiver,  A 
subject  to  all  liens,  priorities,  and  equities  existing  at/ 
the  time  of  his  appointment^/  From  his  position  as  the 


his  priority.  Rickman  v.  Rickman, 
180  Mich.  224,  Ann.  Cas.  1915C, 
1237,  146  N.  W.  609. 

The  receiver  of  an  insolvent 
bank  acquired  no  greater  rights  to 
funds  deposited  with  a  third  party 
for  the  bank's  benefit  than  the 
bank  had.  McBride  v.  American 
Ry.  &  Lighting  Co.,  60  Tex.  Civ. 
App.  226,  127  S.  W.  229. 

7  Hoffman    v.    Schoyer,    143    111. 
598,    28    N.    E.    823;    Mulcahey    v. 
Strauss,  151  111.  70,  37  N.  E.  702; 
Chicago    Title     &     Trust    Co.     v. 
Smith,  158  111.  417,  41  N.  E.  1076; 
Bates    V.    Wiggin,    37    Kan.    44,    1 
Am.    St.    Rep.    234,    14    Pac.    442; 
Rickman    v.    Rickman,    180    Mich. 
224,    Ann.    Cas.    1915C,    1237,    146 
S.  W.  609;  Cox  v.  Volkert,  86  Mo. 
505;    Kirkpatrick    v.    McElroy,    41 
N.  J.  Eq.  539,  7  Atl.  647;   Gere  v. 
Dibble,   17   How.    Pr.    (N.   Y.)    31; 
VanAlstyne  v.  Cook,  25  N.  Y.  489; 
Becker  v.  Torrance,  31  N.  Y.  631; 
Davenport  v.  Kelly,  42  N.  Y.  193; 
Commercial  Pub.  Co.  v.  Beckwith, 
167  N.  Y.  329,  60  N.  B.  642;   Ard- 
more    Nat.    Bank    v.    Briggs    Ma- 
chinery etc.  Co.,  20  Okla.  427,  129 
Am.  St.  Rep.  747,  16  Ann.  Cas.  133, 
23   L.   R.  A.   (N.   S.)    1074,  94  Pac. 
533;   Lawson  v.  Warren,  34  Okla. 
94,  Ann.  Cas.  1914C,  139,  42  L.  R.  A. 
(N.  S.)   183,  124  Pac.  46;   Hays  v. 
Lycoming    Fire    Ins.    Co.,    99    Pa. 
621;  Central  Trust  Co.  v.  Wabash, 
St.   L.    &    P.   R.   Co.,    46    Fed.   26; 
Adams   v.    Spokane    Drug   Co.,   57 
Fed.  889,  23  L.  R.  A.  334;   Lowen- 
berg    v.    Jeffries,     74     Fed.     385; 
Black  V.  Manhattan  Trust  Co.,  213 
Fed.    692;    Kneeland  v.  American 


Loan  &  T.  Co.,  136  U.  S.  89,  34 
L.  Ed.  379,  10  Sup.  Ct.  950;  Scott 
V.  Armstrong,  146  U.  S.  499,  36 
L.  Ed.  1059,  x3  Sup.  Ct.  148. 

"A  receiver  by  his  appointment 
as  such  acquires  no  greater  or  su- 
perior right  or  interest  in  the 
property  coming  into  his  hands 
than  the  debtor  had,  and  in  this 
relation  may  be  said  to  stand  in 
the  shoes  of  the  debtor;  and,  fur- 
thermore, as  a  general  rule  the 
receiver  takes  the  property  in  the 
same  plight  and  condition,  and 
subject  to  the  same  equities  and 
liens,  as  he  finds  it  in  the  hands 
of  the  person  or  corporation  out 
of  whose  hands  it  is  taken.  34  Cyc. 
191,  193."  Black  v.  Manhattan 
Trust  Co.,  213  Fed.  692. 

A  receiver  takes  the  debtor's 
property  subject  to  the  legal  and 
equitable  rights  of  third  persons. 
Gage  Lumber  Co.  v.  McEldowney, 
207  Fed.  255,  124  C.  C.  A.  641, 
reversing  decree  (D.  C.) ;  In  re 
Clairfield  Lumber  Co.,  194  Fed.  181. 
A  receiver  can  not  place  the 
creditors  having  an  equity  in  a 
worse  condition  and  the  creditors 
having  no  equity  in  a  better  con- 
dition than  they  occupied  before 
his  appointment.  American  etc. 
Bank  v.  McGettigan,  152  Ind.  582, 
71  Am.  St.  Rep.  345,  52  N.  E.  793. 
A  receiver  to  sequestrate  the 
property  of  a  corporation  and  ap- 
ply it  to  the  payment  of  corporate 
debts  can  not  question  the  validity 
of  a  mortgage  executed  by  the  cor- 
poration to  secure  the  debt  of  its 
president,  where  none  of  the  cred- 
itors   represented    by    him    were 


90 


LAW   OF   RECEIVERS. 


representative  of  the  court  he  is  said  to  represent  both 
the  clebl.Dr  and  the  creditors,  although  he  is  not  their 


such  at  the  execution  of  the  mort- 
gage. Osborn  v.  Montelac  Park, 
89  Hun  167,  35  N.  Y.  Supp.  610. 

A  receiver's  possession  is  sub- 
ject to  all  valid  and  existing  liens 
upon  the  property  at  the  time  of 
his  appointment,  and  does  not  de- 
rest  a  lien  previously  acquired  in 
good  faith.  Chicago  Title  &  T. 
Co.  V.  Smith,  158  111.  417,  41  N.  E. 
1076.     • 

A  transfer  of  a  trustee  of  ac- 
counts belonging  to  a  corporation, 
duly  made  and  noted  on  the  books 
of  the  corporation  under  authority 
of  the  board  of  directors  and  ac- 
cepted by  the  trustee  in  writing, 
with  notice  from  him  to  the  par- 
ties whose  accounts  are  assigned, 
and  also  to  the  persons  for  whom 
he  is  acting  as  trustee,  is  sufficient 
to  vest  in  the  trustee  the  right  to 
the  money  derived  from  the  ac- 
counts, although  on  the  same  day, 
but  subsequent  to  such  transfer, 
a  bill  was  filed  for  the  appoint- 
ment of  a  receiver  and  the  winding 
up  of  the  affairs  of  the  corpora- 
tion. Chicago  Title  &  T.  Co.  v. 
Smith,  158  111.  417,  41  N.  E.  1076. 

The  right  of  the  assignee  in 
bankruptcy  of  a  firm  to  bring  any 
and  all  suits  which  concern  the 
estate  or  trust  is  not  affected  by 
the  appointment  of  a  receiver  of 
the  property  of  an  individual  hold- 
ing assets  of  the  firm  in  trust,  and 
the  passing  of  the  legal  title  to 
such  receiver.  Shainwald  v.  Da- 
vids, 69  Fed.  687. 

The  lien  of  encumbrances  is  not 
alTected  by  the  appointment  of  the 
receiver.  Bryant  v.  Bull,  L.  R.,  10 
Ch.  Div.  153. 

As  a  ge/ieral  rule  a  receiver  can 


not  maintain  an  action  on  an  ob- 
ligation which  the  original  party 
to  whom  it  ran  could  not  have 
maintained.  Hollander  v.  Heaslip, 
222  Fed.  808,  137  C.  C.  A.  1. 

The  appointment  of  a  receiver 
for  a  debtor's  property  in  an  action 
by  a  creditor  will  not  affect  vested 
rights  or  interests  of  third  per- 
sons therein.  Albien  v.  Smith,  24 
S.  D.  203,  123  N.  W.  675. 

Nor  has  a  liquidator  power  to 
recover  in  an  action  by  him  where 
the  company  itself  could  not  have 
recovered.  Waterhouse  v.  Jamie- 
son,  L.  R.  2  H.  L.   (Sc.)   29. 

As  a  general  rule  the  appoint- 
ment of  a  receiver  does  not  affect 
vested  rights  or  interests  of  third 
persons  in  the  receivership  prop- 
erty, or  disarrange  the  order  of 
priority  of  existing  liens,  particu- 
larly where  the  lienors  have  not 
been  made  parties  nor  intervened. 
Hulings  V.  Jones,  63  W.  Va.  696, 
60  S.  E.  874. 

Defenses  available  against  the 
holder  of  a  note  are  available 
against  a  receiver  appointed  under 
a  decree  of  court  to  collect  the 
note.  Hutchins  v.  Langley,  27  App. 
D.  C.  234. 

Under  the  code  provisions,  prop- 
erty of  a  harvester  company,  left 
in  the  storehouses  of  a  hardware 
company,  as  its  agent,  behind  sign 
of  latter,  is  the  property  of  the 
hardware  company  as  to  creditors, 
of  which  the  receiver  of  the  hard- 
ware company  is  entitled  to  pos- 
session, notwithstanding  replevin 
by  harvester  company  before  ap- 
pointment of  receiver.  Payne  Hard- 
ware Co.  V.  International  Harves- 
ter Co.,  110  Miss.  783,  70  So.  892. 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


91 


agent.^     His    possession,    liowevfcr,    is    not    adverse    to 
either  tJie  plaintiff  or  the  defendant  of  the  litigation  in 

The  effect  of  the  appointment  of 
a  receiver  is  not  to  oust  any  per- 
son of  his  right  to  the  possession 
of  the  property,  but  merely  to  re- 
tain it  for  the  benefit  of  the  party 
who  may  ultimately  appear  to  be 
entitled    thereto.     In    re    John    L. 


Nelson  &  Bros.  Co.,  149  Fed.  590. 

Where  attorneys  have  been  em- 
ployed to  foreclose  a  mortgage, 
and  pending  the  foreclosure  pro- 
ceedings a  receiver  is  appointed 
over  the  property  of  the  mort- 
gagee, although  the  receiver  takes 
the  mortgage  or  its  proceeds,  he 
does  so  subject  to  the  lien  of  the 
attorneys  for  the  payment  of  their 
fees  for  services  in  the  foreclosure 
proceedings.  They  can  not  assert 
against  the  mortgage  fund,  how- 
ever, any  claim  for  other  services 
performed  in  other  matters  for  the 
mortgagee.  Bowling  Green  Sav. 
Bank  v.  Todd,  64  Barb.  (N.  Y.) 
146. 

The  appointment  does  not  re- 
lease the  property  from  the  effect 
of  prior  existing  liens,  but  it  af- 
fects, however,  the  manner  and 
time  of  their  enforcement.  Hoff- 
man V.  Schoyer,  143  111.  598,  28 
N.  E.  823;  Dann  Mfg.  Co.  v.  Park- 
hurst,  125  Ind.  317,  25  N.  E.  347; 
Arnold  v.  Weimer,  40  Neb.  216,  58 
N.  W.  709;  Cherry  v.  Western 
Washington  Ind.  etc.  Co.,  11  Wash. 
586,  40  Pac.  136;  Kneeland  v. 
American  Loan  etc.  Co.,  136  U.  S. 
89,  34  L.  Ed.  379,  10  Sup.  Ct.  950. 

While  property  is  in  the  posses- 
sion of  a  receiver,  the  right  to 
enforce  liens  against  it  is  gener- 
ally suspended,  for  the  reason  that 
it  is  in  the  custody  of  the  court. 
Dann  Mfg.   Co.  v.   Parkhurst,  125 


Ind.  317,  25  N.  E.  347;  State  v. 
Superior  Court,  7  Wash.  77,  34 
Pac.  430;  State  v.  Superior  Court, 
14  Wash.  324,  44  Pac.  542. 

A  power  of  attorney  to  collect 
rents  and  apply  them  to  a  debt, 
which  was  given  as  security  for 
a  loan,  is  not  revoked  by  the  ap- 
pointment of  a  receiver  for  the 
grantor's  property.  Abbot  v.  Strat- 
ton,  3  Jo.  &  Lat.  603. 

s  A  receiver  appointed  to  take 
possession  of  property  involved  in 
the  litigation  during  the  pendency 
of  the  suit,  who  does  not  stand  as 
the  representative  of  any  of  the 
parties,  nor  file  any  pleadings  in 
the  case,  is  not  a  necessary  or 
proper  party  in  a  proceeding  in 
error  brought  to  review  the  judg- 
ment rendered  in  such  suit.  Grand 
De  Tour  Plow  Co.  v.  Rude  Bros. 
Mfg.  Co.,  60  Kan.  145,  55  Pac.  848. 

A  receiver  does  not  act  as  agent 
of  the  company  of  which  he  is  ap- 
pointed receiver,  or  on  its  behalf 
alone,  but  is  appointed  to  preserve 
property  pending  litigation,  or  to 
wind  up  the  affairs  of  an  insolvent, 
reduce  its  property  into  cash,  and 
distribute  it  among  its  creditors. 
Rochester  Tumbler  Works  v. 
Mitchell  Woodbury  Co.,  215  Mass. 
194,  102  N.  E.  438. 

The  effect  on  the  creditor  of  the 
taking  over  by  a  receiver  of  the 
general  assets  of  the  debtor  is  to 
substitute  for  the  right  of  action, 
in  personam,  theretofore  existing, 
a  right  to  a  proportional  share  of 
the  impounded  assets,  together 
with  a  right  to  receive  such  a  part 
thereof  as  his  total  proved  demand 
bears  to  the  total  of  all  demands, 
unaffected    by    the    fact    that    he 


92 


LAW    OF    RECEIVERS. 


which  he  has  been  appointed.^  The  position  of  the 
receiver  in  respect  to  the  court  appointing  him  is  some- 
what analogous  to  that  of  the  Sheriff  in  respect  to  a 
court  of  law.^"  The  general  principles  of  law  which  gov- 
ern the  relation  of  the  court,  acting  through  its  receiver, 
in  relation  to  the  receivership  property  was  well  stated 
by  the  Court  of  Appeals  of  New  York  in  a  well  considered 
case,^^  in  wdiich  the  court  said:  ''No  principle  has  been 
more  frequently  asserted  or  is  so  well  established  as  thjt 
where  a  court  of  equity  has  jurisdiction  over  a  ca-ase  for 
any  purpose,  it  may  retain  the  cause  for  all  purposes  and 
proceed  to  a  final  determination  of  all  the  matters  at 


holds  security  for  a  part  or  all  ot 
his  debt.  In  re  E.  Bemenfs  Sons 
(Detroit  Trust  Co.  v.  State  Bank 
of  Michigan),  150  Mich.  530,  114 
N.  W.  327,  14  Detroit  Leg.  N.  672; 
In  re  E.  Bement's  Sons  (Detroit 
Trust  Co.  V.  Old  Nat.  Bank),  150 
Mich.  530,  114  N.  W.  327,  14  De- 
troit Leg.  N.  672;  In  re  E.  Be- 
ment's Sons  (Detroit  Trust  Co.  v. 
Michigan  Sav.  Bank),  150  Mich. 
536,  114  N.  W.  329,  14  Detroit  Leg. 
N.  784. 

A  receiver  appointed  by  the 
court  in  the  progress  of  litigation 
acts  as  receiver  for  all  the  parties 
interested;  but  he  is  not  the  agent 
for  the  parties  in  the  sense  that 
each  of  the  parties  interested  in 
the  litigation  is  personally  sever- 
ally responsible  for  his  wrongful 
or  negligent  acts.  City  Savings 
Bank  v.  Carlon,  87  Neb.  266,  127 
N.  W.  161. 

The  receiver  of  a  corporation 
represents  both  the  creditors  and 
stockholders  and  may  assert  their 
rights  when  affected  by  the  fraud- 
ulent or  illegal  acts  of  the  corpora- 
tion.    Gillct  V.  Moody,  3  N.  Y.  479. 


A  receiver  represents  both  the 
creditors  and  their  debtor,  he 
being  the  trustee  of  both  and 
bound  to  serve  both,  but  his  right 
to  represent  the  creditors  in  op- 
posing a  contract  entered  into  by 
the  debtor  is  generally  limited  to 
questions  of  fraud,  though  he  may 
be  heard  individually  when  he  as- 
serts a  personal  right,  although 
precluded  from  being  heard  as  a 
receiver.  In  re  Pleasant  Hill  Lum- 
ber Co.,  126  La.  743,  52  So.  1010. 

9  Wilkinson  v.  Lehman-Durr  Co., 
136  Ala.  463,  34  So.  216;  Mays  v. 
Rose,  Freem.  Ch.  (Miss.)   703. 

10  In  re  Merchants  Ins.  Co.,  3 
Biss.  162,  165,  Fed.  Cas.  No.  9441. 

Although  the  appointment  of  a 
receiver  operates  very  much  as 
an  equitable  execution,  it  reaches 
only  the  actual  interest  of  the 
debtor  in  the  property  covered  by 
the  receivership.  Longfellow  v. 
Barnard,  58  Neb.  612,  76  Am.  St. 
Rep.  117,  79  N.  W.  255. 

1 1  McGean  v.  Metropolitan  Ele- 
\ated  Ry.  Co.,  133  N.  Y.  9,  30  N.  E. 
647. 


EFFECT    OF    APPOINTMENT    AND    DUTIES. 


93 


issue.  To  sucli  an  extent  has  the  doctrine  been  carried  ^y^ 
that  it  has  been  declared  that  if  the  controversy  contains 
an  equitable  feature,  or  requires  any  purely  eqaitable 
relief  belonging  to  the  exclusive  jurisdiction  of  equity, 
or  pertaining  to  the  concurrent  jurisdiction  of  equity 
and  law,  and  a  court  of  equity  thus  acquires  a  partial 
cognizance  of  an  action,  it  may  go  to  a  complete  adjudi- 
cation and  establish  purely  legal  rights  and  grant  legal 
remedies  which  would  otherwise  be  beyond  the  scope  of 
its  authority." 

Some  confusion  has  arisen  in  respect  to  the  character 
of  the  rights  of  the  receiver  over  property  belonging  to 
the  receivership  because  of  a  loose  way  of  using  the  term 
*' title"  in  speaking  of  the  relation  of  the  receiver  toward 
the  receivership  property.  The  term  -title"  is  often 
used  in  this  connection  in  the  sense  of  the  rights  of  con- 
trol of  the  receiver  rather  than  in  that  of  ownership. 

The  receiver's  title  has  reference  more  particularly  to 
the  right  to  the  possession  and  control  of  the  property, 
real  or  personal,  for  the  time  being,  rather  than  to  the 
ownership  thereof.    There  are  cases  in  matters  of  insol- 
vency and  wunding  up  proceedings  where  the  absolute 
legal  title  becomes  vested  in  the  receiver,  and  not  unfre- 
queutly  in  the  earlier  practice  the  owner  was  required  to 
execute  and  deliver  to  the  receiver  a  formal  conveyance 
of  the  property  owned  by  him  at  the  date  of  granting  the 
receivership.     In  other  cases  the  receiver  is  the  mere 
custodian  for  the  time  being  of  the  property  of  the  debtor, 
charged  with  the  duty  of  caring  for  the  same,  collecting 
the  rents  in  case  of  real  estate,  and  the  income  and  profits 
in  case  of  personal  property,  and  transferring  the  title 
as  an  officer  of  and  as  ordered  by  the  court.    In  tliis  latter 
case  the  receiver,  strictly  speaking,  has  no  title  to  the 
property,  and  where  the  title  of  such  a  receiver  is  referred 


94 


LAW   OF   RECEIVERS. 


to  it  has  reference  solely  to  Ms  right  of  possession  under 
the  order  of  court,  and  as  an  officer  of  the  court,  the  scope 
of  his  authority  in  all  cases  being  measured  by  the  order 
of  his  appointment,  having  reference  to  the  character  of 
the  property,  and  the  rights  therein  of  the  plaintiffs  at 
whose  instance  he  is  appointed,  and  the  owner  over  whose 
property  he  is  placed  in  custody.  In  many  cases  the 
actual  manual  possession  of  the  property  is  not  intended 
to  be  placed  in  the  receiver,  but  he  is  only  charged  with 
the  collection  of  the  rents  and  profits,  and  in  such  case 
his  possession  is  only  constructive,  and  rights  so  far  as 
third  parties  are  concerned  are  largely  dependent  on  the 
doctrine  of  lis  pendens}" 


12  In  Union  Nat.  Bank  v.  Bank 
of  Kansas  City,  136  U.  S.  223,  34 
L.  Ed.  341,  342,  10  Sup.  Ct.  1013, 
Mr.  Justice  Gray  says:  "A  re- 
ceiver derives  his  authority  from 
the  act  of  the  court  appointing 
him  and  not  from  the  act  of  the 
parties  at  whose  suggestion  or  by 
whose  consent  he  is  appointed; 
and  the  utmost  effect  of  his  ap- 
pointment is  to  put  the  property 
from  that  time  into  his  custody  as 
an  officer  of  the  court  for  the  ben- 
efit of  the  party  ultimately  proved 
to  be  entitled,  but  not  to  change 
the  title  or  even  the  right  of  pos- 
session in  the  property."  Skip  v. 
Harwood,  3  Atk.  564;  Anon.,  2  Atk. 
15;  Wiswall  v.  Sampson,  55  U.  S. 
(14  How.)  52,  14  L.  Ed.  322;  Ellis 
V.  Boston,  H.  &  E.  R.  Co.,  107 
Mass.  1;  Maynard  v.  Bond,  67  Mo. 
315;  Heiman  v.  Fisher,  11  Mo. 
App.  275.  In  Yeager  v.  Wallace, 
44  Pa.  294,  it  was  held  that  a  re- 
ceiver of  partnership  effects  could 
not  maintain  trover  for  the  con- 


verted assets  of  the  firm  before 
the  appointment,  on  the  ground 
that  the  receiver  does  not  become 
the  legal  owner  of  the  property 
which  he  is  required  to  take  in 
charge.  The  appointment  does 
not  transfer  to  the  receiver  the 
legal  rights  of  the  partnership  in 
any  of  their  choses  in  possession 
or  in  action.  Wilson  v.  Allen,  6 
Barb.  (N.  Y.)  545.  In  Mann  v. 
Pentz,  2  Sandf.  Ch.  (N.  Y.)  257, 
it  was  held  that  the  effect  of  the 
order  was  to  vest  the  property 
in  the  receiver  as  effectually  in 
equity  as  if  an  assignment  had 
been  made  in  due  form.  The  prop- 
erty is  transferred  by  operation 
of  law  by  means  of  the  order  of 
the  court;  and  equity  looking  at 
the  substance  will  hold  the  trans- 
fer accomplished  which  has  been 
decreed.  In  re  Eagle  Iron  Works, 
8  Paige  (N.  Y.)  386;  Eldred  v. 
Hall,  9  Paige  (N.  Y.)  640.  In  a 
foreclosure  proceeding  in  Harland 
V.   Bankers    &    M.    Teleg.    Co.,    32 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


95 


Fed.  305,  it  was  held  that  a  re- 
ceiver ptndente  lite  is  a  mere 
castodian  ot  the  mortgaged  prop- 
er^^^y,  and  not  being  appointed 
under  a  statate  acquired  no  title 
to  the  property  which  belonged  to 
the  mortgagee. 

In  Union  Trust  Co.  v.  Weber,  96 
111.  34G,  it  is  said:  "VVa  are  aware 
of  no  rule  of  law  or  any  adjudged 
'case  independent  of  a  statute  that 
holds  the  appointment  of  a  re- 
ceiver transfers  the  title  of  real 
or  personal  property  to  the  person 
thus  appointed.  Nor  do  we  con- 
ceive by  what  means  such  an  ap- 
pointment can  have  that  effect. 
That  officer  by  his  appointment  is 
authorized  to  take  and  hold  pos- 
session of  property  under  the  con- 
trol and  direction  of  the  court."  In 
Atty.  Gen.  v.  Atlantic  Mut.  L.  Ins. 
Co.,  100  N.  Y.  279,  3  N.  E.  193,  it 
was  held  that  under  the  New  York 
statute  (Act  1869,  §  7)  the  title 
to  real  estate  of  the  debtor  be- 
came vested  in  the  receiver  by 
his  appointment,  as  well  as  per- 
sonal property.  And  if  this  were 
not  true  the  receiver  is  the  holder 
of  the  equitable  title  accompanied 
by  possession,  and  a  conveyance 
could  be  ordered  by  the  court  if 
necessary.  See,  also.  Decker  v. 
Gardner,  124  N.  Y.  334,  11  L.  R.  A. 
480,  26  N.  E.  814;  Wing  v.  Disse, 
15  Hun  (N.  Y.)  190;  Osgood  v. 
Maguire,  61  N.  Y.  524;  Owen  v. 
Smith,  31  Barb.  (N.  Y.)  641;  Atlas 
Bank  v.  Nahant  Bank,  23  Pick. 
(Mass.)  480.  The  power  of  the 
court  to  invest  the  receiver  with 
the  legal  as  well  as  the  equitable 
title  would  seem  to  be  unques- 
tioned. Atty.  Gen.  v.  Atlantic  Mut. 
L.  Ins.  Co.,  100  N.  Y.  279,  3  N.  E. 
193;    Chautauque  County   Bank  v. 


Risley,  19  N.  Y.  369.  75  Am.  Dec. 
347;  Hoyt  v.  Thompson,  o  N.  Y. 
320;  Scott  V,  Elmore.  10  Hun 
(N.  Y.)  68;  Union  Trust  Co.  v. 
Weber,  96  111.  348;  Adams  v  How- 
ard, 22  Fed.  656,  23  Blatchf.  27; 
Wilmer  v.  Atlanta  &  R.  Air  Lino 
R.  Co.,  2  Woods  409,  Fed.  Cas.  No. 
17775;  Noyes  v.  Rich,  52  Me.  115; 
Ellis  v.  Boston,  H.  &  E.  R.  Co., 
107  Mass.  1.  In  Coates  v.  Cun- 
ningham, 80  111.  467,  the  court 
say:  "The  appointment  of  a  re- 
ceiver does  not  determine  any 
rights  nor  affect  the  title  of  either 
party  in  any  manner  whatever. 
He  is  the  officer  of  the  court,  and 
his  holding  is  the  holding  of  the 
court  for  him,  from  whom  the  pos- 
session was  taken.  He  is  ap- 
pointed on  behalf  of  all  parties, 
and  his  appointment  is  not  to 
oust  any  party  of  his  rights  to  the 
possession,  but  merely  to  retain  it 
for  the  benefit  of  the  party  ulti- 
mately entitled;  and  where  he  is 
ascertained  the  receiver  will  be 
considered  as  his  receiver."  EUi- 
cott  V.  Warford,  4  Md.  80;  Re  Col- 
vin,  3  Md.  Ch.  280;  Porter  v.  Wil- 
liams, 9  N.  Y.  142,  59  Am.  Dec. 
519. 

Real  estate  is  vested  in  the  re- 
ceiver only  by  a  conveyance  to 
him.  St.  Louis  &  S.  Coal  &  M.  Co. 
V.  Sandoval  Coal  &  M.  Co.,  Ill  111. 
32;  Chautauque  County  Bank  v. 
Risley,  19  N.  Y.  369,  75  Am.  Dec. 
347;  In  re  Colvin,  3  Md.  Ch.  278; 
Williamson  v.  Wilson,  1  Bland. 
(Md.)  418.  In  Tillinghast  v. 
Champlin,  4  R.  I.  173,  67  Am.  Dec. 
510,  it  was  held  that  a  receiver  of  a 
dissolved  copartnership  appointed 
by  a  court  of  equity  is  invested 
with  the  whole  equitable  title  to 
the  partnership  property,  without 


96 


LAW    OF    RECEIVERS. 


§  27.    Relation  of  the  Receiver  to  Pending  Litigation. 

The  appointment  of  a  receiver  does  not  operate  as  an 
abatement  of  actions  pending  against  the  defendant  ^  in 


an  assignment;  and  in  Fincke  v. 
Funke,  25  Hun  (N.  Y.)  616,  it  was 
held  that  a  receiver  in  a  partner- 
ship case  pendente  lite  has  no 
powers  except  such  as  have  been 
conferred  upon  him  by  the  order, 
and  is  a  common  law  receiver 
whose  duty  it  is  to  merely  pro- 
tect the  fund  pending  litigation. 
The  order  appointing  him  makes 
no  change  in  the  title.  Keeney 
V.  Home  Ins.  Co.,  71  N.  Y.  396,  27 
Am.  Rep.  60.  In  proceedings  sup- 
plementary to  execution,  however, 
and  in  cases  of  embarrassed  or 
insolvent  corporations,  and  statu- 
tory proceedings,  his  powers  are 
greater. 

1  Alabama    Terminal    R.    Co.    v. 
Bonus,  189  Ala.  590,  66  So.  589. 

Steinhauer  v.  Colmar,  11  Colo. 
App.  494,  55  Pac.  291;  American 
Nat.  Bank  v.  Robinson,  141  Ga.  78, 
80  S.  E.  555,  and  see  Citizens  Bank 
of  Georgia  v.  Hubbard,  70  Ga.  411; 
Toledo  W.  &  W.  Ry.  Co.  v.  Beggs, 
85  111.  80,  28  Am.  Rep.  613;  Mer- 
cantile Ins.  Co.  V.  Jaynes,  87  111. 
199;  Manker  v.  Phoenix  Loan 
Assoc,  (Iowa)  96  N.  W.  982;  Wei- 
gen  V.  Council  Bluffs  Ins.  Co.,  104 
Iowa  410,  73  N.  W.  862;  O'Mara  v. 
Newton  etc.  R.  Co.,  156  Iowa  701, 
137  N.'W.  942;  Hunt  v.  Columbian 
Ins.  Co..  55  Me.  290,  92  Am.  Dec. 
592;  Kittredge  v.  Osgood  (Page  v. 
Supreme  Lodge  etc.),  161  Mass. 
384,  37  N.  E.  369;  American  En- 
gine Co.  V.  Crowley,  105  Minn.  233, 
117  N.  W.  428;  Heath  v.  Missouri 
etc.  Ry.  Co.,  83  Mo.  617;  St.  Louis 
etc.  Ry.  Co.  v.  Holladay,  131  Mo. 


440,  33  S.  W.  49;  Cooper  v.  Phila- 
delphia Worsted  Co.,  (N.  J.)  57 
Atl.  733;  compare  Morton  v.  Stone 
Harbor  Imp.  Co.,  (N.  J.)  44  Atl. 
875;  Tracy  v.  Selma  First  Nat.. 
Bank,  37  N.  Y.  523;  Fleischauer  v. 
Dittenhoefer,  49N.  Y.  Super.  Ct. 
311;  Wilson  v.  Wilson,  1  Barb.  Ch. 
(N.  Y.)  592;  Parry  v.  American 
Opera  Co.,  12  Civ.  Proc.  Rep.  194, 
9  N.  Y.  St.  Rep.  536;  People  v. 
Commercial  Alliance  Life  Ins.  Co., 
5  App.  Div.  273,  39  N.  Y.  Supp.  117; 
People  V.  Troy  Steel  etc.  Co.,  82 
Hun  303,  31  N.  Y.  Supp.  337.  See 
also  Waverly  Co.  v.  Worthington 
Co.,  4  Misc.  Rep.  447,  24  N.  Y. 
Supp.  331;  Monnett  v.  Columbus 
etc.  Ry.  Co.,  26  Ohio  Cir.  Ct.  Rep. 
469;  Wagner  v.  Keystone  Mut. 
Ben.  Assoc,  8  Pa.  Dist.  Ct.  231; 
Van  Dusen  v.  Blake.  20  Wkly. 
Notes  Cas.  (Pa.)  45;  Gadsden  v. 
Whaley,  14  S.  C.  210;  Kansas  City 
etc  Ry.  Co.  v.  State,  (Tex.  Civ.) 
155  S.  W.  561;  Mercantile  Trust 
Co.  V.  Pittsburgh  etc  R.  Co.,  29 
Fed.  732;  Pine  Lake  Iron  Co.  v. 
La  Fayette  Car  Works,  53  Fed. 
853;  Wilder  v.  New  Orleans,  87 
Fed.  843,  58  U.  S.  App.  109,  31 
C.  C.  A.  249;  Bowker  v.  Haight 
etc.  Co.,  147  Fed.  923. 

"The  appointment  of  a  receiver 
is  not  a  bar  to  suits  brought 
against  the  corporation  before  the 
bill  in  this  case  was  filed,  nor  do 
such  suits  abate  in  consequence 
of  such  appointment.  The  re- 
ceiver can  appear  in  and  defend 
such  suits  if  the  interests  he  rep- 
resents render  it  proper  or  neces- 


A 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


97 


the  receiversliip  proceeding.  If  the  parties  to  the  pend- 
ing suit  prefer  to  proceed  with  the  suit  and  obtain  the 
reHef  sought  in  that  proceeding,  thoy  will  not,  however, 
obtain  by  their  judgment  or  decree  any  priority  over 
other  claimants  to  the  receivership  property.^  Where 
the  pending  proceeding  is  one  for  the  benefit  of  the 
receivership  estate,  such  as  an  action  to  set  aside  cer- 
tain transfers  as  having  been  in  fraud  of  creditors,  it 
is  proper  for  the  court  to  stay  the  further  prosecution 
of  the  pending  action  upon  the  commencement  of  a  simi- 
lar action  by  the  receiver.^  Ordinarily,  however,  the 
practice  is  to  allow  the  pending  action  to  proceed  to 
judgment  regardless  of  the  receivership  proceedings.* 
The  receiver  does  not  by  reason  of  his  appointment  be- 
come substituted  as  a  party  to  suits  pending  against  the 
defendant  in  the  receivership  proceedings.  In  order  to 
make  him  a  party  to  such  pending  suits  he  should  be 


sary.    Whether  the  claims  of  the 
defendants  are  such  that  actions 
at  law  can  he  maintained  on  them 
is  a  question  we  can  not  consider 
in   this   proceeding.     If  they   are, 
we  see  no  reason  why  the  defen- 
dants should  not  proceed  to  judg- 
ment,   if   they    desire    to    do    so. 
Whether  judgments  rendered  after 
the  bill  was   filed   can  be  proved 
before  the  receiver,  or  whether  the 
proof   should   be   the   original   de- 
mands as  they  existed  at  the  time 
the  bill  was  filed,  made  up  in  the 
same  manner  as  other  claims  of 
the  same  kind,  and  what  the  effect 
of  obtaining  such  judgments  would 
be  upon  the  right  to  make  proof 
of  the  original  demands,  are  ques- 
tions  not    now    before    us."     Kitt- 
redge  v.  Osgood  (Page  v.  Supreme 
Lodge  etc.),  161  Mass.  384,  37  N.  E. 
369. 

The  act  of  a  creditor  in  filing  his 
claim  with  a  receiver  is  not  such 
I  Rec. — 7 


an  election  of  remedies  as  to  bar 
the  prosecution  of  a  suit  for  the 
same  debt  which  was  pending 
when  the  receiver  was  appointed. 
Pine  Lake  Iron  Co.  v.  LaFayette 
Car  Works,  53  Fed.  853.  See  Tay- 
lor v.  Gray.  59  N.  J.  Eq.  621,  44 
Atl.  668,  to  the  same  effect. 

2  Blair  v.  St.  Louis  etc.  R.  Co., 
25  Fed.  2.  The  court  in  this  case 
very  pertinently  observed:  "The 
parties  preferred  to  proceed  in  the 
state  court  without  the  leave  of 
this  court,  and  they  must  lie  in  the 
bed  which  they  have  made.  This 
court  will  not  help  them." 

3  Attorney-General  v.  Guardian 
Mut.  Life  Ins.  Co.,  77  N.  Y.  272. 

4  Steinhauer  v.  Colmar,  11  Colo. 
App.  494,  55  Pac.  291;  Kelley  v. 
Union  Pac.  Ry.  Co.,  58  Kan.  161,  48 
Pac.  843;  Tracy  v.  Selma  First 
Nat.  Bank,  37  N.  Y.  523;  Speckart 
V.  German  Nat.  Bank,  85  Fed.  12. 


93 


LAW    OF   RECEIVERS. 


substituted  by  an  order  of  the  court  in  wliicli  the  suit 
is  pending,^  but  the  making  of  such  order  lies  in  the 
discretion  of  the  court,*'  although  it  is  the  ordinary 
j)ractice  to  allow  such  a  substitution  upon  application  by 
the  receiver.'  It  is  not  incumbent  upon  the  plaintiff  in 
the  pending  suit  to  seek  to  substitute  the  receiver  as  a 
party  to  the  suit.  If  the  receiver  desires  to  be  made  a 
party  he  should  seek  to  be  substituted  as  a  party  upon 
his  own  motion.'^  The  receiver  ought  not,  however,  to 
be  substituted  as  a  party  unless  the  pending  suit  spe- 
cifically affects  property  in  his  possession.^     "Of  course, 


5  Tracy  v.  Selma  First  Nat. 
Bank,  37  N.  Y.  523;  Gadsden  v. 
Whaley,  14  S.  C.  210. 

6  Patrick  v.  Eells  etc.,  30  Kan. 
680  2  Pac.  116;  St.  Louis  etc.  Ry. 
Co.  V.  Holladay,  131  Mo.  440,  33 
S.  W.  49. 

7  Andrews  v.  Steele  City  Bank, 
57  Neb.  173,  77  N.  W.  342;  Willink 
V.  Morris  Canal  etc.  Co.,  4  N.  J.  Eq. 
377;  State  v.  District  Court,  37 
Utah  418,  108  Pac.  1121;  Perry  v. 
Godbe,  82  Fed.  141. 

s  Mercantile  Ins.  Co.  v.  Jaynes, 
87  111.  199;  Mercantile  Trust  Co. 
V.  Pittsburgh  etc.  R.  Co.,  29  Fed. 
732. 

9  Decker  v.  Gardner,  124  N.  Y. 
334;   11  L.  R.  A.  480,  26  N.  E.  814. 

On  a  disclosure  by  a  garnishee 
that  it  was  in  the  possession  of 
money  which  it  did  not  know  who 
owned,  plaintiffs  filed  supplemen- 
tary complaint,  alleging,  among 
other  things,  that  the  fund  be- 
longed to  defendant  in  the  action. 
Defendant,  however,  answered  dis- 
claiming ownership  and  alleging 
that  the  money  belonged  to  a  third 
person,  who  subsequently  inter- 
vened and  asserted  ownership. 
Thereafter    plaintiffs    commenced 


supplementary  proceedings,  in 
which  a  receiver  was  appointed  of 
all  the  property  and  effects  of  de- 
fendant with  the  usual  power  to 
recover,  take  possession  of,  and  to 
convert  the  same  into  money  to 
satisfy  plaintiffs'  judgments.  Or 
the  issues  presented  in  the  gar 
nishment  proceedings  coming  on 
for  trial,  defendant  and  intervener 
moved  to  dismiss  the  same  for  the 
reason  that  by  the  appointment  of 
a  receiver  the  right  to  maintain 
the  same  passed  from  plaintiffs  to 
the  receiver,  and  that  the  latter 
had  the  sole  right  to  litigate  the 
question  of  ownership  of  the 
money.  The  court  held  that  the 
motion  was  properly  denied,  and 
that  the  remedy  was  not  by  mo- 
tion for  dismissal,  but  for  substi- 
tution, under  Rev.  Laws  1905, 
§  4064,  providing  that  an  action 
shall  not  abate  by  transfer  of 
plaintiffs'  interest  therein,  and 
that  where  a  transfer  has  taken 
place,  pending  the  action  and  be- 
fore trial,  plaintiffs'  successor  may 
be  substituted.  American  Engine 
Co.  V.  Crowley,  105  Minn.  233,  117 
N.  W.  428. 


EFFECT    OF   APPOINTMENT    AND    DUTIES.  99 

if  it  appears  as  if  the  pending  suit  is  a  collusive  arrange-\ 
ment  between  the  parties  for  the  purpose  of  procuring 
an  improper  liability  as  against  the  receivership  funds, 
it  is  eminently  proper  that  the  receiver  be  substituted 
as  a  party  to  the  proceeding  so  as  to  properly  protect 
the  receivership  estate.""^^ -;         "    -     /'."•,  ,  ^ 

§  28.    Relation  (if  R-^ceiver  to  Garnishments,  Atta'chments,  and 
Other  JLiens. 

The  effect  of  'he  apriointjneafcf' a  "receiver  is  to  vest 
in  him  the  title  "to  tlie  personal  property,  choses  in 
action,  and  equitable  interests  of  the  debtor,  over  which 
the  receivership  extends  without  a  formal  assignment.^ 
This  principle,  of  course,  has  particular  application  to 
creditor's  proceedings,  and  not  to  mortgage  foreclosures 
or  other  proceedings  relating  to  specific  property.  In 
some  cases  the  defendant  is  permitted  to  remain  in  pos- 
session pending  the  receivership  and  the  receivership 
is  extended  to  the  rents  and  profits  only.  But  one  in 
possession  under  a  prima  facie  title  can  not  be  deprived 
of  such  possession  by  a  receiver  at  the  suit  of  creditors 
of  the  debtor  unless  a  showing  is  made  of  danger  of  the 
property  being  lost,  or  materially  injured,  or  that  the 
sale  to  the  defendant  is  frau<lulent,  and  that  he  will  be 
turned  out  of  j^ossession  at  the  hearing.^ 

The  appointment  of  a  receiver,  as  has  been  already 
suggested,  removes  the  parties  in  possession  of  prop- 
erty, who  are  parties  to  the  suit,  from  the  custody  and 
control  thereof  and  pending  the  litigation  terminates  all 
rights  growing  out  of  such  possession.^ 

10  Honegger     v.     Wettstein,     94  v.  Bruen,  4  Sandf.  Ch.  (N.  Y.)  223; 

N.  Y.  252.  Wilson   v.   Allen,   6   Barb.    (N.   Y.) 

1  Albany  City  Bank  V.  Schermer-  542;     Tillinghast    v.    Cliamplin,    4 

horn,    Clarke's    Ch.    (N.    Y.)    297;  R.  I.  173,  67  Am.  Dec.  510. 

Mann     v.     Pentz,     2     Sandf.     Ch.  2  Pelzer  v.  Hughes,  27  S.  C.  408, 

(N.    Y.)    257;     Storm    v.    Waddell,  3  S.  E.  781. 

2  Sandf.  Ch.   (N.  Y.)   494;   Iddings  o  Payne  v.   Baxter,   2   Tenn.   Ch. 


100 


LAW   OP   RECEIVERS. 


The  right  to  custody  of  property  relates  to  the  custody 
of  such  personal  property  as  is  within  the  jurisdiction 
of  the  court  making  the  appointment.^ 

Where  at  the  time  of  the  appointment  of  a  receiver 
a  creditor  of  the  party  for  whom  the  receiver  was  ap- 
pointed had  ohtaiiied  a  lien  on  a  f^md  belonging  to  the 
party  by;toiean^'of  garnishment 'proceedings,  such  ap- 
pointme\it"will  not  operate  as  a  dissolution  of  the  gar- 
nishment anti  Ihe  garnishment  may.be  enforced.^ 
/^The  question  whether  a  receiver 'is  subject  to  garnish- 
Jnent  is  one  generally  dependent  upon  the  condition  of 
Ihe  statutes  prevailing  in  the  forum.'^Under  the  phras- 
'ing  of  certain  acts  of  Congress  relative  to  the  right  to 
sue  receivers  appointed  by  federal  courts  without  leave 
of  court,  it  is  held  that  such  receiver  may  be  garnished 
nTTespect  to  moneys  due  by  him  to  a  defendant  in  a 


517;  Shaw  v.  Wright,  3  Ves.  Jr.  22; 
McDonnell  v.  White,  11  H.  L.  Cas. 
570. 

4  Humphreys  v.  Hopkins,  81  Cal. 
551,  15  Am.  St.  Rep.  76,  6  L.  R.  A. 
792,  22  Pac.  892;  Kronberg  v.  El- 
der, 18  Kan.  150;  Hunt  v.  Colum- 
bian Ins.  Co.,  55  Me.  290,  92  Am. 
Dec.  592;  TuUy  v.  Herrin,  44  Miss. 
626;  Farmers'  etc.  Ins.  Co.  v. 
Needles,  52  Mo.  17;  Moseby  v. 
Burrow,  52  Tex.  396;  Filkins  v. 
Nunnemacher,  81  Wis.  91,  51  N. 
W.  79;  McClure  v.  Campbell,  71 
Wis.  350,  5  Am.  St.  Rep.  220,  37 
N.  W.  343. 

5  Rickman  v.  Rickman,  ISO  Mich. 
224,  Ann.  Cas.  1915C,  1237,  146  N. 
W.  609. 

The  appointment  of  a  receiver 
in  a  foreign  jurisdiction  does  not 
operate  to  deprive  a  nonresident 
plaintiff,  suing  a  railroad  company 
for  which  the  receiver  was  ap- 
pointed,  of  her   x-ight   to   recover 


against  a  garnishee  in  the  state 
of  the  forum.  Seaboard  Air  Line 
Ry.  V.  Burns,  17  Ga.  App.  1,  83 
S.  E.   270. 

In  the  case  last  cited  the  official 
syllabus  stated  that  the  appoint- 
ment of  a  receiver  in  a  foreign 
jurisdiction  did  not  of  itself  oper- 
ate to  deprive  the  plaintiff,  merely 
because  she  was  a  nonresident,  of 
her  right  to  recover  judgment 
against  the  garnishee  for  the 
amount  of  her  judgment  against 
the  defendant,  which  was  less  in 
amount  than  the  admitted  indebt- 
edness. See  34  Cyc.  489  et  seq.; 
Catlin  V.  Wilcox  Silver  Plate  Co., 
123  Ind.  477,  24  N.  E.  250,  8  L.  R.  A. 
62,  18  Am.  St.  Rep.  338;  Linville 
V.  Hadden,  88  Md.  594,  43  L.  R.  A. 
222,  41  Atl.  1097;  Gray  v.  Covert, 
25  Ind.  App.  561,  58  N.  E.  731,  81 
Am.  St.  Rep.  117;  Lichtenstein  v. 
Gillett,  37  La.  Ann.  522,  and  the 
cases  cited  in  each. 


EFFECT    OF    APPOINTMENT    AND    DUTIES. 


101 


garnishee  proceeding.*'     Of  course  the  general  rule  is 
that  property  m  the  custody  of  the  court  is  not  subject 


fi  But  possession  by  receiver  ol 
defendant  corporation  in  another 
state  of  claims  against  garnisliee 
railroad  companies  is  a  continuing 
right,  which  can  not  be  divested 
and  sufficient  to  preclude  plaintiff 
from  attaching  in  the  state  any 
claim  against  the  railroad  com- 
panies. De  Mattos  v.  Camp  & 
Hinton  Co.,  129  La.  251,  55  So.  832. 

On  a  rule  by  liquidators  for  a 
corporation  appointed  in  a  state 
court  to  show  cause  why  a  gar- 
nishment issued  under  a  judgment 
in  the  United  States  Circuit  Court 
against  the  corporation  should  not 
be  quashed,  the  Circuit  Court  made 
an  order  that  the  garnishment  be 
quashed  unless  the  judgment  cred- 
itor filed  a  suit  in  the  state  court 
within  a  certain  time  attacking 
the  validity  of  the  liquidators'  ap- 
pointment, it  Is  a  sufficient  com- 
pliance with  such  order  that  the 
judgment  creditor  caused  a  rule 
to  issue,  in  the  suit  wherein  the 
liquidators  were  appointed  on 
plaintiff,  the  corporation,  and  its 
liquidators,  to  show  cause  why  the 
appointment  should  not  be  set 
aside.  Rouge  v.  Larfargue  Bros. 
Co.,  47  La.  Ann.  1646,  18  So.  652. 

"An  indebtedness  incurred  by 
the  receiver  of  a  railway  company, 
appointed  by  the  federal  court, 
while  operating  the  road  under  the 
authority  of  the  court,  may  be  gar- 
nished in  a  state  court."  Irwin  v. 
McKechnie,  58  Minn.  145,  59  N.  W. 
987,  26  L.  R.  A.  218,  49  Am.  St. 
Rep.  495.  See  also  Glover  v. 
Thayer,  101  Ga.  824,  827,  29  S.  E. 
36,  to  the  effect  that  section  5485 
of  the  Civil  Code  of  1910,  provid- 


ing immunity  from  process  of  gar^ 
nishment  for  a  receiver  appointed 
by  a  court  of  equity,  does  not 
apply  to  a  receiver  appointed  by  a 
federal  court  of  equity  having  jur- 
isdiction within  this  state  for  an 
indebtedness  arising  in  the  opera- 
tion of  the  road,  since  the  statutes 
of  the  United  States  are  para- 
mount, and  the  extent  and  scope 
of  the  liability  of  a  receiver  ap- 
pointed by  the  United  States 
courts  can  not  be  circumscribed 
by  state  legislation. 

Under  act  of  Congress  March  3, 
1887,  ch.  373,  3,  24  Stat.  554,  as 
amended  by  act  Aug.  13,  1888,  ch. 
866,  3,  25  Stat.  436  (U.  S.  Comp.  St. 
1901,  p.  582),  which  provides  that 
a  receiver  appointed  by  a  federal 
court  may  be  sued  in  respect  to 
any  transaction  of  his  in  carrying 
on  the  business  connected  with 
the  property  of  which  he  is  re- 
ceiver without  previous  leave  of 
the  appointing  authority;  where 
a  receiver  was  appointed  to  oper- 
ate a  railroad,  he  is  only  subject 
to  suit  without  leave  under  such 
section  concerning  matters  having 
their  origin  in  his  operation  of  the 
railroad,  and  the  act  does  not  au- 
thorize the  garnishment  of  funds 
in  his  hands  alleged  to  belong  to 
a  debtor  in  the  receiver's  employ, 
especially  where  at  the  time  the 
garnishment  was  instituted  the 
amount  due  the  debtor  had  not 
been  adjudicated  and  ordered  paid 
so  that  the  receiver  could  be  re- 
garded as  holding  it  merely  as  the 
debtor's  agent  or  custodian.  The 
receiver  under  such  circumstances 
may  ignore  the  service  and  subse- 


102 


LAW   OF   RECEIVERS. 


to  garnishment  except  by  leave  of  the  court  but  this 
general  rule  does  not  apply  where  nothing  remains  for 
the  receiver  to  do  but  to  pay  money  on  a  final  decree/ 
since  in  such  circumstances  the  garnishment  proceed- 
ings can  not  interfere  with  the  jurisdiction  of  the  court 


quent  proceedings  based  on  the 
garnishment  proceedings.  Central 
Trust  Co.  V.  Wheeling  &  L.  E.  R. 
Co.,  189  Fed.  82. 

But  it  has  been  held  that  a 
receiver  appointed  by  a  federal 
court  in  Georgia  of  a  railroad 
which  was  partly  in  that  state  and 
partly  in  another  state,  is  not 
liable  to  garnishment  in  a  federal 
court  of  the  latter  state  without 
leave  of  court,  notwithstanding 
the  act  of  Congress.  Central  Trust 
Co.  V.  Chattanooga  etc.  R.  Co.,  68 
Fed.  685.  See  also  Harrison  v. 
Waterberry,  (Tex.)  27  S.  W.  109, 
to  the  same  effect. 

7  Property  of  an  insolvent  part- 
nership can  not  be  reached  by 
garnishment  to  satisfy  a  judgment 
recovered  subsequently  to  the  ap- 
pointment of  a  receiver.  Jackson 
v.  Lahee,  114  111.  287,  2  N.  E.  172; 
McGowan  v.  Myers,  66  Iowa  99, 
23  N.  W.  282;  Taylor  v.  Gilleau,  23 
Tex.  508. 

In  Smith  v.  McNamara,  15  Huh 
(N.  Y.)  447,  the  court  said:  "It  is 
clearly  against  the  policy  of  the 
law  to  justify  such  an  irregular 
and  vexatious  interference  with  the 
orderly  and  customary  method  of 
adjusting  and  winding  up  the  af- 
fairs of  a  corporation  after  a 
receiver  has  been  appointed.  When 
a  court  of  competent  authority  has 
assumed  control  in  such  a  case 
and  possesses  a  jurisdiction  ade- 
quate to  grant  proiier  relief  to  all 
parties   interested,  such  court 


should  be  applied  to  instead  of 
instituting  numerous  proceedings 
before  other  officers  and  tribunals, 
to  reach  a  result  which  could  be 
attained  with  less  expense  and 
trouble  by  a  direct  application  to 
the  court  which  appointed  the  re- 
ceiver." 

Money  of  an  insolvent  estate 
being  administered  in  another 
state  through  receivers  there  ap- 
pointed is  exempt  from  attach- 
ment in  Pennsylvania,  where 
placed  in  the  hands  of  the  gar- 
nishee in  that  state  under  order  of 
the  court  having  jurisdiction  over 
them.  Somerset  Coal  Co.  v.  Dia- 
mond State  Steel  Co.,  224  Pa.  217, 
132  Am.  St.  Rep.  775,  73  Atl.  442. 
A  statute  prohibiting  garnish- 
ment of  a  "public  officer"  is  not 
sufficient  to  include  a  receiver. 
Cohnen  v.  Sweenie  (Black.),  105 
Mich.  643,  63  N.  W.  641. 

The  rule  that  a  receiver  is  not 
subject  to  garnishment  is  not  af- 
fected by  the  statutory  provisions 
authorizing  suits  to  be  instituted 
against  a  receiver  without  first 
obtaining  leave  of  the  appointing 
court.  Kreisle  v.  Campbell,  89 
Tex.  104,  33  S.  W.  852. 

One- may  without  leave  of  court 
garnishee  a  receiver  of  the  princi- 
pal debtor  to  secure  the  fund 
which  the  receiver  is  directed  to 
pay  by  a  final  decree  to  him.  Rob- 
ertson V.  Detroit  Pattern  Works, 
152  Mich.  612,  15  Ann.  Cas.  131, 
116  N.  W.  196. 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


103 


or  its  authority  to  deal  with  the  controversy  or  fund 
before  it.^ 

Though  a  receiver  appointed  by  a  court  of  equity  is 
by  statute  exempt  from  garnishment  in  his  own  state, 
the  federal  courts  of  another  state  will  not  refuse  to 
entertain  garnishment  against  him  on  a  petition  prop- 
erly presented  by  citizens  within  the  jurisdiction  when 
no  objection  to  the  jurisdiction  on  other  grounds  exists.' 

Where  a  debt  due  from  a  receiver  is  garnished  in  a 
state  court,  no  executory  process  will,  as  a  rule,  be 
issued  on  the  judgment  rendered  in  the  proceeding  but 
the  judgment  creditor  will  be  required  to  enforce  its 
satisfaction  in  the  court  of  the  receivership.^*' 

The  appointment  of  a  receiver  does  not  divest  a  plain- 
tiff of  the  benefits  of  an  attachment  lien  which  he  has 
previously  secured  against  the  defendant  in  the  receiver- 
ship proceeding.  ^^ 


8  Dunsmoor  v.  Furstenfeldt,  88 
Cal.  522,  22  Am.  St.  Rep.  331,  12 
L.  R.  A.  508,  26  Pac.  518;  Smith 
V.  People,  93  111.  App.  135. 

9  Central  Trust  Co.  v.  Chatta- 
nooga, R.  &  C.  R.  Co.  (C.  C),  68 
Fed.  685. 

10  Irwin  v.  McKechnie,  58  Mirn. 
145,  49  Am.  St.  Rep.  495,  26  L.  R.  A. 
218,  59  N.  W.  987. 

But  an  attachment  of  a  national 
bank  and  its  receiver  as  garni- 
shees can  be  maintained  in  a  state 
court,  although  it  can  not  create 
any  lien  upon  specific  assets  of 
the  bank  in  the  receiver's  hands, 
or  disturb  his  custody  of  those 
assets,  or  prevent  him  from  paying 
to  the  treasurer  of  the  United 
States,  subject  to  the  order  of  the 
comptroller  of  the  currency,  all 
moneys  coming  to  his  hands  or 
realized  by  him  as  receiver  from 
the  sale  of  the  property  and  assets 


of  the  bank.  Judgment,  Conway  v. 
Chestnut  St.  Nat.  Bank  a899),  189 
Pa.  610,  42  Atl.  303,  affirmed,  Earle 
v.  Conway,  178  U.  S.  456,  4^  L.  Ed. 
1149,  20  Sup.  Ct.  918. 

11  Buswell  V.  Supreme  Sitting  of 
Order  of  Iron  Hall,  161  Mass.  224, 
23  L.  R.  A.  846,  36  N.  E.  1065; 
Kittredge  v.  Osgood  (Page  v.  Su- 
preme Lodge  etc.),  161  Mass.  384, 
37  N.  E.  369;  Hays  v.  Lycoming 
F^re  Ins.  Co.,  99  Pa.  St.  621;  Sec- 
ond Nat.  Bank  v.  New  York  Silk 
Mfg.  Co.,  11  Fed.  532. 

A  levy  of  an  attachment  issued 
out  of,  and  a  return  of  the  writ 
to  the  court  issuing  it,  place  the 
attached  land  within  the  control 
of  that  court,  so  that  a  subsequent 
appointment  by  the  United  States 
Circuit  Court  of  a  receiver  for  the 
land  is  unwarranted.  Southern 
Bank  &  Trust  Co.  v.  Folsom,  75 
Fed.  929,  21  C.  C.  A.  568. 


104 


LAW    OF   RECEIVERS. 


Under  statutory  provisions  whicli  provide  for  the 
dissolution  of  attachments  as  the  result  of  the  appoint- 
ment of  a  receiver  or  allowing  attachments  procured 
within  a  certain  stated  time  before  the  appointment  to 
he  dissolved  upon  the  making  of  such  an  appointment, 
it  naturally  follows  that  such  cases  will  be  governed  by 
the  statutory  provisions  existing  at  the  time.^-  Quite 
frequently  statutes  provide  that  in  the  event  of  the  ap- 
pointment of  a  receiver  in  proceedings  for  the  dissolu- 
tion of  a  corporation  all  attachments  in  pending  cases 
shall  be  dissolved  and  the  litigants  compelled  to  partici- 
pate with  the  balance  of  the  unsecured  creditors.  Under 
such  statutory  provisions,  the  attachments  may  be  va- 
cated after  the  appointment  of  a  receiver,i=^  but  statutory 


But  in  this  respect  see  Ennis  v. 
Eden  Mills  Paper  Co.,  65  N.  J.  L. 
577,  48  Atl.  610;  French  v.  Mc- 
Cready,  (Tex.  Civ.)  57  S.  W.  894; 
State  V.  District  Court,  37  Utah 
418,  108  Pac.  1121. 

The  appointment  of  a  receiver 
does  not  dissolve  valid  attach- 
ments levied  before  the  commence- 
ment of  the  proceedings  in  which 
the  appointment  was  made.  Kitt- 
redge  v.  Osgood  (Page  v.  Supreme 
Lodge  etc.),  161  Mass.  384,  37  N.  E. 
369;  Garham  v.  Mutual  Aid  So- 
ciety, 161  Mass.  357,  37  N.  E.  447. 
Where  property  has  been  at- 
tached wrongfully  in  a  state  court, 
a  party  who  desires  to  pursue  his 
remedy  in  a  federal  court  should 
do  so  by  action  in  trespass,  not  by 
replevin,  nor  by  proceedings  for 
an  injunction  or  receiver.  Hale  v. 
Bugg,  82  Fed.  33. 

12  The  levy  of  execution  on  the 
property  of  a  judgment  debtor  is 
not  an  "attachment"  of  such  prop- 
erty, within  Kirby's  Dig.  4055,  au- 
thorizing   the    receiver    to    have 


all  attachments  of  the  insolvent 
debtor's  property  dissolved.  J.  M. 
McGuire  &  Co.  v.  Barnhill,  89  Ark. 
209,  115  S.  W.  1144. 

The  fact  that  a  receivership  is 
ancillary  does  not  prevent  the  op- 
eration of  Rev.  Laws,  ch.  167,  126, 
which  provides  that  an  attachment 
shall  be  dissolved  by  the  appoint- 
ment of  a  receiver,  where  the  bill 
for  the  appointment  of  such  re- 
ceiver is  filed  within  four  months 
after  the  attachment  is  made.  Sec- 
ond Nat.  Bank  v.  J.  C.  Lappe  Tan- 
ning Co.,  198  Mass.  159,  84  N.  E. 
301. 

An  attachment  by  trustee  proc- 
ess of  property  belonging  to  a 
company  is  dissolved,  under  Rev. 
Laws,  ch.  167,  126,  by  the  appoint- 
ment of  a  receiver,  where  the  peti- 
tion for  the  receiver  is  filed  within 
four  months  after  the  attachment. 
Thornley  v.  J.  C.  Walsh  Co.,  207 
Mass.  62,  92  N.  E.  1007. 

13  The  appointment  of  a  receiver 
of  a  corporation  for  the  purpose 
of  liquidation  operates  as  a  segues- 


EFFECT    OF    APPOINTMENT    AND   DUTIES. 


105 


provisions  of  that  character  do  not  authorize  the  vaca- 
tion of  attachments  upon  the  appointnient  of  a  receiver 
for  some  other  purpose,  such  as  under  a  mortgage  fore- 
closure proceeding  against  the  corporation. ^"^ 

And^oased  on  the  principle  that  the  recei\'ership  prop- 
erty IS  in  the  custody  of  the  court  after  the  appointment 
of  a  receiver,  the  rule  is  that  after  such  appointment  the 
right  of  a  creditor  to  sequester  property  belonging  to 
the  receivership  by  attachment  proceedings  and  thus 
gain  a  priority,  is  suspended,*^  although  there  are  appar- 


tration  of  all  of  its  property.  Tem- 
ple V.  Glasgow,  80  Fed.  441,  25 
C.  C.  A.  540. 

It  has  been  held  that  the  disso- 
lution of  a  corporation  and  ap- 
pointment of  a  receiver  dissolve 
pending  attachments.  Wilcox  v. 
Continental  etc.  Ins.  Co.,  56  Conn. 
468,   16  Atl.  244. 

A  receiver  of  an  insolvent  cor- 
poration is  authorized  to  intervene 
in  an  attachment  suit  against  the 
corporation  and  file  a  motion  to 
set  aside  an  order  of  sale  of  the 
attached  property.  State  v.  Dis- 
trict Court  in  and  for  Third  Dist., 
37  Utah  418,  108  Pac.  1121. 

Such  appointment  does  not  dis- 
able the  corporation  from  moving 
to  vacate  the  attachment  against 
the  property.  Waverly  Co.  v. 
Worthington  Co.,  4  Misc.  Rep.  447, 
24  N.  Y.  Supp.  3.31. 

Rut  under  Carter's  Ann.  Code 
Civ.  Proc.  Alaska,  141,  the  appoint- 
ment of  a  receiver  for  a  corpora- 
tion subsequent  to  the  attachment 
of  its  property,  in  a  suit  to  which 
the  plaintiffs  in  the  attachment 
were  not  parties,  did  not  divest 
the  attachment  lien.  Cowden  v. 
Wild  Goose  Mining  &  Trading  Co., 
199  Fed.  561,  118  C.  C.  A.  35. 


n  The  provision  of  the  Connecti- 
cut statute  (Pub.  Acts  1895,  p. 
491)  that  attachments  shall  be  dis- 
solved by  the  appointment  of  a 
receiver  for  a  corporation  within 
60  days  is  intended  to  apply  only 
to  general  receivers  of  all  the 
property  of  the  corporation  situ- 
ated in  the  state  for  the  purpose 
of  protecting  the  creditors  of  the 
corporation  generally,  and  the  ap- 
pointment in  a  suit  to  foreclose  a 
mortgage  given  by  a  corporation 
of  a  receiver  for  the  mortgaged 
property  to  protect  the  rights  of 
the  mortgagee  therein  does  not 
have  the  effect  of  dissolving  a 
prior  attachment  under  such  pro- 
visions. Central  Trust  Co.  v.  Wor- 
cester Cycle  Mfg.  Co.,  114  Fed.  659. 

ir>  Butler  v.  Wendell,  57  Mich. 
62,  58  Am.  Rep.  329,  23  N.  W.  460. 

Receivers  appointed  by  a  court 
of  chancery  are  not  subject  to  at- 
tachment in  an  action  at  law, 
since,  in  the  absence  of  statutory 
authority,  a  court  of  chancery  will 
not  permit  interference  with  its 
operations  by  proceedings  at  law. 
Central  Trust  Co.  v.  Wheeling  & 
L.  E.  R.  Co.,  189  Fed.  82:  Adams 
V.  Haskell,  6  Cal.  113,  65  Am.  Dec. 
491;    Richards    v.    People,    81    111. 


106 


LAW    OF   RECEIVERS. 


ent  exceptions  to  the  rule  arising  from  the  circumstance 


551;  Hazelrigg  v.  Bronaugh,  78  Ky. 
62;  Hagedon  v.  Bank  of  Wiscon- 
sin, 1  Finn.  (Wis.)  61,  39  Am.  Dec. 
275;  Clark  v.  Bacorn,  116  Fed.  617, 
54  C.  C.  A,  73. 

If  a  receiver  has  lawfully  ac- 
quired possession  of  property 
within  the  jurisdiction  of  the  court 
which  appointed  him,  and  in  the 
course  of  his  duties  takes  it  in 
another  state,  it  still  remains  in 
his  possession  as  a  receiver  and 
will  not  be  subject  to  an  attach- 
ment by  creditors  residing  in  the 
latter  state.  Pond  v.  Cooke,  45 
Conn.  126,  26  Am.  Rep.  668;  Jen- 
kins V.  Purcell,  29  App.  D.  C.  209, 
9  L.  R.  A.  (N.  S.)  1074 :  Chicago 
etc.  Ry.  Co.  v.  Keokuk  Northern 
Line  Packet  Co.,  108  111.  317,  48 
Am.  Rep.  557;  Somerset  Coal  Co. 
V.  Diamond  etc.  Co.,  224  Pa.  St. 
217,  132  Am.  St.  Rep.  775,  73  Ati. 
442;  Caglll  v.  Wooldridge,  8  Baxt. 
(67  Tenn.)  580,  35  Am.  Rep.  716. 
But  see  to  the  contrary  effect: 
Humphreys  v.  Hopkins,  81  Cal. 
551,  15  Am,  St.  Rep.  76,  6  L.  R.  A. 
792,  22  Pac.  892;  Grogan  v.  Eg- 
bert, 44  W.  Va.  75,  67  Am.  St.  Rep. 
763,  28  S.  E.  714. 

The  appointment  of  a  receiver 
may  be  made  on  the  filing  of  the 
bill  asking  therefor,  or  at  any  time 
thereafter  during  the  pendency  of 
the  suit,  and  can  not  be  assailed 
by  a  third  party  under  an  attach- 
ment filed  after  the  receiver  was 
in  charge  under  process  issued  on 
the  bill.  Benjamin  v.  Staples,  93 
Miss.  507,  47  So.  425. 

The  legislature  may,  under  the 
constitution,  require  the  dissolu- 
tion of  attachments  on  the  ap- 
pointment of  a  receiver  of  the 
propert.^   attached   jnly  when  the 


property  can  be  held  under  the 
laws  of  the  state  for  the  benefit  of 
creditors  who  prove  their  claims 
here.  Consequently,  under  Rev. 
Laws,  ch.  167,  section  126,  which 
provides  that  an  attachment  of 
property  on  mesne  process  shall 
be  dissolved  by  the  appointment 
by  "any  court  of  competent  juris- 
diction in  this  commonwealth"  of 
a  receiver  to  take  possession  of 
the  property,  etc.,  and  section  127, 
which  provides  that,  when  an  at- 
tachment has  been  so  dissolved, 
the  proceedings  for  the  appoint- 
ment of  a  receiver  shall  not  there- 
after be  dismissed,  and  the  re- 
ceiver discharged,  until  all  the 
assets  which  have  come  into  his 
hands  as  receiver  have  been  fully 
distributed,  or  the  claim  upon 
which  the  attachment  was  made 
has  been  fully  paid  and  discharged, 
it  is  held  that  the  words  "any 
court  of  competent  jurisdiction  in 
this  commonwealth,"  means  any 
court  which  is  subject  to  the  legis- 
lation of  the  commonwealth,  and 
the  act  does  not  apply  to  receivers 
appointed  by  federal  courts.  Prior 
to  the  enactment  of  these  statu- 
tory provisions  attachments  in 
force  at  the  time  of  the  appoint- 
ment of  a  receiver  were  not  dis- 
solved by  the  mere  fact  of  his 
appointment.  Reynolds  v.  Enter- 
prise Transportation  Co.,  85  N.  E. 
110,  198  Mass.  .590;  Borden  v.  En- 
terprise Transportation  Co.,  85  N. 
E.  110,  198  Mass.  590. 

A  court,  in  appointing  a  receiver 
for  cattle  to  protect  the  interest 
of  one  who  is  to  receive  a  portion 
of  their  sale  price  for  caring  for 
them,  acquires  jurisdiction  of  such 
interest   to   the  extent   that   it    is 


EFFECT    OF    APPOINTMENT    AND    DUTIES. 


107 


of  tiie  receiver  being  appointed  by  a  court  of  another  ) 


not  subject  to  attachment  by  a 
creditor  in  another  state  in  which 
the  receiver  sells  the  cattle.  Jen- 
kins V.  Purcell,  29  App.  D.  C.  209, 
9  L.  R.  A.  (N.  S.)   1074. 

Even  though  a  receiver  ap- 
pointed in  one  state  has  not  re- 
duced all  of  the  funds  belonging  to 
the  receivership  into  his  posses- 
sion, a  citizen  within  the  jurisdic- 
tion of  the  court  appointing  him 
can  not  attach  funds  Jn  another 
state  without  leave  of  the  appoint- 
ing court,  since  the  receiver  is  in 
the  constructive  possession  of  all 
of  the  funds.  Sercomb  v.  Catlin, 
128  111.  556,  15  Am.  St.  Rep.  147,  21 
N.  E.  606. 

The  property  of  a  nonresident 
defendant  can  not,  while  in  the 
hands  of  a  receiver  appointed  in 
another  state,  be  seized  under  at- 
tachment, when  brought  within 
the  state  for  a  lawful  purpose. 
Woodhull  V.  Farmers'  Trust  Co., 
11  N.  D.  157,  95  Am.  St.  Rep.  712, 
90  N.  W.  795. 

A  nonresident  creditor,  who  at- 
taches and  sells  property  of  an 
estate  after  the  estate  has  been 
placed  in  the  hands  of  a  receiver, 
and  with  equitable  notice  of  the 
receiver's  title,  can  be  allowed  to 
share  as  a  creditor  in  the  estate 
only  after  renouncing  the  benefit 
of  the  attachment  and  accounting 
for  the  property  wrongfully  con- 
verted. In  such  a  case,  the  meas- 
ure of  liability  is  the  fair  value 
of  the  property  at  the  date  of  the 
attachment,  with  interest.  Ward 
V.  Connecticut  Pipe  Mfg.  Co.,  71 
Conn.  345,  71  Am.  St.  Rep.  207,  42 
L.  R.  A.  706,  41  Atl.  1057. 

If  a  receiver  has  been  appointed 
in   the   state  in   which    an  attach- 


ment creditor  is  a  citizen  and  the 
latter  has  been  served  with  a  copy 
of  an  injunction  against  interfer- 
ing with  said  receivership,  and  he 
thereafter  causes  the  lines  and 
property  of  a  telegraph  company 
situate  in  another  state  to  be  at- 
tached, such  act  violates  the  in- 
junction and  can  give  no  lien  to 
such  creditor  which  is  capable  of 
being  enforced  under  an  equitable 
administration  of  the  company's 
assets  in  the  state  wherein  the 
receiver  was  appointed.  Farmers' 
Loan  &  T.  Co.  v.  Bankers  etc.  Tel. 
Co.,  148  N.  Y.  315,  42  N.  E.  707,  51 
Am.  St.  Rep.  690,  31  L.  R.  A.  403, 
affirming  83  Hun  560,  31  N.  Y. 
Supp.  1096. 

And  where  a  receiver  has  been 
appointed  by  the  court  of  a  foreign 
country  over  a  railway  company 
and  he  brings  property  belonging 
to  the  receivership  in  this  coun- 
try, such  property  will  not  be  sub- 
ject to  attachment,  and  if  attached 
by  creditors  in  this  country  he 
may  recover  it  by  replevin.  Rob- 
ertson V.  Staed,  135  Mo.  135,  58 
Am.  St.  Rep.  569,  33  L.  R.  A.  203, 
36  S.  W.  610. 

Rut  in  Maryland  it  was  held  that 
an  attachment  could  be  made 
against  the  property  of  a  judgment 
debtor  over  whose  estate  a  re- 
ceiver had  been  appointed  until 
the  receivers  took  possession. 
Farmers'  Bank  v.  Beaston,  7  Gill 
&  J.  (Md.)  421,  28  Am.  Dec.  226. 

In  Colorado  it  was  held  ti-at  a 
receiver  operating  a  railroad  would 
be  subject  to  attachment  if  the  at- 
tachment proceedings  did  not  in- 
terfere with  his  rights  under  the 
order  of  appointment.  Phelan  v. 
Ganebin,  5  Colo.  14. 


108 


LAW    OF   RECEIVERS. 


jurisdiction.^^  This  exception  is  based  on  the  theory 
that  the  jurisdiction  of  a  receiver  is  merely  co-extensive 
with  that  of  the  court  whioh  has  appointed  him. 

The  general  rule  in  all  cases  of  this  character  is  that 
the  court  appointing  a  receiver  has  no  power  to  displace 
or  subordinate  liens  existing  upon  the  receivership  prop- 

1  erty  at  the  time  of  taking  it  into  possession  through  its 
receiver  where  it  has  jurisdiction  of  the  receivership 
proceedings.^^     Such  lien  creditors,  however,  can  not  as 

\  a  rule  enforce  their  liens  and  thereby  disturb  the  posses- 


16  Local  creditors  may  attach 
funds  due  a  nonresident  insol- 
vent, inasmucli  as  an  ancillary  re- 
ceiver, if  appointed,  would  only 
take  the  funds  out  of  the  state  for 
administration.  Guimarin  &  Co.  v. 
Southern  Life  &  Trust  Co.,  100 
S.  C.  12,  84  S.  E.  298. 

Domestic  creditors  of  an  insol- 
vent foreign  corporation  held  en- 
titled to  attach  funds  due  it  from 
citizens  of  this  state,  though  a  re- 
ceiver had  been  appointed  by  the 
federal  court  in  the  foreign  state. 
Guimarin  &  Co.  v.  Southern  Life 
&  Trust  Co.,  100  S.  C.  12,  84  S.  E. 
298. 

If,  however,  a  receiver  sends  a 
ship  belonging  to  the  receivership 
estate  into  a  foreign  state  and  nec- 
essary supplies  are  furnished  to  it, 
proceedings  in  rem  in  an  admir- 
alty court  of  that  country  may  be 
maintained  against  the  ship  for 
the  payment  of  such  supplies,  as  in 
the  case  of  other  ships.  Clark  v. 
Chandler,  66  Fed.  565,  13  C.  C.  A. 
635,  affirming  same  case  in  The 
Willamette  Valley,  62  Fed.  293, 
and  s.  c.  63  Fed.  130. 

Likewise  a  seaman  may  acquire 
a  lien  on  a  ship  in  charge  of  a  re- 
ceiver for  his  services  rendered  on 


it  while  in  his  charge,  and  enforce 
such  lien  in  a  court  of  admiralty. 
In  re  William  M.  Hoag,  69  Fed. 
742. 

17  Arnold  v.  Weimer,  40  Neb. 
216,  58  N.  W.  709. 

Although  the  general  rule  is  as 
shown  in  the  text,  still  the  rights 
of  prior  lienholders  may  be  affected 
under  some  circumstances  by  a 
diversion  of  the  earnings  of  prop- 
erty for  the  benefit  of  the  lien- 
holders.  Knickerbocker  Trust  Co. 
V.  Green  Bay  Phosphate  Co.,  62 
Fla.  519,  56  So.  699. 

Such  appointment  does  not  af- 
fect pre-existing  liens  upon  the 
property  or  vested  rights  or  inter- 
ests of  third  persons.  The  receiver 
takes  his  title  to  the  property  sub- 
ject to  all  the  equities  to  which  it 
was  subject  in  the  hands  of  the 
debtor.  Rickman  v.  Rickman,  180 
Mich.  224,  Ann.  Cas.  1915C,  1237, 
146  N.  W.  609. 

The  receiver  of  an  insolvent  has 
no  rights  superior  to  an  insolvent's 
assignee;  the  latter  takes  an  as- 
signment of  a  thing  in  action  with- 
out prejudice  to  any  set-off  or 
other  defense  existing  at  the  time 
of,  or  before  notice  of,  the  assign- 
ment.    Williams    v.    Johnson,    50 


EFFECT   OF    APPOINTMENT    AND    DUTIES.  109 

sion  of  the  receiver  without  the  leave  of  the  court.^«  No 
right  of  priority  is  fixed  by  the  appointment,  and  £.1-  j 
though  it  prevents  the  acquisition  of  new  liens  it  creates 
none.^J^  A  court  of  law  has  no  authority  to  appoint  a 
receiver  of  property  under  attachment  in  order  to  pre- 
serve it  and  continue  the  defendant's  business  pending 
the  determination  of  the  attachment  litigation.^^ 

§  29.    Effect  of  Judgments  on  the  Receiversliip. 

The  appointment  of  a  receiver  is  sometimes  said  to 
have  an  effect  similar  to  that  of  an  equitable  execution 
although  it  reaches  only  the  actual  interest  of  the  defend- 
ant in  the  property  impounded  in  the  receivership/  but 
the  use  of  a  receivership  for  the  purposes  of  making 
an  equitable  attachment  is  not  favored  by  the  courts.- 


Mont.  7,  Ann.  Cas.  1916D,  595,  144 
Pac.  768. 

Under  Code  Civ.  Proc.  298,  au- 
thorizing the  appointment  of  a  re- 
ceiver where  one  shows  that  he 
has  a  lien  upon  property,  and  that 
there  is  danger  of  it  being  mate- 
rially injured,  a  purchaser  of  hemp 
who  had  paid  a  large  part  of  the 
purchase  price,  and  the  seller  hav- 
ing failed  to  properly  care  for  the 
crop,  resulting  in  its  damage,  and 
refusing  to  deliver  the  crop  until 
full  payment  of  the  contract  price, 
a  receiver  is  properly  appointed  to 
take  charge  of  the  hemp  and  pre- 
serve it  until  the  parties'  rights 
could  be  adjusted.  Suiumers  Fiber 
Co.  V.  Walker,  33  Ky.  Law  Rep. 
153,  109  S.  W.  883. 

isDann  Mfg.  Co.  v.  Parkhurst, 
125  Ind.  317,  25  N.  E.  347;  Forest 
Lake  Cemetery  v.  Baker,  113  Md. 
529,  77  Atl.  853,  858. 

19  Central  Appalachian  Co.  v. 
Buchanan,  90  Fed.  454,  33  C.  C.  A. 
598. 


20  Berryman  v.  Billings  Mut, 
Heating  Co.,  44  Mont.  517,  121  Pac. 
280. 

1  Longfellow  v.  Barnard,  58  Neb. 
612,  76  Am.  St.  Rep.  13  7,  79  N.  W. 
255. 

2  Ayres  v.  Graham  Steamship 
Coal  &  Lumber  Co.,  150  111.  App. 
137. 

In  Johnson  v.  Garner,  233  Fed. 
756,  the  court  said:  "The  injunc- 
tion and  receivership  secured  to 
Mrs.  Johnson  no  lien  or  preference 
over  other  interested  parties.  High 
on  Receivers  (4th  ed.)  §  5;  Cen- 
tral Appalachian  Co.  v.  Buchanan, 
90  Fed.  454,  458,  33  C.  C.  A.  598, 
23  Am.  &  Eng.  Ency.  L.  1043,  34 
Cyc.  75.  As  a  rule  the  existence 
of  a  receivership  suspends  the 
power  of  creditors  to  acquire  any 
lien  or  advantage  over  other  inter- 
ested parties.  Foster  v.  Field,  13 
Okl.  230,  74  Pac.  190,  194;  Barnett 
V.  East  Tennessee  V.  &  G.  Ry.  Co. 
(Tenn.  Ch.  App.)  48  S.  W.  817, 
822;  Attorney  General  v.  Continen- 


110 


LAW   OF    RECEIVERS. 


The  natural  effect  of  the  existence  of  a  judgment 
against  the  party  over  whose  property  a  receiver  is 
appointed  is  to  make  certain  the  amount  or  character  of 
the  judgment  creditor's  claim  against  the  assets  of  the 
receivership.  In  other  words,  a  judgment  against  the 
party  whose  property  is  imder  a  receiver  or  against 
the  receiver,  after  his  appointment  as  such  receiver, 
is   conclusive   as   to   the   existence   and   amount  of  the 


tal  Life  Ins.  Co.,  28  Hun  (N  Y.) 
360;  Jackson  v.  Lahee,  114  111.  287, 
2  N.  E.  172;  Besuden  v.  Besuden 
Co.,  4  Ohio  Dec.  144.  In  34  Cyc. 
at  page  199,  it  is  said: 

"  'One  who  has  no  lien  when  a 
receiver  is  appointed,  although  the 
mere  right  to  acquire  one  may 
then  exist,  can  not  proceed  for 
that  purpose  by  independent 
action  after  the  appointment  of  the 
receiver,  and  gain  a  preference 
over  other  creditors,  as  in  the  case 
of  the  administration  of  insol- 
vent's estates,  in  which  creditors 
are  entitled  to  pro  rata  and  equi- 
table distribution.  The  application 
of  this  rule  depends  upon  the  na- 
ture of  the  suit  in  which  the  re- 
ceiver is  appointed,  and  the  rule 
has  been  held  not  to  apply  to  a 
receiver  pendente  lite,  where  the 
sole  object  is  to  preserve  the 
property  for  the  purpose  of  the  de- 
cree as  between  the  parties  to  the 
suit  only,  without  affecting  the  in- 
terests of  third  persons,  as  distin- 
guished from  a  receivership  for 
the  general  administration  of  as- 
sets as  above  mentioned.' 

"The  rule  as  indicated  in  the 
quotation  has  an  exception  into 
which  the  present  case  falls.  In 
the  beginning  of  this  litigation 
there  was  no  thought  of  settling 
Jchnsoiis    estate,    or    making    an 


equitable  distribution  of  his  prop- 
erty. The  order  of  appointment 
contained  no  direction  to  the  re- 
ceiver to  give  notice  to  creditors 
to  file  claims.  The  creditors  were 
in  nowise  restricted  in  the  prose- 
cution of  their  demands,  and  it 
was  not  until  January  18,  1915, 
more  than  seven  months  after  the 
death  of  Johnson,  that  it  became 
apparent  to  this  court  that  it  must 
in  this  proceeding  distribute  the 
estate.  The  entry  of  the  judg- 
ments in  favor  of  Ada  Smith  and 
the  banking  corporation,  followed 
by  the  death  of  Johnson,  had  then 
raised  those  debts  from  the  fifth 
to  the  fourth  class  mentioned  in 
section  6052  of  the  Revised  Laws 
of  Nevada,  and  preferred  them  to 
general  demands.  This  preference, 
having  once  attached,  was  not  dis- 
placed by  the  subsequent  determi- 
nation of  this  court  to  administer 
the  estate. 

"These  conclusions  find  abun- 
dant support  in  the  following  au- 
thorities: High  on  Receivers  (4th 
ed.)  §  349;  Cramer  v.  Her,  63  Kan. 
579,  66  Pac.  617,  23  Am.  &  Eng. 
Ency.  L.  1043;  Waggy  v.  Jane  Lew 
Lumber  Co.,  69  W.  Va.  666,  72 
S.  E.  778,  779;  Ellicott  v.  United 
States  Ins.  Co.,  7  Gill  (Md.)  307; 
Moore  v.  Southern  States  L.  &  T. 
Co.,  (C.  C.)  83  Fed.  399." 


EFFECT    OF    APPOINTMENT    AND    DUTIES. 


Ill 


Judgment  creditor's  claim,  but  tlie  time  and  mamier  of 
its  payment  are  matters  to  be  determined  and  controlled 
by  the  court  which  has  appointed  the  receiver.^    A  judg- 


:'.  Judgments  obtained  against  re- 
ceivers are  conclusive  as  to  the 
existence  and  amount  of  tlie  claim 
represented  by  it.  If  this  were  not 
so,  it  would  be  a  useless  proceeding 
to  obtain  any  judgment  against  a 
receiver  except  in  the  court  in 
which  the  receivership  is  pending. 
Painter  v.  Painter,  138  Cal.  231,  94 
Am.  St.  Rep.  47,  71  Pac.  90;  Na- 
tional Bank  of  Augusta  v.  Warren 
(Stillwell),  101  S.  C.  453,  86  S.  E. 
21;  Fordyce  v.  Withers,  1  Tex. 
Civ.  540,  20  S.  W.  766;  Garrison  v. 
Texas  etc.  Ry.  Co.,  10  Tex.  Civ. 
136,  30  S.  W.  725;  Te.xas  Pac.  Ry. 
Co.  V.  Griffin,  76  Tex.  441,  13  S.  W. 
471;  Central  Trust  Co.  v.  East 
Tennessee  etc.  Ry.  Co.,  59  Fed. 
523;  Dillingham  v.  Hawk,  60  Fed. 
494,  23  L.  R.  A.  517,  9  C.  C.  A.  101; 
St.  Louis  S.  W.  Ry.  Co.  v.  Hol- 
brook,  73  Fed.  112,  19  C.  C.  A.  385; 
Texas  etc.  Ry.  Co.  v.  Johnson,  151 
U.  S.  81,  38  L.  Ed.  81,  14  Sup.  Ct. 
250.  A  contrary  view  was,  how- 
ever, entertained  in  Missouri  Pac. 
R.  Co.  V.  Texas  etc.  Ry.  Co.,  41 
Fed.  311,  where  the  court  reduced 
the  amount  of  a  judgment  ren- 
dered against  its  receiver. 

Judgments  rendered  in  pending 
suits  may  be  filed  as  claims  in  the 
receivership  proceedings.  Pringle 
v.  Woolworth,  90  N.  Y.  502;  People 
V.  Commercial  Alliance  Life  Ins. 
Co.,  5  App.  Div.  273,  39  N.  Y.  Supp. 
117;  Mercantile  Trust  Co.  v.  Pitts- 
burgh etc.  R.  Co.,  29  Fed.  732; 
Pine  Lake  Iron  Co.  v.  LaFayette 
Car  Works,  53  Fed.  853.  But  see 
Danforth  v.  National  Chemical  Co., 
68  Minn.  308,  71  N.  W.  274. 


A  judgment  against  a  corpora- 
tion in  the  name  of  a  receiver,  for 
materials  contracted  for  before  his 
appointment,  is  valid.  The  order 
of  payment  should  be  determined 
by  the  United  States  Circuit  Court 
which  appointed  the  receiver.  Har- 
ding V.  Nettleton,  86  Mo.  658. 

Since  a  receiver  of  a  street  rail- 
road company  is  an  arm  of  the 
court  and  his  official  acts  those 
of  the  court,  a  judgment  recovered 
against  him  in  his  official  capacity 
as  to  any  act  or  transaction  of 
his  in  carrying  on  the  business 
connected  with  the  property  is  the 
establishment  of  a  liability  against 
the  assets  in  his  hands,  and  is 
conclusive  as  against  lienors  or 
purchasers  of  such  assets  in  the 
absence  of  fraud,  and  this  is  true 
notwithstanding  the  statute  pro- 
viding that  such  a  receiver  shall 
be  subject  to  the  general  jurisdic- 
tion of  the  court  in  which  the  re- 
ceiver was  appointed  so  far  as 
necessary  to  the  ends  of  justice. 
Manhattan  Trust  Co.  v.  Chicago 
Electric  Traction  Co.,  188  Fed. 
1006. 

A  judgment  creditor  is  not  af- 
fected by  the  appointment  of  a 
receiver  for  the  debtor  in  proceed- 
ings to  which  he  was  not  a  party 
and  in  which  he  was  not  required 
to  intervene.  Central  Coal  &  C. 
Co.  V.  Southern  Nat.  Bank,  12  Tex. 
Civ.  App.  334,  34  S.  W.  383. 

The  lien  of  a  judgment  against 
a  corporation,  obtained  after  the 
appointment  of  a  receiver,  but  be- 
fore the  filing  of  his  official  bond, 
is  not  destroyed   by  the   filing  of 


112 


LAW    OF    RECEIVERS. 


ment  may  be  complete  and  perfect  and  have  full  effect 
rega-rdless  of  the  fact  whether  the  party  has  a  right  to 
issue  an  execution  under  it. 


such  bond,  although  his  title  dates 
back  to  the  time  of  the  appoint- 
ment for  the  preservation  and  pro- 
tection of  the  property,  where  the 
judgment  would  have  been  ren- 
dered before  his  appointment  but 
for  the  interposition  of  a  frivolous 
demurrer.  Re  Lewis  &  Fowler 
Mfg.  Co.,  89  Hun  208,  34  N.  Y. 
Supp.  983. 

One  who  purchases  property  at 
a  time  when  all  the  property  of 
the  grantor  is  subject  to  a  judg- 
ment lien  is,  as  against  a  receiver 
subsequently  appointed  over  the 
grantor's  property,  entitled  to  have 
the  remainder  of  the  property  in 
his  hands  subjected  to  the  lien  in 
exoneration  of  that  purchased  by 
him.  Semple  v.  Eubanks,  13  Tex. 
Civ.  App.  418,  35  S.  W.  509. 

If  on  a  day  when  the  court  ad- 
judicates a  corporation  is  insol- 
vent and  appoints  a  receiver  in 
whom  title  to  the  company's  prop- 
erty vests  a  judgment  is  recovered 
and  entered  at  an  earlier  hour,  the 
judgment  is  a  preferred  claim  on 
the  proceeds  of  the  sale  of  the 
company's  land.  Gallagher  v.  True 
American  Pub.  Co.,  75  N.  J.  Eq. 
171,  138  Am.  St.  Rep.  514,  71  Atl. 
741. 

A  judgment  against  a  receiver 
operates  only  as  an  established 
claim  against  the  assets  of  the 
receivership.  Arnold  v.  Penn,  11 
Tex.  Civ.  325,  32  S.  W.  353. 

Under  Act  March  3,  1887,  ch. 
373,  3,  24  Stat.  554  (U.  S.  Comp. 
St.  1901,  p.  582),  which  authorizes 
the  suing  of  a  federal  receiver  in 
respect  of  any  act  of  his  in  carry- 


ing on  the  business  without  the 
previous  leave  of  the  court  which 
appointed  him,  but  such  suit  to  ba 
subject  to  the  general  equity  juris- 
diction of  said  court,  a  judgment 
rendered  against  such  a  receiver 
by  a  state  court  in  an  action 
brought  against  him  to  recover 
damages  for  the  death  of  an  em- 
ployee is  conclusive  on  the  federal 
court  as  to  the  existence  and 
amount  of  the  plaintiff's  claim;  but 
the  time  and  manner  of  its  pay- 
ment must  be  controlled  by  such 
court.  (C.  C.  1909)  Meyer  Rubber 
Co.  V.  Georgetown  &  W.  R.  Co., 
174  Fed.  731. 

.  Under  Act  Aug.  13,  1888,  ch.  866, 
3,  25  Stat.  436  (U.  S.  Comp.  St. 
1901,  p.  582),  which  authorizes  the 
suing  of  a  federal  receiver  in  re- 
spect of  any  act  of  his  in  carrying 
on  the  business  without  the  pre- 
vious leave  of  the  court  which  ap- 
pointed him,  but  such  suit  to  be 
subject  to  the  genera]  equity  jur- 
isdiction of  said  court  so  far  as  the 
same  shall  be  necessary  to  the 
ends  of  justice,  a  judgment  ren- 
dered against  such  a  receiver  by  a 
state  court  in  an  action  brought 
against  him  for  the  death  of  an 
employee  is  conclusive  on  the  fed- 
eral court  as  to  the  right  to  re- 
cover, and  the  amount  that  should 
be  recovered.  (1910)  Willcox  v. 
Jones,  177  Fed.  870,  101  C.  C.  A.  84. 
The  recovery  of  a  judgment 
against  partners  after  the  appoint- 
ment of  a  receiver  does  not  create 
a  lien  upon  the  partnership  prop- 
erty in  his  hands,  and  such  prop- 
erty   can    not   be   levied    upon    by 


EFFECT    OF    APPOINTMENT    AND    DUTIES, 


113 


Frequently  judgments  are  rendered  against  or  in  favor 
of  receivers  in  courts  other  than  the  one  having  juris- 


execution  or  reached  by  garnish- 
ment, because  it  is  in  custody  of 
the  court.  Jaclcson  v.  Lahee,  114 
111.  287,  2  N.  E.  172. 

Where  a  suit  to  foreclose  a  lien 
which  is  pending  at  the  time  of 
appointing  a  receiver  is  prosecuted 
to  judgment  without  leave  of  the 
court  having  jurisdiction  of  the 
receivership,  the  plaintiff  will  not 
by  his  judgment  obtain  any  pri- 
ority of  payment  out  of  the  assets 
of  the  receivership.  Blair  v.  St. 
Louis  etc.  R.  Co.,  25  Fed.  2. 

A  judgment  against  a  receiver 
does  not  give  the  judgment  cred- 
itor any  preference  over  other 
creditors  who  have  established 
their  claims,  but  simply  fixes  the 
amount  due  and  allows  him  to 
come  in  and  share  any  fund  ad- 
ministered by  the  receiver.  Na- 
tional Bank  of  Augusta  v.  Warren 
(Stillwein  101  S.  C.  453,  86  S.  E. 
21. 

Execution  can  not  be  issued  in  a 
judgment  rendered  against  a  re- 
ceiver. The  time  and  manner  of 
satisfying  it  are  under  the  control 
of  the  court  in  which  the  receiver- 
ship is  pending.  Irwin  v.  McKech- 
nie,  58  Minn.  145,  49  Am.  St.  Rep. 
495.  26  L.  R.  A.  218,  59  N.  W.  987; 
Dillingham  v.  Hawk,  60  Fed.  494, 
23  L.  R.  A.  517,  9  C.  C.  A.  101. 

A  judgment  against  a  receiver 
can  not  be  enforced  by  execution. 
The  proper  practice  is  to  apply  to 
the  court  for  an  order  to  enforce 
it.  Painter  v.  Painter,  138  Cal. 
231,  94  Am.  St.  Rep.  47,  71  Pac.  90. 

Although  a  pending  suit  may  be 
prosecuted  to  judgment  after  the 
appointment  of  a  receiver  for  the 
I  Rec— 8 


defendant,  the  judgment  creditor 
can  not  levy  under  it  on  the  re- 
ceivership assets.  Temple  v. 
Branch  Saw  Co.,  39  Tex.  Civ.  606, 
88  S.  W.  442. 

A  judgment  creditor  having  a 
judgment  upon  land  in  the  posses- 
sion of  a  receiver  can  not  levy 
execution  on  it,  but  must  apply  to 
the  court  having  jurisdiction  of 
the  receivership,  which  will  pro- 
tect his  interests  when  selling  the 
land.  Wiswall  v.  Sampson,  14 
How.   (55  U.  S.)   52,  14  L.  Ed.  322. 

A  receiver  may  be  concluded 
by  a  judgment  in  an  action  in 
which  he  was  not  a  technical 
party,  but  caused  the  corporation 
of  which  he  was  receiver  to  enter 
its  appeai-ance  in  another  state  in 
the  case  and  received  certain  ben- 
efits from  the  litigation.  Smith  v. 
United  States  Express  Co.,  135  111. 
279,  25  N.  E.  525. 

But  a  judgment  which  was  ren- 
dered in  another  state  against  a 
corporation  over  which  a  receiver 
has  been  appointed,  the  receiver 
not  being  a  party  to  the  suit,  is 
not  binding  upon  the  receiver  in 
the  state  of  his  appointment.  Mc- 
Culloch  V.  Norwood,  58  N.  Y.  562. 

A  finding,  however,  as  to  the 
existence  of  a  certain  fact  in  an 
action  by  a  receiver  is  not  res 
judicata  as  to  such  fact  in  a  sub- 
sequent action  between  other  par- 
ties. Brown  v.  Clow,  158  Ind.  403, 
62  N.  E.  1006. 

In  a  suit  by  a  receiver  ap- 
pointed in  supplementary  proceed- 
ings and  not  in  a  general  creditors' 
proceeding,  to  recover  a  note 
claimed  by  the  receiver  to  belong 


114 


LAW   OF   RECEIVERS. 


diction  of  the  receivership,  either  under  leave  of  court 
specifically  given  or  under  general  permissive  orders  or 
statutory  permission,  and  in  such  cases  the  question 
naturally  arises  as  to  how  far  such  judgments  are  con- 
clusive upon  the  parties.  As  has  been  shown,  the  general 
rule  is  that  where  the  court  rendering  the  judgment  had 
jurisdiction  uf  the  parties  and  subject  matter,  the  judg- 
ment imports  tue  same  conclusiveness  as  any  judgment 
rendered  in  other  cases  under  like  jurisdictional  facts. 
Basing  liis  ruling  upon  the  theory  that  the  receivership 
is  an  equity  proceeding,  it  was  at  one  time  believed 
by  Judge  Pardee  ^  that  a  judgment  rendered  in  a  court 
other  than  that  of  the  receivership  was  subject  to  revi- 
sion and  correction  by  the  receivership  court,  but  that 


to  the  debtor,  a  judgment  against 
the  receiver  does  not  bind  the 
general  creditors,  although  it  binds 
the  creditor  at  whose  instance  the 
supplementary  proceedings  were 
commenced.  Southern  Loan  etc. 
Co.  V.  Benbow,  131  N.  C.  413,  42 
S.  E.  896. 

A  judgment  against  the  receiver 
rendered  in  a  court  other  than  that 
of  the  receivership  is  not  evidence 
against  persons  not  parties  to  it. 
Sullivan  v.  Texas  etc.  Coal  Co., 
(Tex.  Civ.)  60  S.  W.  330.  (The 
above  case  was  reversed  on  a  ques- 
tion relating  to  the  priority  of 
liens,  in  94  Tex.  541,  63  S.  W.  307.) 

4  Missouri  Pac.  R.  Co.  v.  Texas 
etc.  Ry.  Co.,  41  Fed.  311.  In  this 
case  a  judgment  had  been  ren- 
dered in  a  state  court  against  the 
receiver  of  a  railroad  for  $10,000, 
but  the  federal  court  reduced  the 
amount  of  the  judgment  to  $5000. 
The  court  in  the  course  of  his 
opinion,  after  admitting  that  the 
state  court  had  authority  to  enter- 
tain the  suit,  said:    "However  this 


may  be,  it  is  clear  that  where  a 
judgment  is  so  obtained,  and  is 
brought  to  the  court  of  original 
jurisdiction  to  be  ranked  as  a  lien 
upon  the  trust  funds,  such  judg- 
ment is  subject  to  its  general 
equity  jurisdiction;  and  the  duties 
of  determining  the  rightfulness  of 
the  judgment,  including  whether 
the  amount  is  just,  is  still  imposed 
upon  this  court,  as  it  would  be  if 
it  had  ordered  an  issue  tried  at 
law;  for  this  court  must  still,  in 
the  language  of  the  statute,  exer- 
cise a  'general  equity  jurisdiction, 
so  far  as  the  same  shall  be  neces- 
sary to  the  ends  of  justice.'  .  .  . 
For  this  reason  I  am  of  the  opinion 
that  in  the  present  intervention 
the  court  may  inquire  as  to 
whether  or  not  the  intervenor  has 
a  lien,  and,  if  so,  the  rank  and 
amount  thereof,  and  that  in  such 
inquiry  the  court  is  not  concluded 
in  any  way  by  the  verdict  and 
judgment  produced  from  the  dis- 
trict court  of  Harrison  County, 
Texas." 


EFFECT    OF    APPOINTMENT    AND    DUTIES.  115 

rule  is  not  sustained  by  authority  nor  do  we  believe 
tliat  it  is  sustained  bj^  sound  reasoning.  In  our  opinion 
the  correct  rule  in  cases  of  this  sort  was  set  forth  by 
Judge  Caldwell  in  a  well  considered  case  ^  in  which  lie 
said:  "The  court  is  asked  to  qualify  the  order  relating 
to  judgments  recovered  in  state  courts  by  adding  a  pro- 
viso to  the  effect  that,  when  it  is  shown  that  the  judginent 
is  for  a  grossly  excessive  amount,  this  court  will  reduce 
it  to  a  just  and  reasonable  sum.  This  court  will  not 
entertain  the  suggestion  that  its  receiver  will  not  obtain 
justice  in  the  state  courts.  The  act  of  Congress  gives 
the  right  to  sue  the  receiver  in  the  state.^  The  state 
court  has  jurisdiction  of  tlie  parties  and  the  subject 
matter,  and  its  judgment  against  a  receiver  of  tliis  court 
is  as  final  and  conclusive  as  it  is  against  another  suitor. 
The  right  to  sue  the  receiver  in  a  state  court  would  be 
of  little  utility  if  its  judginent  could  be  annulled  or  modi- 
fied at  the  discretion  of  this  court.  It  is  open  to  the 
receiver  to  correct  the  errors  of  inferior  courts  of  the 
state  by  appeal  to  the  Supreme  Court.  But  this  court 
is  not  invested  with  appellate  or  supervisory  jurisdic- 
tion over  the  state  courts,  and  can  not  annul,  affect,  or 
modify  their  judgments."^ 

The  reasoning  and  conclusion  of  Judge  Caldwell  were 
approved  by  other  cases  in  the  federal  courts,  including 
the  United  States  Supreme  Court. ^ 

5  Central  Trust  Co.  v.  St.  Louis  523,  Judge  Lurton,  afterwards  Jus- 
etc.  Ry.  Co.,  41  Fed.  551.  tice  of  the  United  States  Supreme 

6  Citing  Central  Trust  Co.  v.  St.  Court,  said:  "A  wide  difference  of 
Louis  etc.  Ry.  Co.,  40  Fed.  426.  opinion  has  been  entertained  as  to 

7  Citing  Randall  v.  Howard,  67  the  power  of  the  court  over  judg- 
U.  S.  (2  Black)  585,  17  L,  Ed.  269;  ments  obtained  against  a  receiver 
Nougue  V.  Clapp,  101  U.  S.  551,  25  in  courts  other  than  that  appoint- 
L.  Ed.  1026.  ing    the    receiver.      Central    Trust 

8  Texas  etc.  Ry.  Co.  v.  Johnson,  Co.  v.  St.  Louis  etc.  Ry.  Co.,  40 
151  I]."S.  81,  38  L.  Ed.  81,  14  Sup.  Fed.  426;  Eddy  v.  Wallace,  49  Fed. 
Ct.   250.  801,  1  C.  C.  A.  435;   Missouri  Pao. 

In  Central  Trust  Co.  v.  East  R.  Co.  v.  Texas  Pac.  Ry.  Co.,  41 
Tennessee    etc.    Ry.    Co.,    59    Fed.      Fed.  311.     In  the  two  cases  first 


IIG 


LAW   OP   RECEIVERS. 


Where  the  receivership  property  is  subject  to  the  lien 
of  a  judgment,  as  in  the  case  of  a  judgment  against  one 
ha\ang  real  estate,  a  receiver  appointed  subsequently 
takes  tlie  property  subject  to  such  lien/^ 


cited  it  was  held  that  such  judg- 
ments were  conclusive.  In  the  case 
reported  in   41    Fed.    it  was    held 
that  it  was  within  the  power   of 
the   court,   when    such   judgments 
were   filed   in   the   case   in    which 
the  fund  was  being  distributed,  to 
look    into    them,    and    allow    the 
whole,    or    half,    or    any    part,    as 
justice  might  require.    The  latter 
view   seems    to   have   been   enter- 
tained by  Mr.  Justice  Jackson,  for, 
while    judge    of    this    circuit,    he 
made  an  order  in  this  cause,  which 
has  not  been  revoked,  requiring  all 
judgments  in  other  courts  in  suits 
prosecuted    without    leave    of    the 
court,    to   be   filed   by   intervening 
petition    in    the    main    cause,    to- 
gether with  a  full  bill  of  exceptions 
showing  the  evidence  upon  which 
the    judgment    rested.     That    the 
judgment  is  conclusive,  so  far  as 
to  be  regarded  as  a  judicial  ascer- 
tainment  of   the   liability,    and   of 
the  amount,  is  probably  the  better 
view.      Speaking   of   the   effect   of 
the  proviso,  the  learned  Chief  Jus- 
tice, in  the  case  of  Texas  etc.  Ry. 
Co.   v.   Johnson,   151   U.    S.    81,   38 
L.  Ed.  81,  14  Sup.  Ct.  250,  said  that 
'the  right  to  sue  without  resorting 
to  the  appointing  court,  which  in- 
volves   the    right    to   obtain    judg- 
ment, can  not  be  assumed  to  have 
been    rendered    practically    value- 
less by  his  former  provision  in  the 
same  section  of  the  statute  which 
granted  it.'  " 

0  Gere  v.  Dibble,  17  How.  Pr. 
(N.  Y.)  31.  The  same  is  true 
where  at  the  time  of  the  appoint- 


ment the  property  is  subject  to  a 
general  tax  lien.  Duryee  v.  United 
States  Credit  etc.  Co.,  55  N.  J.  Eq. 
311,  37  Atl.  155. 

In  Ellicott  V.  United  States  Ins. 
Co.,  7  Gill  (Md.)  307,  the  court 
decided  that  a  creditor  who  had 
obtained  a  judgment  in  a  court  of 
law  during  the  pendency  of  pro- 
ceedings in  equity,  in  which  a 
receiver  had  been  appointed,  ac- 
quired thereby  a  lien  on  the  defen- 
dant's real  property  in  the  hands 
of  the  receiver,  quite  as  good  as  if 
no  receiver  had  been  appointed. 
The  opinion  of  the  court  shows 
the  reason  for  so  deciding  was 
that  the  only  object  in  granting 
the  receivership  was  to  provide  for 
safe  keeping  of  the  property,  and 
that  other  creditors  were  not  re- 
strained from  attempting  to  estab- 
lish their  demands. 

In  Moore  v.  Southern  States 
Land  &  Timber  Co.  (C.  C.)  83  Fed. 
399,  after  other  creditors  had  ob- 
tained judgments  against  the  de- 
fendant during  the  existence  of 
the  receivership,  the  court  deter- 
mined to  enlarge  the  scope  of  the 
proceedings,  and  to  make  an  equi- 
table distribution  of  all  property 
of  the  defendant.  This  change, 
however,  in  nowise  disturbed  the 
preference  already  established  by 
the  judgments,  though,  if  the 
larger  purpose  had  characterized 
the  proceedings  from  their  incep- 
tion, no  such  advantage  could  have 
been  acquired.  The  facts  in  the 
case  were  as  follows:  There  was 
a  suit  to  foreclose  a  mortgage  on 


EFFECT    OP    APPOINTMENT    AND    DUTIES. 


117 


Where  a  judgment  is  rendered  against  a  receiver  in 
his  official  capacity,  it  creates  no  personal  liability 
against  him,  and  should  be  rendered  against  him  as 
receiver  and  made  payable  in  due  course  of  administra- 
tion of  the  receivership.^^    But  where  the  judgment  ren- 


the  property  of  an  insolvent  cor- 
poration; a  receiver  was  appointed, 
and  a  decree  pro  cont'esso  entered. 
Some  time  later  there  was  an 
amended  decree,  in  which  the 
court  indicated  for  the  first  time 
fin  intention  to  make  an  equitable 
distribution  of  the  funds  among 
all  the  creditors,  and  it  then  pro- 
vided for  notice  to  creditors  to  file 
their  claims.  During  the  time 
which  intervened  between  the  ap- 
pointment and  the  amended  de- 
cree, several  creditors,  not  being 
restrained  from  bringing  suits 
against  the  corporation,  obtained 
judgments.  The  court  held  that 
the  interveners  who  had  thus  ob- 
tained such  judgments  should  have 
a,  lien  on  all  the  property  and 
effects  of  the  defendant  not  cov- 
ered by  the  mortgage,  and  that 
their  right  to  be  paid  out  of  the 
property  of  the  debtor  was  para- 
mount to  that  of  other  creditors. 

10  McNulta  v.  Ensch  134  III.  46, 
55.  24  N.  E  631  McNulta  v.  Lock- 
ridge.  137  111.  270,  31  Am.  St.  Rep. 
362.  27  N.  E.  452;  Robinson  v. 
Kirkwood,  91  111.  App.  54;  Irwin  v. 
McKechnie,  58  Minn.  145,  49  Am. 
St.  Rep.  495,  26  L.  R.  A.  218,  59 
N.  W.  987;  Com.bs  v.  Smith,  78  Mo. 
32;  Woodruff  v.  Jewett,  37  Hun 
(N.  Y.)   205. 

In  Painter  v.  Painter,  138  Cal. 
231,  94  Am.  St.  Rep.  47,  71  Pac.  90, 
the  court  said:  "The  judgment 
should  be  against  the  receiver  in 
his   ofRclal   capacity,   leaving   the 


matter  of  its  enforcement  to  be 
determined  by  the  court  having 
jurisdiction  of  the  receivership. 
.  .  .  The  manner  of  paying  the 
judgment  is  under  the  exclusive 
control  of  the  court  in  which  the 
receivership  proceeding  is  pend- 
ing, and  to  it  there  must  be  an 
application  for  its  payment.  Ex- 
ecution can  not  be  issued  against 
a  receiver;  the  judgment  only  op- 
erates as  an  established  claim 
against  the  assets  in  the  posses- 
sion of  the  receiver." 

Suits  against  a  receiver  are  in  ef- 
fect only  against  the  receivership, 
and  the  judgment  should  be  only 
against  the  funds  in  his  hands. 
Smith  V.  Jones  Lumber  &  Mercan- 
tile Co.,  200  Fed.  647. 

Judgment  against  a  receiver 
should  not  be  rendered  in  his  indi- 
vidual capacity,  nor  should  an 
execution  be  issued  against  him. 
A  proper  form  of  judgment  should 
provide  for  payment  in  due  course 
of  administration.  Lyons  v.  Samp- 
sell,  168  111.  App.  542. 

The  judgment  or  decree  direct- 
ing a  general  recei'"^er  to  disburse 
a  fund  in  his  hands  should  not  be 
personal,  and  it  should  show  on  its 
faoe  that  it  is  against  him  in  his 
official  character,  and  that  the 
amiOunt  is  to  be  paid  out  of  the 
fund  held  by  him  in  his  official 
character,  in  the  due  course  of  the 
administration  of  the  affairs  of  the 
receivership.    United  States  Blow- 


118 


LAW   OF   RECEIVERS. 


dered  against  the  receiver  is  on  account  of  property  or 
funds  which  had  been  placed  under  his  charge  but  lost 
through  some  fault,  misconduct,  or  mismanagement  on 
his  part,  the  judgment  may  properly  be  entered  against 
him  in  his  personal  capacity.^^ 

A  party  who  has  a  judgment  against  a  debtor  over 
whom  a  receiver  has  been  appointed  is  not  obliged  to 
resort  to  the  receivership  proceedings  to  enforce  its  pay- 
ment but  may,  if  he  so  desires,  await  the  termination  of 
the  receivership  and  then  enforce  it  in  the  usual  way.^^ 

A  suit  which  was  pending  at  the  time  of  the  appoint- 
ment of  a  receiver  may  be  prosecuted  to  a  judgment.^^ 
And  where  a  receivership  is  terminated,  a  pending  suit 
commenced  by  the  receiver  may  be  prosecuted  to  judg- 
y  ment  in  the  name  of  the  receiver.^^ 


pipe  Co.  V.  Spencer,  61  W.  Va.  191, 
56  S.  E.  345.     * 

No  process  will  be  issued  on  a 
judgment  rendered  against  a  re- 
ceiver except  by  direction  of  the 
court  having  jurisdiction  of  the 
receivership,  or  unless  a  statute 
allows  it  to  be  done.  Abbey  v. 
International  etc.  Ry.  Co.'s  Receiv- 
ers, 5  Tex.  Civ.  261,  23  S.  W.  934; 
Arnold  v.  Penn,  11  Tex.  Civ.  325, 
32  S.  W.  353.  The  manner  of  en- 
forcing such  judgments  is  under 
control  of  Uie  receivership  court. 
Dillingham  v.  Russell  (Anthony), 
73  Tex.  47,  15  Am.  St.  Rep.  753, 
3  L.  R.  A.  634,  11  S.  W.  139. 

The  contention  that  a  judgment 
creditor  should  abide  a  final  set- 
tlement of  the  accounts  of  a  re- 
ceiver, and  that  in  obtaining  an 
order  to  enforce  the  judgment  he 
should   make  other  creditors   par- 


ties, is  without  merit  where  it 
does  not  appear  that  payment  of 
the  judgment  will  exhaust  the  es- 
tate or  prevent  creditors  from 
being  paid.  Painter  >^  Painter,  138 
Cal.  231,  94  Am.  St.  Rep.  47,  71 
Pac.  90. 

The  judgment  will  not,  however, 
have  any  priority  o^^er  other 
claims.  Clinkscales  v.  Pendleton 
Mfg    Co..  9  S.  C.  318. 

11  United  States  Blowpipe  Co.  v. 
Spencer,  61  W  Va.  191,  56  S.  E. 
345. 

12  Heath  v.  Missouri  etc.  Ry.  Co., 
83  Mo.  617;  Wilder  v.  New  Or- 
leans, 87  Fed.  843,  31  C.  C.  A.  249. 

1.3  Hasselman  v.  Japanese  Devel- 
opment Co.,  2  Ind.  App.  180,  27 
N.  E.  318,  28  N.  E.  207. 

14  Hall  V.  Henderson,  126  Ala. 
449,  85  Am.  St.  Rep,  53,  61  L.  R,  A. 
621,  28  So.  531. 


EFFECT    OF   APPOINTMENT    AND    DUTIES, 


119 


§  30.    Rights  Obtained  by  Levy  of  Writ  of  Execution. 

The  general  rule  is  that  property  in  the  possession  of 
a  receiver  being  in  the  possession  of  the  court  can  not 
be  taken  from  him  by  means  of  writs  of  attachment  or 
execution  and  the  like.^     The  diversity  of  decisions  on 


1  Sercomb  v.  Catlin,  128  111.  556, 
15  Am.  St.  Rep.  147,  21  N.  E.  606; 
Holbrook  v.  Ford,  153  111.  633,  46 
Am.  St.  Rep.  917,  27  L.  R.  A.  324, 

39  N.  E.  1091;  Chalmers  v.  Little- 
field,  103  Me.  271,  69  Atl.  100; 
Gardner  v.  Caldwell,  16  Mont.  221, 

40  Pac.  590;  Skinner  v.  Maxwell, 
68  N.  C.  400;  Coe  v.  Columbus  etc. 
R.  Co.,  10  Ohio  St.  372,  403,  75 
Am.  Dec.  518;  Thompson  v.  Mc- 
Cleary,  159  Pa.  St.  189,  28  Atl.  254; 
.Jones  V.  Moore,  106  Tenn.  188,  61 
S.  W.  81;  Grosscup  v.  German  Sav. 
etc.  Soc,  162  Fed.  947;  Wiswall  v. 
Sampson,  14  How.  (55  U.  S.)  52, 
14  L.  Ed.  322. 

Property  in  the  hands  of  a  re- 
ceiver, being  in  custody  of  the 
court,  can  not  be  taken  from  him 
by  writ  of  attachment  or  execu- 
tion. Adams  v.  Haskell,  6  Cal. 
113,  65  Am.  Dec.  491;  Hooper  v. 
Winton,  24  111.  353. 

No  title  passes  by  a  levy  on 
money  belonging  to  and  in  the 
hands  of  a  receiver.  Hundley  Dry 
Goods  Co.  V.  Albien,  32  S.  D.  60, 
142  N.  W.  49. 

As  a  general  rule  courts  of 
equity  will  not  permit  a  party  who 
has  defied  their  authority,  by  seiz- 
ing under  execution  property  in 
their  possession,  to  excuse  himself 
on  the  ground  that  the  order  ap- 
pointing a  receiver  was  irregular 
or  improvidently  made.  Russell  v. 
East  Anglian  R.  Co.,  3  Macn.  &  G. 
104. 

Property  can  not  be  subjected  to 


garnishment  when  in  the  hands  of 
a  receiver.  This  is  on  the  general 
principle  that  property  in  the  cus- 
tody of  the  law  can  not  be  reaclel 
by  the  garnishment  of  its  legal 
custodian  or  otherwise.  Blum  v. 
Van  Vechten,  92  Wis.  3"8,  66  N.  W. 
507. 

Real  estate  in  the  possession  of 
a  receiver  pending  a  suit  relative 
to  its  title  will  not  be  subject  to 
levy  under  an  execution  to  satisfy 
a  judgment  rendered  subsequent 
to  the  appointment  of  the  receiver. 
Edwards  v.  Norton,  55  Tex.  405. 

A  sale  of  the  equity  of  redemp- 
tion of  property  which  is  in  the 
possession  of  a  receiver  as  the 
result  of  a  foreclosure  proceeding 
will  not  pass  title.  Grosscup  v. 
German  Sav.  etc.  Society,  162  Fed. 
947. 

In  some  cases  the  courts  have 
in  our  opinion  unduly  protected 
the  possession  of  the  receiver. 
Thus  it  has  been  held  that  a  sale 
under  execution,  made  without 
permission  of  the  receivership 
court,  would  not  pass  title  to  the 
property  sold,  even  though  the 
levy  was  made  prior  to  the  ap- 
pointment of  the  receiver.  Cani- 
pau  v.  Detroit  Driving  Club,  130 
Mich.  417,  90  N.  W.  49;  Walling 
V.  Miller,  108  N.  Y.  173,  2  Am.  St. 
Rep.  400,  15  N.  E.  65.  Under  the 
circumstances  above  shown,  the 
property  might  properly  be  con- 
sidered already  in  the  custody  of 
the   court.     Doubtless,   if   the   cir- 


120 


LAW   OF   RECEIVERS. 


the  subject  is  merely  in  respect  to  whether  the  property 
attempted  to  be  taken  from  the  receiver  under  such  writ 


cumstances  of  the  sale  had  any 
elements  of  fraud  or  oppression 
connected  with  them,  and  there 
was  a  probable  equity  belonging 
to  the  receivership  above  the 
amount  of  the  judgment,  a  court 
would  restrain  the  sale. 

The  case  of  Wiswall  v.  Sampson, 
14  How.  (55  U.  S.)  52,  14  L.  Ed. 
322,  is  often  cited  as  authority  to 
the  proposition  that  an  execution 
sale,  without  leave  of  court,  of 
property  in  possession  of  a  re- 
ceiver, will  pass  no  title.  The  case, 
however,  does  not  sustain  the 
proposition  in  a  full  degree.  The 
demanded  premises  in  that  action 
had  belonged  to  one  Ticknor,  who 
had  conveyed  them  in  fraud  of 
creditors  to  Day  prior  to  Decem- 
ber, 1840.  At  that  date  plaintiff's 
lessors  recovered  a  money  judg- 
ment against  Ticknor,  execution 
upon  which  was  returned  nulla 
bona.  In  1842  another  creditor 
recovered  judgment  against  Tick- 
nor, and  thereafter  commenced  a 
suit  in  equity  to  set  aside  the  con- 
veyance to  Day.  He  succeeded  in 
his  action,  and  after  the  convey- 
ance to  Day  was  set  aside  a 
receiver  of  the  property  was  ap- 
pointed. While  the  receiver  was 
in  possession  plaintiff's  lessors, 
without  leave  asked  or  granted, 
sold  it  under  an  alias  execution 
issued  upon  his  judgment  of  1840. 
The  defendant  in  the  ejectment 
suit  claimed  under  the  receiver, 
and  it  was  held  in  his  favor  that 
the  execution  sale  passed  no  title. 
The  reason  for  so  holding  is  ob- 
vious. By  the  conveyance  to  Day 
the  land  had  been  put  beyond  the 


reach  of  creditors,  and  had  been 
made  subject  to  their  claims  solely 
by  means  of  the  action  in  equity  to 
set  that  conveyance  aside.  The 
fund,  in  other  words,  was  the  cre- 
ation of  the  court  appointing  the 
receiver,  and  was  necessarily  sub- 
ject to  its  disposition,  to  be  ap- 
plied to  the  satisfaction  of  the 
claims  of  such  creditors  only  as 
could  show  a  right  to  come  in  and 
share  in  the  distribution.  To  hold, 
in  such  a  case,  that  the  execution 
sale  passed  a  title  superior  to  that 
of  the  receiver — title  relating  back 
to  the  date  of  the  first  judgment — 
would  have  been  to  hold  that  a 
creditor  by  a  prior  judgment  may 
stand  by  while  a  junior  creditor 
at  his  sole  expense  and  risk  un- 
covers assets  of  the  debtor,  and 
then  step  in  and  reap  the  entire 
benefit,  which  is  neither  equity 
nor  law.  The  decision  in  that 
case,  therefore,  must  be  limited 
in  its  effect  by  reference  to  the 
facts  of  the  case  under  considera- 
tion. 

Where  a  receiver  is  appointed 
in  a  suit  to  dissolve  an  insolvent 
corporation,  a  sale  of  its  real  es- 
tate  under  an  execution  levied 
before  the  appointment  of  the  re- 
ceiver wall  not  pass  title.  Ellis  v. 
Vernon  Ice  etc.  Co.,  86  Tex.  109, 
23  S.  W.  858.  We  believe  that  the 
case  last  cited  is  distinguishable 
on  account  of  the  complete  seques- 
tration of  the  property  of  the  cor- 
poration by  the  dissolution  pro- 
ceedings. 

The  appointment  of  a  receiver 
will  not  deprive  a  sheriff  of  the 
right    to    sell    personal    property 


EFFECT    OF   APPOINTMENT    AND    DUTIES. 


121 


is  in  fact  in  the  custody  of  the  court.  The  question  some- 
times arises  in  respect  to  property  claimed  by  the  re- 
ceiver but  which  is  alleged  to  belong  to  other  parties 
who  are  judgment  debtors  under  the  judgment  which  is 
sought  to  be  executed  upon.  In  such  cases,  if  the  prop- 
erty does  not  belong  to  the  receivership,  it  is  naturally 
subject  to  execution  process.-    Perhaps  the  most  difficult 


seized  under  an  execution  where 
it  was  seized  by  him  prior  to  the 
appointment.  A  distinction  ob- 
served was  that  in  the  case  of  real 
estate  the  sheriff  would  not  take 
possession  of  the  property  as  in 
the  case  of  personal  property. 
Lake  Bisteneau  Lumber  Co.  v. 
Mimms,  49  La.  Ann.  1283,  22  So. 
730;  In  re  Hall  &  Stilson  Co.,  73 
Fed.  527. 

But  in  Cole  v.  Oil-Well  Supply 
Co.,  57  Fed.  534,  the  federal  court 
refused  to  require  the  sheriff  to 
return  to  a  receiver  property 
which  he  had  seized  under  an  at- 
tachment issued  by  a  state  court 
]prior  to  the  appointment  of  the 
receiver. 

The  court  appointing  the  re- 
vjeiver  should  upon  application 
allow  the  judgment  creditor  to  sell 
property  upon  which  he  had  levied 
on  an  execution  prior  to  the  re- 
ceivership. Cass  V.  Sutherland,  98 
Wis.  551,  74  N.  W.  337. 

Property  has  been  held  to  be  in 
custody  of  law  where  a  receiver 
had  been  appointed  but  had  de- 
clined to  act.  Skinner  v.  Maxwell, 
68  N.  C.  400. 

This  exemption  from  execution 
has  been  held  to  continue,  though 
the  order  appointing  the  receiver 
has  been  suspended  by  the  giving 
of  a  sufficient  supersedeas  bond, 
and  the  consequent  surrender  of 
the  property  by  the  receiver.  Stan- 


ton V.  Heard,  100  Ala.  515,  14  So. 
359. 

2  If  the  title  to  land  held  by  a 
receiver  is  decreed  by  the  court 
to  be  vested  in  another  party,  it 
becomes  subject  to  execution  for 
the  debts  of  such  party,  even 
though  the  receiver  is  not  formally 
discharged  by  the  court.  Very  v. 
Watkins,  23  How.  (64  U.  S.)  469, 
16   L.   Ed.  522. 

Property  which  belongs  to  an- 
other party  who  is  not  a  party  to 
the  action  in  which  a  receiver  has 
been  appointed  and  for  which  a 
receiver  has  not  been  asked  is 
not  in  the  custody  of  the  court  so 
as  to  preclude  its  seizure  under 
legal  process,  although  the  re- 
ceiver has  wrongfully  taken  pos. 
session  of  it.  Farmers'  etc.  Nat 
Bank  v.  Scott,  19  Tex.  Civ.  22,  45 
S.  W.  26. 

The  property  of  a  third  person 
may  be  levied  upon  and  sold,  al- 
though it  is  to  some  extent  con- 
nected with  the  property  in  the 
hands  of  a  receiver.  The  pur- 
chaser at  an  execution  sale  of  such 
property  obtains  no  greater  rights 
than  the  original  judgment  cred- 
itor could  have  asserted.  Wheaton 
V.  Spooner,  52  Minn.  417,  54  N.  W. 
372. 

So  also  where  the  receiver  takes 
possession  of  property  not  em- 
braced within  the  order  of  receiv- 
ership, his  possession  will  not  be 


122 


LAW    OF    RECEIVERS. 


question  to  be  encountered  in  this  connection  is  the  one 
whether  the  nature  of  the  receivership  is  such  that  it 
sequesters  all  of  the  property  of  the  defendant  or 
whether  it  merely  sequesters  specific  property  upon 
which  the  plaintiff  claims  some  sort  of  a  lien.  If  the 
effect  of  the  receivership  is  such  as  to  place  all  of  the 
property  of  the  defendant  in  the  receivership,  then  the 
general  rule  is  that  no  interference  with  its  possession 
by  the  receiver  will  be  permitted,  but  if  the  receivership 
is  only  extended  to  a  part  of  his  property  or  for  some 
specific  purpose,  then  the  execution  of  such  writs,  where 
they  do  not  interfere  with  the  purpose  of  the  receiver- 
ship, will  not  be  prohibited.  The  question  frequently 
arises  in  connection  with  receivers  on  behalf  of  mort- 
gagees, in  respect  to  receiverships  for  partnerships  and 
corporations,  and  in  the  determination  of  whether  leave 
to  sue  the  receiver  ought  to  be  allowed.^ 


protected  against  sale  under  ex- 
ecution, since  the  property  is  not 
in  the  custody  of  the  court.  St. 
Louis  etc.  Ry.  Co.  v.  Whitaker,  68 
Tex.  630,  5  S.  W.  448. 

One  securing  the  appointment  of 
a  receiver  to  take  possession  of 
the  property  of  defendant  and  an 
injunction  against  alienation  does 
not  for  that  reason  obtain  a  lien 
or  preference  over  other  interested 
parties.  Johnson  v.  Garner,  233 
Fed.  756. 

Though  the  property  for  which 
a  receiver  has  been  appointed  is 
partly  situated  in  another  state,  it 
has  been  held  that  the  title  thereto 
and  the  constructive  possession 
thereof  rest  in  him  by  virtue  of 
his  appointment,  so  that  a  citizen 
of  the  state  wherein  he  is  ap- 
pointed can  not  proceed  against 
such  property  in  the  other  state 
without  the  sanction  of  the  courts 
of  his  domicile,  and,  if  he  insists 


upon  doing  so,  that  he  may  be 
punished  for  his  contempt.  Ser- 
comb  V.  Catlin,  128  111.  556,  15  Am. 
St.  Rep.  147,  21  N.  E.  606. 

3  The  appointment  of  a  receiver 
of  a  corporation  for  purposes  of 
liquidation  of  all  of  its  affairs 
amounts  to  a  sequestration  of  all 
of  its  property.  Temple  v.  Glas- 
gow, 80  Fed.  441,  25  C.  C.  A.  540. 

But  ordinarily  a  receivership 
does  not  operate  as  an  attachment 
or  execution,  and  is  no  more  than 
a  sequestration  of  property  for 
safekeeping,  leaving  the  question 
as  to  who  is  entitled  thereto  for 
subsequent  determination.  John- 
son V.  Garner,  233  Fed.  756. 

The  effect  of  the  appointment  of 
a  receiver,  in  a  suit  brought  by 
one  partner  against  another  for 
the  dissolution  of  the  partnership 
and  the  settlement  of  its  affairs, 
has  been  considered  in  a  series  of 
cases  in  California.  The  court  held 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


123 


Of  course  the  best  jjractice  in  case  a  receiver  is  in 
possession  of  property  claimed  by  a  third  person  is  for 


that  until  the  dissolution  of  the 
partnership  is  decreed  and  the  pro 
rata  distribution  of  its  assets  or- 
dered among  the  creditors,  they 
are,  notwithstanding  the  appoint- 
ment of  a  receiver,  at  liberty  to 
pursue  their  remedies  at  law,  and 
entitled  to  retain  any  liens  result- 
ing from  their  dliigenue  in  such 
pursuit.  The  court  was  of  the 
opinion  that  the  creditors  were  not 
interested  in  the  outcome  of  the 
suit,  that  the  partners  had  con- 
trol of  the  proceedings,  and  until 
a  dissolution  of  the  partnership 
had  been  decreed  the  partnership 
business  was  still  in  force.  Adams 
V.  Hackett,  7  Cal.  187;  Adams  v. 
Woods,  8  Cal.  152,  68  Am.  Dec. 
313;  Adams  v.  Woods,  9  Cal.  24. 

In  Petaluma  Sav.  Bank  v.  Supe- 
rior Court,  111  Cal.  488,  44  Pac. 
177,  a  receiver  was  appointed  over 
the  property  of  the  husband  in  a 
suit  for  divorce  which  had  been 
pending  a  long  time,  but  prior  to 
the  appointment  of  the  receiver  a 
judgment  had  been  rendered  in 
another  county  in  the  state  against 
the  husband,  which  judgment  was 
unsatisfied;  transcripts  of  the  judg- 
ment had  been  filed  in  several 
counties  in  which  the  judgment 
debtor  owned  land.  The  receiver 
was  not  in  the  actual  possession 
of  any  of  the  land.  The  judgment 
creditor,  while  disclaiming  any  in- 
tention to  submit  itself  to  the  jur- 
isdiction of  the  court  in  the 
divorce  action  in  which  the  re- 
ceiver had  been  appointed,  prayed 
the  court  to  make  an  order  direct- 
ing its  receiver  not  to  interfere 
with    the    officers    of    the    several 


counties  wherein  the  jmlgment 
d-^^btor  had  land  in  the  lawful  ex- 
ecution Df  the  judgment.  The  trial 
coui-t,  however,  refused  to  so  order 
on  tbe  ground  that  the  original 
judgment  in  the  divorce  suit, 
which  was  prior  to  the  other  judg- 
ment, was  a  prior  lien  on  the  prop- 
erty of  the  debtor  whereupon  the 
judgment  creditor  commenced 
mandamus  proceedings,  alleging 
that  the  judgment  debtor  was  in- 
solvent, had  iiO  peisonal  property, 
and  petitioner  had  no  other  rem- 
edy for  the  enforcement  of  its 
legal  rights.  The  petitioner  asked 
tile  court  to  determine  whether  it 
had  a  right  to  execute  the  judg- 
ments without  leave  of  court,  or 
if  leave  was  necessary  to  issue  its 
writ  of  mandate  as  prayed  on  the 
ground  that  the  trial  court  had  no 
discretion  in  the  matter  but  to 
grant  the  request.  The  court,  in 
holding  that  the  judgment  creditor 
had  a  right  to  execute  the  judg- 
ment without  leave  of  court  sale. 
"The  only  authority  for  the  ap- 
pointment of  a  receiver  in  a  di- 
vorce suit  is  to  be  found  in  section 
140  of  the  Civil  Code,  which  reads 
as  follows:  'The  court  may  re- 
quire the  husband  to  give  reason- 
able security  for  providing  main- 
tenance or  making  any  paymenta 
required  under  the  provisions  o? 
this  chapter,  and  may  enforce  the 
same  by  the  appointment  of  a  re- 
ceiver, or  by  any  other  remedy 
applicable  to  the  case.'  So  far  as 
I  am  advised,  this  section  has  not 
been  the  subject  of  judicial  con- 
struciion,  and  the  powers  and  du- 
ties   of    a    receiver    appointed    in 


124 


LAW   OF   RECEIVERS. 


sucli  person  to  seek  tlie  permission  of  the  receivership 
court  to  assert  his  claim  in  whatever  form  of  proceeding 


pursuance   of  its   provisions   have 
not  been  defined;  but  it  would  not 
seem  difficult  to  determine  in  what 
cases  and  for  what  purposes  he  is 
to  be  appointed.   The  whole  object 
of  his  appointment  is   to  provide 
security  for  the  payment  of  such 
allowance  as  is  made  for  the  main- 
tenance of  the  divorced  wife,  and 
this  would  be  accomplished  by  in- 
vesting him  with  the  title  and  con- 
trol of  some  productive   property 
of  the  husband,  out  of  the  income 
of  which  he  could  pay  such  allow- 
ance,  or  by   authorizing  the   sale 
of  property  to  create  a  fund,  the 
income  of  which  would  be  applied 
to    the    same    purpose.     In    either 
event,  or  in  any  case,  the  receiver 
would   take   the   property    of    the 
husband,  or  such  portion  of  it  as 
the  court  might  designate,  subject 
to    all     prior     liens     and     encum- 
brances, and  the  right  to  enforce 
such  liens  could  not  be  made   to 
depend  upon  the  mere  volition  of 
the    court    or    judge    making    the 
appointment.      It  would  necessar- 
ily   follow,    therefore,    either    that 
such  judge  would  be  invested  with 
authority  to  determine   the  valid- 
ity and  priority  of  all  liens  upon 
the  property  and  that  all  holders 
and  claimants  of  such  liens  must 
make    themselves    parties    to    the 
divorce    suit,    and    submit    them- 
selves  to   the   jurisdiction    of  the 
court  in  which  it  was  pending,  or 
that    they    must    have    the    right, 
with   or   without   asking  leave   of 
the  court,  to  take  such  proceeding 
elsewhere   as   the   law    exacts   for 
preserving     and     enforcing     their 
liens    according   to  their   priority. 


"Which  of  the  two  positions  is  as- 
sumed   by    respondent    is    not,    as 
above    stated,    very    clearly    indi- 
cated by  the  argument  of  counsel, 
and  neither  is  it  very  clearly  to  be 
implied    from    the    order    denying 
plaintiff's  application  for  leave  to 
sell,  or  the  ground  upon  which  it 
was  based,  viz.,  that  the  interlocu- 
tory judgment  of  May  15,  1889,  in 
the  case  of  White  v.  White,  was  a 
lien  prior  in  time  and  in  right  upon 
the  property  of  George  E.  White. 
I  shall  not,  therefore,  devote  much 
space  to  the  discussion  of  a  doc- 
trine  which   is    not   distinctly    as- 
serted, and  has  nothing  to  support 
it.     It  is  enough  to  say  that  there 
is  nothing  in  the  law  of  California 
to  justify  the  contention — if  such 
is    the    contention — that    when    a 
wife   sues   her  husband  for  a   di- 
vorce,   and    obtains    the    appoint- 
ment of  a  receiver  of  his  property 
for  her  benefit,  not  only  their  com- 
munity   property,    but    his    entire 
separate  estate,  are  effectually  se- 
questrated   in    the    hands    of    the 
court  in  which  the  action  for  di- 
vorce is  pending  as  they  would  be 
in    case    of    death    or    insolvency; 
and   that  henceforth  all  his  cred- 
itors   must   come   into    that   court 
and  by  motion  or  petition  in  that 
action     seek,    not    the     relief    to 
which   in    the  ordinary   course   of 
law    they    would    be    entitled,   but 
such  relief  as  it  may  adjudge  and 
be  able  to  afford  in  the  exercise 
of  a  plenary  power  to  dispose  of 
the  impounded  estate  and  distrib- 
ute its  proceeds.    This  proposition 
being  disposed  of,  the  alternative 
above    stated    alone    remains:     It 


EFFECT   OF   APPOINTMENT    AND    DUTIES, 


125 


appears  to  be  most  appropriate  under  the  procedure  in 


must  be  true  that  the  holders  and 
claimants    of   prior   liens    and   en- 
cumbrances   upon    the    property 
held  or  claimed  by   the   receiver, 
not    being    proper   parties    to    the 
divorce  suit  or  subject  to  the  juris- 
diction of  the  court  in  -vhich  it  is 
pending,    have   the   right    to    take 
such  pvoceedings  elsewhere  as  the 
law   exacts   for   preserving   or  en- 
forcing   their    liens    according    to 
their    priority.     If,    for    instance, 
real  property  has  been  mortgaged, 
the  holder  of  the  mortgage  must 
commence  his  action  to  foreclose 
in  the  county  where  the  land   is 
situate  within  a  limited   time,  or 
his    security   and    claim    are    lost, 
just  as,  in  the  present  case,  the 
plaintiff  must  sell  the  lands  sub- 
ject to  the  lien  of  its  judgments 
within  two  years  or  lose  its  secur- 
ity.    And,  if  these  steps  must  be 
taken,  what  right  has   the   court 
appointing  the  receiver  to  prevent 
them?  What  discretion  has  it  to  re- 
fuse leave  to  proceed,  if  leave  must 
be  requested?  Certainly  not  an  ab- 
solute discretion,   for   that   would 
amount  to  a  power  of  confiscation 
of  property  rights,   which  are   as 
full,    as    complete,    and    as    much 
entitled  to  protection  as  any  that 
exist.    It  must  be,  then,  that  such 
discretion  as  the  court  appointing 
the   receiver  has   to   prevent   pro- 
ceedings by  adverse  claimants  to 
the  property  in  the  custody  of  the 
receiver  is  a  regulated  discretion 
which   can   not  be   abused.     This 
proposition  I  do  not  understand  to 
be    contradicted,    but   the    respon- 
dent contends  that  there  has  been 
no    abuse   of  discretion,   and   that 
even  if  there  had  been,  mandamus 
■will  not  lie  to  compel  a  judge  to 


make  an  order  which  he  can  only 
make  in  his  judicial  capacity,  and 
which,  acting  in  such  capacity,  he 
has    refused    to    make.     As    to 
whether  there  has  been  any  abuse 
of  discretion,    ttat  depends    upon 
the  scope  of  the  inquiry  which  a 
court  is  entitled  to  make  in  pass- 
ing upon   such   an   application   as 
the  plaintiff  presented  to  respon- 
dent.    It  is  undoubtedly   the   pre- 
vailing   doctrine    that    courts    of 
equity  will  not  permit  their  receiv- 
ers   to    be    sued,    or    propeity    in 
their   possession   to   be   seized    or 
sold,     without    leave     asked     and 
granted,   but  since  the  refusal  of 
leave  to  sue  in  other  tribunals  or 
to  enforce  the  judgments  of  other 
courts    would   in   many   cases    de- 
stroy or  impair  rights  which  the 
court  appointing  the  receiver  has 
no   power    to   conserve,   it    is    the 
boast    of    such    courts    that    they 
never    refuse    leave    in    a    proper 
case.     If  a  claimant  of  real  prop- 
erty,  under   title  adverse  to  that 
of  the  parties  represented  by  the 
receiver,  asks  leave  to  commence 
his  action  of  ejectment,  no  court 
would   hesitate   to   grant   his   mo- 
tion.   It  would  not  attempt  to  try 
the   question   of  title— a   question 
appertaining   to    another    forum— 
with   a  view  in  denying  leave  to 
sue,    if,    in    its    opinion,    the    title 
asserted  was  not  a  good  one. 

■'Upon  the  same  principle,  if  a 
receiver  of  a  superior  court  of 
San  Francisco  should  be  in  pos- 
session of  land  situate  in  some 
other  county,  and  subject  to  a 
mortgage,  the  application  of  the 
mortgagee  for  leave  to  make  the 
receiver  a  defendant  would  be 
granted    without    any    attempt    to 


126 


LAW   OF   RECEIVERS. 


inquire    into    the    validity    of    the 
mortgage,  or  its  priority  as  a  lien, 
for  those  are  precisely  the  ques- 
tions   to    be    determined    in    the 
action  to  foreclose,  which,  b^'  the 
express  mandate   of  the   constitu- 
tion,  mast  be   commeRced   in   the 
county  where  the  land  is  situated 
(Const.,   art.    VI.,    sec.    5).     If,    in 
such  a  case,  the  court  appointing 
the    receiver    should    require    the 
mortgagee  to  satisfy  it  of  the  va- 
lidity of  the  mortgage,  or,  in  other 
words,  to  litigate  the  whole  ques- 
tion  of   the   mortgagor's   liability, 
and  to  establish  it  on  the  motion 
as   a   condition   precedent   to    any 
permission  to  sue  the  receiver  in 
the  county  where  the  land  was  sit- 
uate,   it    would    be    as    much    an 
abuse  of  discretion  as  if  it  should 
make  its  leave  to  sue  conditional 
upon  a  waiver  by  the  mortgagee  of 
all  claim  of  priority  as  against  the 
receiver;    for   the    doctrine    to    be 
deduced  from  the  authorities  cited 
in  the  briefs  is,  that  whenever  the 
case  is  such  that  the  court  appoint- 
ing the  receiver  can  not  protect  an 
asserted  right  in  the  cause  before 
it,    the    party    will   be   allowed    to 
in-oceed    in    the    proper    forum    to 
establish  his  right  if  he  can,  and 
to  enforce  it  by  appropriate  means. 
But  the  plaintiff  here  is  not  asking 
leave     to     sue     the     receiver.      It 
merely  asks  permission  to  take  the 
step  which  the  statute  makes  im- 
1  erative  in  order  that  it  may  pre- 
serve such  right  as  it  has,  and  the 
fact  that  its  liens  may  be  subse- 
quent and  subordinate  to  the  lien 
claimed    by    Frankie    White    does 
not  seenri  to  be  a  sufficient  ground 
for    destroying    them    altogeth'^r. 
The   holder   of   a    second    lien    is 
entitled  to  protect  it.  and  to  p^-e- 
serve  such  rights  as  it  gives  hjm, 


and  the  only  way  this  plaintiff  can 
preserve  what  it  has  is  to  sell  the 
land  subject  to  its  liens  within  the 
two  years  prescribed  by  the  stat- 
ute (Code  Civ.  Proc,  sec.  671).    If 
it  can  not  sell  without  leave,  and 
no  leave  is  granted,  its  liens,  suc'i 
as  they  are,  will  soon  expire,  after 
which  it  will  become  a  mere  gen- 
eral creditor  holding  a  claim  sub- 
ordinate, not  only  to  the  supposed 
lien  of  Frankie  White,  but  to  all 
liens    of    subsequent    mortgagees 
and    judgment    creditors,    if    any 
such  there  be.  What  excuse,  then, 
does    the    assumed    priority    of 
Frankie    White's    lien    afford    for 
subjecting  the  plaintiff  to  this  loss, 
or  risk  of  loss?   If  her  lien  is  prior, 
the  sale  of  the   land  will   not  de- 
stroy her  priority,   it  will  merely 
preserve  and  perpetuate  such 
rights  as  the  plaintiff  has,  and  will 
enable  it,  after  her  claims  are  sat- 
isfied, to  take  what  may  be  left  of 
White's    estate    in    preference    to 
those    whose    liens    are    of    lower 
rank,  or  who  have  no  liens  at  all, 
and  the  refusal  itself— on  the  as- 
sumption that  leave  to  sell  is  nec- 
essary— was   clearly    an    abuse    of 
discretion.    This  brings  us  to  the 
question  whether  leave  to  sell  was 
necessary,  and,  if  so,  whether  man- 
damus lies  to  compel  the  respon- 
dent to   make   the   order.    To   my 
mind  it  seems  clear  that  if  the  first 
question    were    answered    in    the 
affirmative    the    second    must    re- 
ceive the  same  response,  for  if  the 
exercise   by    plaintiff   of   its    clear 
legal  right  to  preserve  its  liens  de- 
pends upon  the  permission  of  the 
respondent,   it   can   not   deny    the 
exercise  of  such  right  for  a  reason 
that  is  absolutely  futile  and  ground- 
less.   But  I  am  of  the  opinion  that 
no    leave    to    sell    was    required. 


EFFECT   OF   APPOINTMENT    AND    DUTIES.  127 

force  in  the  jurisdiction/  since  any  other  practice  would 
give  rise  to  conflicts  of  jurisdiction  between  the  courts 
v.diich  would  have  a  tendency  to  impair  the  preservation 
of  the  property.^ 

Of  course  in  accordance  with  the  general  rule  that  the 
appointment  of  a  receiver  will  not  deprive  any  one  of 
any  liens  already  in  existence,  the  lien  acquired  by  the 
issuance  of  an  execution  will  not  be  lost  by  the  appoint- 
ment.*^ 

§  31.    Time  of  Vesting  of  Possession  of  Receiver. 

As  has  been  seen  in  the  preceding  sections^  the  time 
when  a  receiver  is  entitled  to  the  possession  and  has 
taken  possession  of  the  property  belonging  to  the  receiv- 
ership is  highly  important  in  fixing  the  priority  of  claims 
against  the  estate.  The  gist  of  the  question  lies  in  the 
fact  that  the  property  does  not  come  into  the  custody  of 
the  court  until  it  comes  into  the  possession  of  the  re- 
ceiver who  is  the  arm  of  the  court,  l^'rom  the  principle 
that  the  receiver  holds  the  property  for  the  benefit  of 

either  to  avoid  the  commission  of  in  the  counties  where  the  lands 
a  contempt  or  in  order  to  pass  a  are  situate  between  those  claiming 
title  strictly  corresponding  to  the  under  the  receiver  and  those  claim- 
actual  rank  of  plaintiff's  lien,  as  ing  through  the  execution  sales,  as 
to  which  it  is  unnecessary  to  ex-  was  the  case  in  Wiswall  v.  Samp- 
press  an  opinion.  A  sale  by  plain-  son,  14  How.  (55  U.  S.)  52";  14 
tiff  would  involve  no  physical  dis-  L.  Ed.  322. 

turbance  of  such  possession  as  the  i  Dugger  v.  Collins.  69  Ala.  324; 

receiver  may  have,  and,  therefore,  St.  Louis  etc.  R.  Co.  v.  Hamilton, 

would   be   no    contempt   of    court.  158  111.  366,  41  N.  E.  777;  Riggs  v. 

The  rights  and  relative  positions  Whitney,  15  Abb.  Pr.  (N.  Y.)  388; 

of  the  parties  would  not  be  Thompson  v.  McCleary,  159  Pa.  St. 

changed.      The     title     transferred  189,  28  Atl.  254;  In  re  Day,  34  Wis. 

would  be  good  as  against  subordi-  638. 

nate  liens,  and  subject  to  such  as  5  Robinson   v.   Atlantic  etc.   Ry. 

were  superior,  and  the  question  of  Co.,  66  Pa.  St.  160. 
title  would  be  the  proper  subject  ••  Re  Muchlfeld  etc.  Piano  Co.,  12 

of  litigation  in  actions  commenced  App.  Div.  492,  42  N.  Y.  Supp.  802. 


12S 


LAW    OK    RECEIVERS. 


the  party  whom  the  court  may  ultimately  decree  to  be 
entitled  to  it,  it  naturally  follows  that  the  possession 
of  the  prevailing-  litigant  will  be  related  back  to  the  time 
of  the  appointment  of  the  receiver  whenever  to  do  so  will 
benefit  him,^  although  for  some  purposes,  such  as  in  the 
case  of  claiming  damages  on  account  of  the  receivership, 
it  will  not  be  held  that  his  possession  was  continuous.^ 
"  The  general  rule  is  that  right  of  possession  to  the 
property  constituting  the  receivership  vests  by  relation 
back  to  the  time  of  the  original  order  of  appointment 
even  though  the  proceedings  are  not  perfected  until  a 
later  date.  In  other  words,  after  the  time  of  the  signing 
of  the  order  of  appointment,  the  possession  of  the  re- 
ceiver is  held  to  be  superior  to  that  of  persons  who  there- 
after seek  to  obtain  a  lien  by  means  of  attachment, 
judgTnent,  or  execution.^^     The  decisions  supporting  this 


1  Beverley  v.  Brooke,  4  Gratt. 
(Va.)    187,  212. 

2  Sturgis  V.  Knapp,  33  Vt.  486. 

In  the  case  of  In  re  Butters'  Es- 
tate, 13  Ir.  Ch.  (N.  S.)  456,  it  was 
said:  "The  general  proposition  is, 
that  the  possession  of  the  receiver 
is  that  of  all  parties  to  the  suit, 
according  to  their  titles.  As  be- 
tween the  owner  and  incum- 
brancers, it  is  for  some  purposes 
the  possession  of  the  incum- 
brancers, who  have  obtained  or 
extended  the  receiver;  as  between 
the  owner  whose  possession  has 
been  displaced  and  a  third  party, 
it  is  the  possession  of  the  former. 
The  receiver  is  in  fact  his  agent; 
all  rents  are  applied  to  his  use, 
either  by  paying  his  debts  or 
paramount  charges,  or  by  being 
handed  over  to  him." 

z  Saginaw  County  Sav.  Bank  v. 
DufReld.  157  Mich..  522,  133  Am.  St. 
Rep.  354,  122  N.  W.  186;  Maynard 


V.  Bond,  67  Mo.  315;  Generotzky 
v.  Barnay  Hotel  Co.,  85  N.  J.  Eq. 
63,  95  Atl.  865;  In  re  Christian 
Jensen  Co.,  128  N.  Y.  550,  28  N.  E. 
665;  In  re  Schuyler's  etc.  Boat 
Co.,  136  N.  Y.  169.  20  L.  R.  A.  391, 
32  N.  E.  623;  Roberts  v.  Bowen 
Mfg.  Co.,  169  N.  C.  27,  85  S.  E.  45; 
Roberts  v.  Bowen  Mfg.  Co.  169 
N.  C.  27,  85  S.  E.  45;  Ardmore  Nat. 
Bank  v.  Briggs  Machinery  &  S. 
Co.,  20  Okla.  427,  129  Am.  St.  Rep. 
747,  16  Ann.  Cas.  133,  23  L.  R.  A. 
(N.  S.)  1074,  94  Pac.  533;  Pope  v. 
Ames,  20  Ore.  199,  25  Pac.  393; 
Clinkscales  v.  Pendleton  etc.  Co., 
9  S.  C.  318;  Regenstein  v.  Pearl- 
stein,  30  S.  C.  192,  8  S.  E.  850; 
Connecticut  River  Banking  Co.  v. 
Rockbridge,  73   Fed.  709. 

After  the  appointment  of  a  re- 
ceiver, the  property  to  which  the 
receivership  relates  is  in  the  cus- 
tody of  the  law,  even  before  he 
qualifies,  so  as  to  exempt  it  from 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


129 


rule  are  based  on  the  idea  that  the  receivership  proceed- 


the  levy  of  an  attachment,  and 
such  levy  can  confer  no  right  on 
the  attachment  creditor  or  on 
those  claiming  under  him.  Texas 
etc.  Ry.  Co.  v.  Lewis,  81  Tex.  1,  26 
Am.  St.   Rep.  776,   16  S.  W.  647. 

A  receiver's  right  to  the  posses- 
sion of  the  property  of  the  party 
of  which  he  is  receiver  dates  from 
his  appointment  as  such  and  not 
from  the  commencement  of  the  ac- 
tion in  which  he  is  appointed. 
American  Clay  Machinery  Co.  v. 
New  England  Brick  Co.,  87  Conn. 
369,  87  Atl.  731. 

Where  the  court  in  a  suit  to  set 
aside  a  preferential  assignment  by 
one  of  the  partners  and  appoint 
a  receiver  made  an  order  for  the 
appointment,  but,  referred  the 
question  who  should  be  appointed 
to  a  master,  the  title  of  the  re- 
ceiver was  held  to  refer  back  to 
the  order  for  the  appointment  and 
thereby  defeat  an  attempted  levy 
made  after  the  original  order. 
Rutter  V.  Tallis,  5  Sandf.  (N.  Y.) 
610. 

Where  an  appeal  is  taken  from 
the  order  of  appointment  and  a 
stay  of  proceedings  granted,  the 
receiver  does  not  take  possession 
until  the  appeal  has  been  heard 
and  decided.  Cook  v.  Cole,  55 
Iowa  70,  7  N.  W.  419. 

It  is  not  necessary  for  the  re- 
ceiver to  make  an  actual  seizure 
of  the  property  in  order  to  become 
vested  with  the  right  to  its  pos- 
session. Longstaff  v.  Hurd,  66 
Conn.  350,  34  Atl.  91;  Richards  v. 
People,  81  111.  551;  Mosher  v.  Su- 
preme Sitting  etc.,  88  Hun  394, 
34  N.  Y.  Supp.  816;  People  v.  Cen- 
tral City  Bank,  53  Barb.  (N.  Y.) 
I  Rec. — 8 


412;  In  re  Schuyler's  etc.  Boat  Co., 
64  Hun  384,  19  N.  Y.  Supp.  565 
(affirmed  in  136  N.  Y.  163,  20 
L.  R.  A.  391,  32  N.  E.  623) ;  McDon- 
ald V.  Charleston  etc.  R.  Co.,  93 
Tenn.  281,  24  S.  W.  252;  Vermont 
etc.  R.  Co.  V.  Vermont  Central  R. 
Co.,  46  Vt.  792;  Hagedon  v.  Bank 
of  Wisconsin,  1  Finn.  (Wis.)  61, 
39  Am.  Dec.  275. 

But  actual  possession  may  be 
required  in  some  cases  where  con- 
structive possession  would  work 
a  hardship  upon  other  parties. 
Thus  in  the  case  of  the  appoint- 
ment of  a  receiver  to  foreclose  a 
railroad  mortgage  which  as  be- 
tween the  mortgagor  and  mort- 
gagee covered  after  acquired 
property,  but  did  not  so  cover 
as  to  third  parties,  it  was  held 
necessary  for  the  receiver  to  take 
actual  possession  of  the  after-ac- 
quired in  order  to  defeat  the  levy 
of  an  execution  on  it  after  his  ap- 
pointment. Mississippi  Valley  Co. 
V.  Chicago  etc.  R.  Co.,  58  Miss. 
896,  38  Am.  Rep.  348. 

Rights  of  receiver  become  fixed 
at  date  of  appointment,  and  liens 
and  priorities  acquired  before  ap- 
pointment will  not  be  disturbed. 
P.  E.  Payne  Hardware  Co.  v.  In- 
ternational Harvester  Co.,  110 
Miss.   783,  70  So.  892. 

The  qualified  title  of  a  receiver 
to  the  property  of  the  receiver- 
ship dates  from  the  time  of  his 
appointment,  and  actual  seizure 
by  him  is  not  necessary  to  pre- 
vent the  attachment  of  rights  or 
liens  thereafter;  and,  if  the  order 
of  appointment  requires  him  to 
give  bond,  his  title  when  so  quali- 
fied   relates   back   to    the   date   of 


130 


LAW    OP    RECEIVERS. 


ings  operate  as   an   equitable  lien   or   sequestration  in 


appointment,  and  cuts  off  all  inter- 
mediate rights.  Horn  v.  Pere 
Marquette  R.  Co.,  151  Fed.  626. 

An  attorney  who  received  a 
check  from  a  corporation  as  a 
retainer  for  services  to  be  ren- 
dered, and  who  presented  and  re- 
ceived payment  of  the  check  after 
he  had  knowledge  that  a  receiver 
had  been  appointed  for  the  prop- 
erty of  the  corporation,  will  be  re- 
quired to  turn  over  the  sum  so 
received  to  the  receiver.  Bowker 
V.  Haight  &  Freese  Co.,  146  Fed. 
257. 

An  order  appointing  a  receiver 
vests  title  in  the  receiver  when 
it  was  signed  by  the  judge,  al- 
though not  filed  on  the  same  day, 
and  though  signed  in  a  county 
other  than  that  in  which  the  ac- 
tion was  pending,  but  in  the  same 
judicial  district.  Exchange  Nat. 
Bank  v.  Northern  Idaho  Pine  ILium- 
ber  Co.,  24  Ida.  671,  135  Pac.  747. 

The  court  in  the  case  last  cited 
said:  "There  is  but  one  question 
involved,  and  that  is  whether  the 
order  of  District  Judge  Flynn  is 
made  when  the  judge  by  judicial 
act  signs  the  order,  or  whether  it 
is  made  when  the  clerk  by  minis- 
terial act  files  the  order.  In  other 
words,  whether  the  order  of  Judge 
Flynn  appointing  George  Ott  be- 
came effective  on  the  instance  of 
the  signing  of  the  order,  or 
whether  the  order  became  effec- 
tive when  the  same  was  filed  and 
the  receiver  qualified  as  such  and 
took    possession   of   the    property. 

"Section  4880,  Rev.  Codes,  pro- 
vides: 'Every  direction  of  a  court 
or  judge,  made  or  entered  in  writ- 
ing, and   not  included   in   a  judg- 


ment, is  denominated  an  order. 
An  application  for  an  order  is  a 
motion.' 

"Section  4881,  Rev.  Codes,  pro- 
vides: Motions  must  be  made  in 
the  county  in  which  the  action  is 
pending,  or  any  county  in  the 
same  judicial  district.  Orders 
made  out  of  court  may  be  made 
by  the  judge  of  the  court  in  any 
part  of  the  state.' 

"The  motion  made  at  Sandpoint, 
Bonner  county,  during  the  morn- 
ing of  the  24th  of  August,  1911, 
being  in  a  county  in  the  same  ju- 
dicial district  in  which  the  action 
was  pending  for  the  appointment 
of  a  receiver,  an  order  was  there- 
upon made  by  the  court  at  cham- 
bers by  a  judge  signing  the  order. 
The  fact  that  it  was  not  filed  on 
the  same  day  would  not  affect  the 
order  or  the  power  of  the  court 
to  take  possession  at  that  time  of 
the  property,  by  the  signing  of  the 
order." 

In  Matter  of  Lewis  etc.  Mfg.  Co., 
89  Hun  208,  34  N.  Y.  Supp.  983,  the 
court  in  upholding  the  levy  of  an 
execution  after  the  order  of  ap- 
pointment of  a  receiver  in  volun- 
tary dissolution  of  a  corporation, 
but  before  he  had  filed  his  bond, 
said:  "The  execution  upon  the 
judgment  of  Boyle  and  Macy  war> 
executed  and  issued  to  the  sheriff 
on  the  twenty-first  day  of  Janu- 
ary, in  the  forenoon  as  we  have 
seen.  The  receiver  had  not  then 
taken  possession  of  the  property, 
and  was  not  entitled  to  do  so  until 
he  had  filed  his  bond,  which  he  did 
the  next  day.  Boyle  and  Macy 
acquired  a  lien  upon  the  personal 
property  of  the  company  upon  the 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


131 


delivery  of  their  execution  to  the 
sheriff,  but  when  the  bond  of  the 
receiver  was  filed  his  title  related 
back   to   the  time  of  his   anpoint- 
ment,   which  was   anterior   to  the 
lien  of  Boyle  and  Macy  under  their 
execution.     In  re  Christian  Jensen 
Co.,   128   N.   Y.   550,   28  N.   E.   665. 
Their  lien  was  therefore  divested, 
if   the   doctrine   of   relation   is    al- 
lowed its  full  force  against  them. 
That   doctrine   is  a  fiction  of  law 
which    was    adopted    for    the    ad- 
vancement   of   right   and    justice, 
and  resort    is    made  to  it  for  no 
other  purpose.     It  is  not  adopted 
where  third  parties,  who  are  not 
parties   or  privies,  'will   be   preju- 
diced thereby.     In  fact,  fictions  in 
law    are    never   to    be    implied    to 
perpetuate  a  wrong  or  defeat  col- 
lateral acts  which  are  lawful  and 
concern  strangers.    Pierce  v.  Hall, 
41   Barb.    (N.   Y.)    142,   146;    Jack- 
son    v.      Davenport,       20     Johns. 
(N.  Y.)    537,   551;    Heath  v.  Ross, 
12    Johns.     (N.    Y.)     140.     It  will 
therefore    be    no   violation    of   the 
principles  which  underlie  the  doc- 
trine   of    relation    to    exempt    the 
judgment  of  Boyle  and  Macy  from 
its  operation,  and  subject  the  title 
of  the  receiver  to  the  lien  of  their 
judgment.      On     the    contrary,    it 
would   be   quite   inconsistent   with 
the    doctrine    of    relation    to    sub- 
ordinate the  rights  of  Boyle  and 
Macy  to  the  title  of  receiver.  Fic- 
tion is  not  fact.     It  is  not  equiva- 
lent to   fact.      The   fact   was   that 
plaintiffs    Boyle     and     Macy     ac- 
quired a  lien  upon  the  property  of 
the  defendant  on  the  21st  day  of 
January,     1895,     at    ten-thirty-five 
o'clock  in  the  forenoon.     At  that 
time  the  receiver  had  no  title  to 
the  property  of  the  defendant,  and 


no  right  to  interfere  with  it  in  any 
manner  or  for  any  purpose.  On 
the  .ild  day  of  January,  1895,  the 
receiver  filed  his  official  bond,  and 
the  titl^  to  the  property  vested  in 
him  in  fact  and  in  la'v  at  that 
time.  By  a  fiction  of  law,  his 
title  related  back  to  the  day  of 
his  appointment  for  some  pur- 
poses, such  as  its  preservation 
and  protection,  but  not  for  the 
purpose  of  destroying  vested 
rights,  or  for  any  other  unjust 
purpose.  It  would  be  unjust  and 
wrong  to  permit  the  vested  rights 
of  the  plaintiffs  Boyle  and  Macy 
which  they  had  acquired  by  virtue 
of  the  execution  upon  their  judg- 
ment, to  be  vested  by  fiction." 

So  also  in  a  suit  brought  by  one 
lien  holder  to  have  the  property 
sold  for  the  purpose  of  paying  off 
all  liens  on  it  and  making  the 
other  lien  holders  parties  to  the 
proceeding.  The  filing  of  the  bill 
and  service  of  process  constitutes 
an  equitable  levy  upon  the  prop- 
erty and  a  receiver  appointed  sub- 
sequently by  another  court  in  a 
proceeding  by  one  of  the  defen- 
dants will  be  obliged  to  yield  to 
the  receiver  appointed  in  the  first 
proceeding,  even  though  he  was 
appointed  after  the  one  in  the  sec- 
ond suit.  Adams  v.  Mercantile 
Trust  Co.,  66  Fed.  617,  15  C.  C.  A.  1. 
A  contrary  rule  prevails  in  some 
states  to  the  effect  that  the  title 
of  the  receiver  does  not  vest  until 
it  goes  into  the  actual  possession 
of  the  property.  This  rule  is  based 
on  the  theory  that  the  court  could 
not  furnish  by  contempt  proceed- 
ings an  Interference  with  the  re- 
ceiver's poosession  until  he  is  in 
actual  possession.     Farmers  Bank 


132 


LAW   OF   RECEIVERS. 


respect  to  the  property  covered  by  the  proceeding.* 
Some  confusion  has  occurred  among  the  decisions  caused 
by  a  faihire  to  observe  the  distinction  between  different 
classes  of  receivers,  such  as  when  appointed  for  pur- 


V.  Beaston,  7  Gill  &  J.   (Md.)  421, 
28  Am.  Dec.  226. 

In  the  last  cited  case  the  court 
said:  "It  is  time  that  money  or 
effects  in  the  hands  of  the  as- 
signee of  the  bankrupt,  or  the 
trustee  of  an  insolvent  debtor,  can 
not  be  attached,  not  only  because 
such  property  stands  assigned  by 
operation  of  law,  but  because  the 
allowance  of  such  attachments 
would  utterly  defeat  the  whole 
policy  of  the  bankrupt  or  insol- 
vency laws.  Nor  can  money  taken 
by  a  sheriff  in  execution,  or 
money  paid  into  court.  Serg.  on 
Attach.  89.  But  we  apprehend 
that  the  appointment  and  bonding 
of  receivers  does  not  work  such 
disability.  The  property  by  the 
order  is  not  taken  under  the  pro- 
tection of  the  court,  and  until 
taken  in  charge  by  the  receivers 
its  summary  jurisdiction  could  not 
be  interposed  to  punish  such  as 
might  cover  it,  or  portions  of  it, 
by  execution  or  attachment.  The 
period  when  it  might  or  ought 
legally  to  be  considered  as  under 
the  mantle  of  legal  protection 
should  be  the  time  when  a  court 
of  chancery  would  interpose  by 
attachment  for  disturbing  or  inter- 
fering with  the  possession  of  the 
receiver.  Innocent  third  persons 
might  be  grievously  affected  by 
extending  this  doctrine  further.  It 
has  been  argued,  and  we  think 
with  much  force,  that  there  is,  and 
ought  to  be,  an  analogy  in  this 
respect    between    the    law     appli- 


cable to  receivers  and  sequestra- 
tors. As  regards  the  latter,  the 
Court  of  Kings  Bench  have  de- 
cided that  where  a  sequestration 
is  awarded  to  collect  money  to  pay 
a  demand  in  equity,  if  it  is  not 
executed — that  is,  if  the  seques- 
trators do  not  take  possession,  and 
a  judgment  creditor  take  out  exe- 
cution, notwithstanding  a  seques- 
tration awarded — there  may  be 
a  levy  under  the  execution.  9  Ves. 
Jr.  (Eng.)  335.  So  here,  the  re- 
ceivers never  obtained  possessions 
of  the  credits  of  the  Elkton  Bank 
of  Maryland,  its  books  and  papers, 
or  its  evidence   of  debt." 

On  the  receiver  qualifying  by 
the  filing  of  his  bond,  the  prop- 
erty is  deemed  in  the  custody  of 
the  court  as  of  the  date  of  his  ap- 
pointment. In  re  Lenox  Corpora- 
tion, 57  App.  Div.  515,  68  N.  Y. 
Supp.  103;  In  re  Hoagland,  Robin- 
son Co.,  36  Misc.  Rep.  28,  72  N.  Y. 
Supp.  435. 

4  Storm  v.  Waddell,  2  Sandf. 
Ch.  (N.  Y.)  494;  Smith  v.  New 
York  etc.  Stage  Co.,  28  How. 
Pr.  (N.  Y.)  377;  Wickens  v.  Town- 
shend,  1  Russ.  &  M.  361;  In  re 
Birt,   22  Ch.   D.   604. 

Ordinarily  the  rights  of  the  re- 
ceiver do  not  relate  back  to  the 
commencement  of  the  suit  so  as  to 
defeat  a  levy  or  attachment  made 
prior  to  the  actual  appointment. 
Artisans'  Bank  v.  Treadwell,  34 
Barb.  (N.  Y.)  553;  Smith  v.  Sioux 
City  Nursery  etc.  Co.,  109  Iowa 
51,  79  N.  W.  457. 


EFFECT    OF   APPOINTMENT    AND    DUTIES. 


133 


poses  of  general  liquidation  and  wlien  appointed  for 
some  temporary  or  specific  purpose.  In  the  former  case 
the  receiver  is  generally  conferred  the  legal  title  to  the 
receivership  property  by  the  order  of  appointment  or 
by  virtue  of  the  statute  allowing  the  appointment,  while 
in  the  latter  case,  the  position  of  the  receiver  is  that  of 
a  mere  custodian  of  the  property.^     The  observance  of 


5  If  the  appointment  is  made 
under  statutory  authority,  it  often 
happens  that  the  title  of  the  re- 
ceiver will  relate  back  to  the  date 
of  the  filing  of  the  suit.  Jones  v. 
Arena  Pub.  Co.,  171  Mass.  22,  50 
N.  E.  15. 

Where  a  receiver  is  appointed 
in  foreclosure  proceedings,  the 
property  involved  will  be  regarded 
in  the  custody  of  the  court  to  the 
extent  that  it  will  be  exempt  from 
the  process  of  a  court  having  con- 
current jurisdiction  from  the  time 
of  the  commencement  of  the  suit 
even  though  the  receiver  is  not 
appointed  at  once.  Farmers'  Loan 
etc.  Co.  V.  Lake  M.  etc.  R.  Co., 
177  U.  S.  51,  44  L.  Ed.  667,  20  Sup. 
Ct.  564. 

The  property  over  which  the 
receivership  extends  varies  ac- 
cording to  the  nature  of  the  pro- 
ceeding. Sometimes,  as  in  the 
case  of  mortgage  foreclosures,  it 
merely  extends  to  the  rents  and 
profits  of  the  mortgaged  premises, 
sometimes  to  the  whole  property 
as  in  partnerships,  corporations, 
etc.,  and  sometimes  to  only  suffi- 
cient property  to  satisfy  the  de- 
mand of  encumbrancers.  Re 
Schuyler  Steam  Tow  Boat  Co.,  43 
N.  Y.  St.  Rep.  163,  18  N.  Y.  Supp. 
89;  Showalter  v.  Laredo  Imp.  Co., 
83  Tex.  162,  18  S.  W.  491;  Ma- 
grath  v.  Veitch,  1  Hog.  110.     In  a 


railroad  foreclosure  the  receiver 
has  no  custody  or  control  except 
of  the  property  covered  by  the 
mortgage.  Smith  v.  McCuUough, 
104  U.  S.  25,  26  L.  Ed.  637. 

The  appointment  of  a  receiver 
to  foreclose  a  mortgage  against 
a  lessee  will  not  deprive  the  lessor 
of  the  right  to  obtain  possession 
of  the  premises  under  forcible  en- 
try proceedings.  Woodward  v. 
Winehill,  14  Wash.  394,  44  Pac. 
860. 

Sometimes  from  the  nature  of 
the  property  or  the  business,  such 
as  in  cases  of  insurance  or  benefi- 
cial societies,  the  property  has 
been  held  to  have  come  into  the 
custody  of  the  court  at  the  time 
of  filing  the  receivership  proceed- 
ings or  service  of  process  therein. 
Burdon  v.  Massachusetts  Safety 
Fund  Assn.,  147  Mass.  360,  1 
L.  R.  A.  146,  17  N.  E.  874;  Fogg  v. 
Supreme  Lodge  etc.,  159  Mass.  9, 
33  N.  E.  692;  Merrill  v.  Common- 
wealth etc.  Ins.  Co.,  171  Mass.  81, 
50  N.  E.  519. 

The  appointment  of  a  receiver 
for  the  purpose  of  liquidation 
operates  as  a  general  sequestra- 
tion of  the  property  and  no  liens 
against  the  property  can  be  cre- 
ated between  the  time  of  the  ap- 
pointment and  the  qualification  of 
the  receiver.  Merrill  v.  Common- 
wealth etc.  Ins.  Co.,  166  Mass.  238, 


184 


LAW   OF   RECEIVERS. 


these  distinctions  will  tend  to  harmonize  any  variations 
of  the  decisions  in  respect  to  the  extent  of  the  rights  of 
receivers.  The  diversity  of  opinion  in  respect  to  tliis 
question,  it  is  quite  apparent,  arises  because  of  different 
notions  by  the  courts  as  to  the  meaning  of  custody  of 
the   court    (custodia   legis)    and   as   to   when   property 


44  N.  E.  144;  Rlesner  v.  Gulf  etc. 
Ry.  Co.,  89  Tex.  656,  59  Am.  St. 
Rep.  84,  33  L.  R.  A.  171,  36  S.  W. 
53;  Temple  v.  Glasgow,  80  Fed. 
441,   25   C.   C.  A.   540. 

In  Decker  v.  Gardner,  124  N.  Y. 
334,  11  L.  R.  A.  480,  26  N.  E.  814, 
this  distinction  was  adverted  to  in 
connection  with  the  appointments 
of  receivers  upon  dissolution  pro- 
ceedings  against  corporations. 

In  Bank  of  Woodland  v.  Heron, 
120  Cal.  614,  52  Pac.  1006,  the 
court  said:  "There  are,  no  doubt, 
authorities — and  perhaps  a  weight 
of  authorities,  although  there  are 
cases  the  other  way — to  the  point 
that  the  appointment  of  a  receiver 
operates  as  a  sequestration  of  the 
property  mentioned  in  the  order 
of  appointment  (Beach  on  Receiv- 
ers, sec.  205) ;  still  it  will  be  found 
that  the  cases  in  which  com- 
plaints at  whose  instance  the  re- 
ceivers were  appointed  had  some 
estate  in  or  some  right  to  or  lien 
upon  the  property  involved  prior 
to  and  independent  of  the  ap- 
pointment of  the  receiver.  Fa- 
miliar instances  of  that  character 
are  actions  to  wind  up  insolvent 
corporations,  to  dissolve  partner- 
ships, to  administer  assets  or  dis- 
tribute a  fund  in  which  all  the 
parties  have  an  interest,  or  to 
foreclose  a  mortgage  where,  by 
the  provisions  of  the  instrument 
or  the  law  obtaining  in  the  juris- 
diction, the  mortgagee  has  a  lien 


upon  the  very  property  sought  to 
be  subjected  to  the  receivership. 
(See,  Klinkscales  v.  Pendleton 
Mfg.  Co.,  9  S.  C.  318;  Wiswall  v. 
Sampson,  14  How.  (55  U.  S.)  52, 
14  L.  Ed.  322.)  In  all  such  cases 
the  complainants  have  estates  or 
interests  in  the  property,  or  liens 
thereon,  independent  of  and  not 
created  by  the  receivership,  and 
the  receiver  is  appointed  to  pre- 
serve and  enforce  their  pre-exist- 
ing rights.  But  in  the  case  at  bar 
the  appellant,  under  his  mortgage 
contract  and  the  laws  of  this 
state,  had  no  estate  or  interest 
in  or  lien  upon  the  growing  crop 
prior  to  and  independent  of  the 
receivership,  and  the  rule  con- 
tended for  by  him  as  above  stated 
should  not  be  extended  to  such  a 
case.  If  he  could  acquire  any  lien 
through  a  receiver,  it  would  be  a 
new  lien,  not  pre-existing  or  cre- 
ated by  the  mortgage;  it  would 
be  analogous  to  a  writ  of  attach- 
ment, and  would  be  effective  only 
after  possession  taken  by  the  re- 
ceiver, as  the  writ  of  attachment 
would  be  only  after  levy." 

In  Merj-ill  v.  Commonwealth  etc. 
Ins.  Co.,  171  Mass.  81,  50  N.  E. 
519,  it  was  held  in  a  corporate 
receivership  that  the  right  of  the 
receiver  to  the  possession  related 
back  to  the  commencement  of  the 
proceedings.  The  same  rule  was 
held  in  Hutchinson  v.  American 
Palace  Car  Co.,  104  Fed.  182. 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


135 


comes  into  such  custody.  This  question  naturally  must 
be  decided  by  the  decisions  of  each  particular  state  con- 
struing the  nature  of  tlx  action  in  M'hlch  the  appoint- 
ment of  a  receiver  is  sought.  TLe  history  and  develop- 
ment of  the  law  on  this  subject  were  very  well  set  forth 
by  Mr.  Justice  Savage  of  tlie  Supreme  Court  of  Maine 
in  a  comparatively  recent  case,*^  in  which  he  laid  great 


6  In  Cobb  V.  Camden  Sav.  Bank, 
106   Me.  178,  20   Ann.  Cas.  547,  76 
Atl.    667,     the     court    said:    "The 
plaintiffs   contend    that    the    prop- 
erty  was    in   custodia    legis,    both 
at  the  time  of  the  seizure  by  the 
sheriff  and  at  the  time  of  the  sale, 
although  they  were  not  appointed 
receivers  until  after  the  sale.     In 
the  very  recent  case  of  Chalmers 
V.  Littlefield,  103  Me.  271,  69  Atl. 
100,    it    was    held,   in    accordance 
with  practically  universal  author- 
ity, that  property  in  custodia  legis 
is  not  subject  to  seizure  and  sale 
on  execution,  and  that  such  a  sale, 
without    leave    of    the    court    first 
obtained,    is    wholly    illegal    and 
void.      In   view    of   this    rule,    the 
question   to   be   answered    in    the 
case  is,  whether  this  property  un- 
der   the    circumstances,    was    in 
custodia  legis.     First,  what  is  the  • 
custody    which  the   law   intends? 
The  oft-repeated  expression  is  that 
the  custody  of  the  receiver  is  the 
custody  of  the  court,  and  that  is 
custodia   legis.     But  when    can   it 
be  said  that  the  receiver  has  cus- 
tody?   Must  he  take  actual  physi- 
cal possession?  Does  his  title  date 
from  the  time  of  his  appointment, 
or  does  it  relate  back  to   the  be- 
ginning of    the    proceedings?     Or 
to  the  time  when  the  court  took 
cognizance  of  the  bill  by   issuing 
process?    Or    to     the    time    when 


the  process  was  served?    Does  he 
take    title    by    the    decree   of   ap- 
pointment or  is   a  conveyance   to 
him   necessary?      All    these    ques- 
tions   are    more    or    less    involved 
in   the  present  inquiry,  and    upon 
all  of  these  there  is  more  or  less 
diversity,  and  even  contrariety,  of 
judicial  expression  in  the  reported 
cases.     But  we  think  that  a  care- 
ful analysis  of  the  cases  will  show 
that  some,  though  not  all,  of  this 
diversity    is    due    to    the     varied 
kinds  of  receivership  proceedings 
to  which  the  rules  have  been  ap- 
plied.     In    attempting    to    answer 
these  questions,  while  due  regard 
must  be  paid  to  established  rules 
of   equity    procedure    general,    we 
must  not  lose  sight  of  the  purpose 
of   the    statute,    which    is    judicial 
sequestration   and    distribution   of 
the  entire  corporate  estate,  nor  of 
the  equitable  principles  applicable 
to  such  a  statute.     It  should  be  re- 
membered   that    the    proceedings 
under   which   these    receivers    are 
acting  are   statutory  in   their  ori- 
gin    and    character.     It   is   not   a 
creditor's    bill.      It    is    not    a    pro- 
ceeding at  common  law.     It  is  not 
a  supplementary   proceeding  to   a 
suit,    like    those    in    many    of   the 
cases  in  other  jurisdictions.   And, 
too,  we  may  in  a  measure  elimi- 
nate a  line  of  cases  in  which  re- 
ceivers  sought  to  invalidate   exe- 


136 


LAW   OP   RECEIVERS. 


stress  upon  the  purpose  of  the  receivership  being  a  con- 
trolling factor  in  determining  when  the  property  came 


cution  sales  of  personal  property 
which  had  been  levied   upon   and 
was  in  the  lawful  possession  of  the 
sheriff  prior  to  the  appointments 
of  receivers,  for  this  case  relates 
to   real    estate.     See    Varnuin  v. 
Hart,  119  N.  Y.  101,  23  N.  E.  183; 
In  re  Hall  &  Stilson  Co.,  73  Fed. 
527;     Alderson  on  Receivers,  229. 
In   former   days,   in    common   law 
proceedings,  it  was  generally  held 
that  the  appointment  of  a  receiver 
did  not  operate  to  convey  to  him 
the  title  of  real  estate,  but  in  mod- 
ern times  the  doctrine  has  grown 
up,  and  appears  to  be  well  estab- 
lished, that  at  least  in   statutory 
proceedings  for  the  dissolution  of 
corporations,    the    decree    of    ap- 
pointment,   ipso    facto,    vests    the 
title  to  the  real  estate  in  the  re- 
ceiver.    Attorney   General    v.    At- 
lantic Mut.  L.  Ins.  Co.,  100  N.  Y. 
2<?9,  3  N.  E.  193.  See,  also,  Tilling- 
hast  V.  Champlin,  4  R.  I.  173,  67 
Am.  Dec.  510.    The  statute  in  this 
case  makes  no  mention  of  a  deed, 
but    gives    the    trustee    absolute 
power  to  sell  the  real  estate.  And 
having    the     title,    we    think    he 
should  be  deemed  to  have  posses- 
sion, as  against  those  merely  hav- 
ing liens,  but  who  are  not  in  pos- 
session,  even  though  a  technical 
'seizure'    on    execution    has    been 
made,  for  that  is  not  possession,  so 
as  to  prevent  a  receiver  from  tak- 
ing possession.    Wiswall  v.  Samp- 
son,   14   How.    (55   U.    S.)     52,     14 
L.  Ed.  322;    Oldham  v.  Scrivener, 
3  B.  Mon.  (42  Ky.)  579;  Ensworth 
V.    King,    50   Mo.   477,   482;    In   re 
Hall   &   Stilson   Co.,  73   Fed.   527; 
Aiderson  on  Receivers,  200.     It  is 


sufficient  if  the  receiver's  posses- 
sion be  either  actual  or  construe 
tive.  Pelletier  v.  Greenville  Lum- 
ber Co.,  123  N.  C.  596,  31  S.  E.  855, 
68  Am.  St.  Rep.  837. 

"The  next  question  is  from  what 
time  does  the  receiver's  title  to 
real  estate,  and  consequent  pos- 
session, dates?  There  are  many 
cases  which  hold  that  he  takes 
title  from  the  time  of  his  appoint- 
ment. Most  of  these  are  cases  at 
common  law,  in  creditors'  bills,  or 
supplementary  or  other  proceed- 
ings in  which  one  creditor  seeks 
to  enforce  a  specific  claim  upon 
the  debtor's  estate.  4  Pomeroy's 
Eq.  Jurisprudence,  sees.  1333,  1334. 
If  successful,  this  necessarily 
works  a  preference.  And  in  a  race 
between  creditors,  equity  does  not 
take  sides.  Until  the  court  ap- 
points a  receiver,  the  first  one  who 
comes  is  served.  And  in  some 
cases  this  rule  has  been  applied 
in  statutory  proceedings.  But  a 
later,  and  we  think  a  better,  rule 
is,  that  in  statutory  proceedings 
for  the  sequestration  and  winding 
up  of  corporate  estates  and  the 
distribution  of  their  proceeds,  the 
title  of  the  receiver  relates  back, 
either  to  the  filing  of  the  bill,  or 
the  issuing  of  process  by  the 
court,  or  to  the  service  of  pro- 
cess (and  it  is  immaterial  which, 
in  this  case),  and  that  from  that 
time  on  the  property  is  consid- 
ered to  have  been  in  the  custody 
and  protection  of  the  court  for 
the  purpose  of  being  administered 
according  to  the  statute.  Fogg  v. 
Supreme  Lodge  etc.,  159  Mass.  9, 
33  N.  E.  692;  Jones  v.  Arena  Pub. 


EFFECT  OF  APPOINTMENT  AND  DUTIES. 


137 


into  tlie  custody  of  the  court.  Tliis  rule  is  based  upon 
reason  and  in  its  observance  would  preserve  the  rights 
of  the  litigants. 

It  has  been  suggested  in  several  cases  that  the  test  as 
to  the  possession  of  the  receiver,  or  in  other  words  cus- 
tody of  the  court,  is  whether  one  could  be  punished  for 
contempt  of  court  for  asserting  his  lien  or  possessory 
rights  to  it/  but  these  decisions  do  not  take  into  consid- 
eration the  fact  that  actual  knowledge  of  the  order  is 


Co.,    171  Mass.   22,    50   N.   E.   15; 
Merrill  v.  Commonwealth.  Mut.  F. 
Ins.   Co.,  166  Mass.   238,  44  N.  E. 
144;  Merrill  v.  Commonwealth  Mut. 
F.  Ins.  Co.,  171  Mass.  81,  50  N.  E. 
519;   Illinois  Steel  Co.  v.  Putnam, 
68    Fed.     515,    15    C.   C.   A.     556; 
Hutchinson    v.    American     Palace 
Car    Co.,    104   Fed.   182;    Farmers' 
L.  &  T.  Co.  V.  Lake  St.  El.  R.  Co., 
177   U.   S.   51,   20   Sup.   Ct.   564,   44 
L.   Ed.  667;   V^'^iswall  v.   Sampson, 
14   How.    (55  U.  S.)    52,  14    L.   Ed. 
322;  Doane  v.  Millville  Mut.  M.  & 
F.  Ins.   Co.,   43  N.   J.   Eq.    521,   11 
Atl.  739;  Miller  v.  Sherry,  2  Wall. 
(69  U.  S.)   237,  249,  17  L.  Ed.  827, 
830;   Riesner  v.  Gulf  etc.  Ry.  Co., 
89  Tex.  656,  36  S.  W.  53,  33  L.  R.  A. 
171,  59  Am.  St.  Rep.  84;  Alderson 
on  Receivers,  219.     And  the  prop- 
erty   is    sequestrated    as    of    that 
time.    And    the    reason    for    this 
rule  is  obvious.     If  it  were  other- 
wise,   the    whole    purpose    of    the 
statute  might  be  frustrated.     That 
purpose   is   a   ratable   distribution 
of  the  corporate  funds,  after  pay- 
ment of  priorities,  among  the  cred- 
itors. If,  after  the  bill  is  filed,  and 
before   the   receiver   is   appointed, 
the    property    is    not    within    the 
protection  of  the  court,  creditors 
may  create  new  liens  by   attach- 


ment,   may    levy    executions,    and 
thus    may    entirely    dissipate    the 
fund,  before  the  arm  of  the  court 
can    reach    it.     Since    the    begin- 
ning   of   proceedings    is    likely    to 
awaken  creditors   to  the   enforce- 
ment   of    their    claims,     if    they 
should  attach  or  levy  meanwhile, 
the    statute    might    in    many    in- 
stances prove  self-destructive.  .  .  . 
It  must  be  conceded  that  this   is 
not  the  universal  rule.     In   some 
cases    the    distinction    which    we 
have   pointed  out  has  been  disre- 
garded,  and   the   rule   in   common 
law   cases   followed.     In  others  a 
different    rule    has    been   applied 
growing    out    of    statutory    provi- 
sions.    As  for  instance,  in  Squire 
V.  Princeton  Lighting  Co.,  72  N.  J. 
Eq.   883,   68   Atl.    176,   15   L.   R.   A. 
(N.  S.)   657,  the  New  Jersey  court 
held,    under    the    statute    of    that 
state,    that    the    property    was    in 
custodia  legis   from   and  after  an 
adjudication  of  insolvency  but  not 
before.      Out   statute    contains   no 
such   provision." 

7  Farmers'  Bank  v.  Beaston,  7 
Gill  &  J.  (Md.)  421,  28  Am.  Dec. 
226;  Defries  v.  Creed,  11  Jur.  N.  S. 
360;  see,  also,  Edwards  v.  Ed- 
wards, 2  Ch.  D.  291,  and  In  re  Rol- 
lason.  34  Ch.  D.  495. 


138 


LAW    OF    RECEIVERS. 


not  always  essential,  although  such  want  of  knowledge 
might  be  very  proper  to  be  considered  upon  the  question 
of  punishment  of  the  contemner. 

No  act  on  the  part  of  the  defendant  is  necessary  to 
vest  the  receiver  with  the  right  to  possession.^  It  must, 
however,  be  remembered  that  the  appointment  of  the 
receiver  does  not  destroy  liens,  whether  by  judgment, 
attachment,  le\^^  of  execution,  or  other  recognized  meth- 
ods of  obtaining  priority,  but  merely  suspends  their 
enforcement  in  the  usual  way  and  requires  the  lien  cred- 
itors to  apply  to  the  receivership  court  for  leave  to  en- 
force their  rights,  which  that  court  is  bound  to  grant 
since  it  is  obliged  to  give  effect  to  liens  which  existed 
when  the  property  passed  into  the  custody  of  the  law.^ 

Pending  an  application  in  one  court  for  the  appoint- 
ment of  a  receiver  and  the  assumption  by  such  court  of 


8  Board  of  Chosen  Freeholders 
V.  State  Bank,  29  N.  J.  Eq.  268. 

It  In  Cobb  V.  Camden  Sav.  Bank, 
106  Me.  178,  20  Ann.  Cas.  547,  76 
Atl.  667,  the  court  said:  "It  merely 
suspended  the  enforcement  of  it 
in  the  usual  way.  The  receiver 
took  only  such  estate  as  the  cor- 
poration had — and  subject  to  its 
liens.  Kittredge  v.  Osgood  (Page 
V.  Supreme  Lodge  etc.),  161  Mass. 
384,  37  N.  E.  369;  Garham  v.  Mu- 
tual Aid  Soc,  161  Mass.  357,  37 
N.  E.  447;  Dann  Mfg.  Co.  v.  Park- 
hurst,  125  Ind.  317,  25  N.  E.  347; 
Hoffman  v.  Schoyer,  143  111.  598,  28 
N.  E.  823;  Kneeland  v.  American 
Loan  &  T.  Co.,  136  U.  S.  89,  10 
Sup.  Ct.  950,  34  L.  Ed.  379.  But 
while  the  property  is  in  the  cus- 
tody of  the  law,  the  right  to  en- 
force liens,  without  leave  of  court, 
is  suspended.  Liens  creditors  must 
ajiply  to  the  court,  which  is  bound 
to   give  effect  to  liens   which   ex- 


isted when  the  property  passed 
into  the  custody  of  the  law.  Dur- 
yee  v.  United  States  Credit  Sys- 
tem Co.,  55  N.  J.  Eq.  311,  37  Atl. 
155;  Oakes  v.  Myers,  68  Fed.  807; 
Alderson  on  Receivers,  198." 

A  lien  upon  funds  is  followed 
into  the  hands  of  a  receiver  as 
where  a  dividend  has  been  de- 
clared and  set  apart  for  stock- 
holders. In  re  Le  Blanc,  14  Hun 
(N.  Y.)    8. 

The  receiver  is  the  hand  of 
the  law  and  the  law  conserves  and 
enforces  rights — never  destroys 
them.  His  appointment  deter- 
mines no  right  and  in  no  way  af- 
fects the  title  of  any  party  to  the 
litigation.  Von  Roun  v.  San  Fran- 
cisco Superior  Court,  58  Cal.  358. 

While  property  is  in  the  hands 
of  a  receiver,  no  execution  can  be 
levied  upon  it,  but  the  fi.  fa.  cre- 
ates a  lien  thereon.  Davis  v.  Bon- 
ney,  89  Va.  755,  17  S.  E.  229. 


EFFECT    OF    APPOINTMENT    AND    DUTIES.  139 

jurisdiction  over  his  property  by  the  issuance  of  an 
injunction  in  regard  to  it,  the  permission  by  another 
court  of  the  right  to  sequester  the  property  by  means 
of  a  subsequent  attachment  would  give  rise  to  complica- 
tions and  jurisdictional  confusions  which  ought  not  to  be 
encouraged.^® 

In  some  instances  the  statutes  provide  that  upon  the 
appointment  of  a  receiver,  as  for  instance  in  respect  to 
an  insolvent  debtor,  the  receiver  shall  be  placed  in 
possession  of  all  of  the  property  of  the  defendant  even 
though  attached  or  levied  upon  for  a  certain  period 
before  the  filing  of  the  petition  for  a  receiver, ^^  or  pro- 
tect bona  fide  purchasers  prior  to  the  actual  appoint- 
ment. ^^ 

So  also  where  one  of  the  defendants  in  the  receiver- 
ship proceedings  has  appeared  in  the  proceedings,  the 
order  of  appointment  will  relate  back  to  the  time  of  his 
appearance  so  as  to  defeat  efforts  on  his  part  and  those 
with  like  notice  to  defeat  the  possession  of  the  receiver.^^ 

Where  the  effect  of  the  filing  of  the  petition  for  a 
receiver  is  like  that  of  an  equitable  attachment  of  the 
property  of  the  defendant,  whether  by  reason  of  statu- 
tory provisions  or  the  general  rules  of  equity,  it  has  been 
held  that  the  possession  of  the  receiver  will  relate  back 

10  City  Nat.  Bank  v.  Merchants'  (affirming  8  App.  Div.  556,  40  N.  Y, 
Nat.    Bank,    7    Tex.    Civ.    584,    27      Supp.   886). 

S.  W.  848.  13  Where  one  of  the  defendants 

11  Whipple  V.  Babcock,  18  R.  I.  in  the  receivership  who  had  volun- 
611,  30  Atl.  464.  tarily  appeared  executed  a  chattel 

12  In  some  instances  the  statutes  mortgage  on  his  property  to  se- 
make  special  provisions  for  the  cure  a  pre-existing  creditor  who 
protection  of  bona  fide  purchasers  also  had  notice  of  the  receiver- 
of  personal  property  prior  to  the  ship  suit,  it  was  held  that  the  or- 
appointment  of  a  receiver,  but  der  of  appointment  would  relate 
after  the  commencement  of  sup-  liack  to  his  appearance  at  least, 
plementary  proceeding  in  which  Powell  v.  National  Bank  of  Cora- 
the  appointment  is  made.  In  re  merce,  19  Colo.  App.  57,  74  Pac. 
Clover,  154  N.  Y.  443,  48  N.  E.  892  536. 


140 


LAW   OF   RECEIVERS. 


even  to  the  time  of  tlie  filing  of  the  bill  or  service  of 
process,  though  the  decisions  are  not  in  accord  upon 
the  subject,  often,  however,  by  reason  of  variant  ideas 
as  to  when  the  property  came  into  the  custody  of  the 
court.^^ 


14  Atlas  Bank  v.  Nahant  Bank, 

23  Pick.  (40  Mass.)  480;  Fogg  v. 
Supreme  Lodge  etc.,  156  Mass. 
431,  31  N.  E.  289;  Merrill  v. 
Commonwealth  etc.  Ins.  Co.,  166 
Mass.  238,  44  N.  E.  144;  Riesner 
V.  Gulf  etc.  Ry  Co.,  89  Tex.  656, 
33  L.  R.  A.  171,  59  Am.  St.  Rep. 
84,  36  S.  W.  53. 

There  are  instances  in  which 
levies,  after  the  institution  of  pro- 
ceedings for  the  dissolution  of  a 
corporation  but  before  the  ap- 
pointment of  a  receiver,  have  been 
sustained.  IMinchin  v.  Second  Nat. 
Bank,  36  N.  J.  Eq.  436;  Matter  of 
VVaterbury,  8  Paige  Ch.  (N.  Y.) 
380;  Matter  of  Gies  etc.  Co.,  7 
App.  Div.  550,  40  N.  Y.  Supp.  146; 
Matter  of  Muehlfeld  etc.  Piano 
Co.,  12  App.  Div.  492,  42  N.  Y. 
Supp.  802. 

There  are,  however,  many  in- 
stances in  which  the  courts  have 
refused  to  allow  the  order  of  ap- 
pointment to  relate  back  to  the 
time  of  the  commencement  of  the 
suit.  Minchin  v.  Second  Nat.  Bank, 
36  N.  J.  Eq.  436;  Graham  Button 
Co.  v.  Spielmann,  50  N.  J.  Eq.  120, 

24  Atl.  571;  Van  Alstyne  v.  Cook, 

25  N.  Y.  489;  Becker  v.  Torrance, 
3,1  N.  Y.  631;  Battery  Park  Bank 
V.  Western  Carolina  Bank,  127 
N.  C.  432,  37  S.  E.  461;  Hamilton's 
Assignment,  26  Ore.  579,  38  Pac. 
1088. 

The  title  of  a  receiver  appointed 
to  take  charge  of  the  effects  of  an 
insolvent  corporation  does  not  re- 


late back  to  a  date  on  which  the 
order  to  show  cause  why  a  re- 
ceiver should  not  be  appointed 
was  issued,  where  the  court,  which 
might  have  determined  summar- 
ily the  question  of  insolvency,  and 
might  have  appointed  a  receiver 
forthwith  without  notice  to  the 
corporation,  made  no  adjudication 
of  insolvency,  and  imposed  no  gen- 
eral restraint  upon  the  corpora- 
tion, aside  from  restricting  the 
contracting  or  payment  of  debts, 
the  collection  of  money,  or  the 
sale  or  transfer  of  its  property. 
Squire  v.  Princeton  Lighting  Co., 
72  N.  J.  Eq.  883,  15  L.  R.  A.  (N.  S.) 
657,  68  Atl.  176. 

The  mere  fact  that  a  receiver 
is  sought  for  a  gas  company  will 
not  prevent  the  company  from 
making  such  contracts  for  the 
management  and  control  of  its 
business  as  are  necessary  to  pro- 
tect its  property.  "If  this  were 
not  the  law,  the  property  would 
be  subject  to  waste  and  destruc- 
tion pending  the  proceedings  for 
the  appointment  of  a  receiver.  .  .  . 
If  it  had  not  the  authority  to  do 
these  things,  the  property  may 
have  become  lost  to  its  creditors." 
Cook  V.  Cole,  55  Iowa  70,  7  N.  W. 
419. 

But  where  the  purpose  of  the 
receivership  was  merely  to  pre- 
vent mismanagement  of  corporate 
affairs  and  not  to  wind  up  its 
affairs,  it  was  held  that  the  cor- 
poration   could    transfer  property 


EFFECT   OF   APPOINTMENT   AND    DUTIES. 


141 


§  32.    Effect  of  Receiver  Being  Required  to  Furnish  Bond. 

Under  the  general  practice  of  courts  of  equity  and 
also  under  most  of  the  statutory  provisions  bearing  upon 
the  subject,  it  is  a  requisite  that  the  receiver  shall  furnish 
a  bond  in  an  amount  required  by  the  court  before  he  is 
put  into  possession  of  the  receivership  property.  The 
general  rule  is  that  where  he  is  so  required  to  give  a 
bond  before  entering  into  possession  of  the  property, 
upon  furnishing  such  bond  his  possessory  rights  to  the 
property  will  relate  back  to  the  time  of  the  order  of 
appointment.^ 

§  33.   Effect  of  Order  of  Appointment  Being  Stayed. 

Where  the  order  of  appointment  of  a  receiver  is  stayed 
by  an  appeal  and  supersedeas  or  stay  bond,  the  order 
will  be  deemed  to  be  suspended  pending  such  stay  and 


in  payment  of  debts  subsequent  to 
the  commencement  of  the  suit, 
since  its  property  was  not  in  the 
custody  of  the  court  from  the  time 
of  filing  the  suit.  Illinois  Steel 
Co.  V.  Putnam,  68  Fed.  515,  15 
C.  C.  A.  556. 

1  Matter  of  Lenox  Corp.,  57  App. 
Div.  515,  68  N.  Y.  Supp.  103  (af- 
firmed in  167  N.  Y.  623,  60  N.  E. 
1115);  Pickert  v.  Eaton,  81  App. 
Div.  423,  81  N.  Y.  Supp.  50;  Ard- 
more  Nat.  Bank  v.  Briggs  Mach. 
etc.  Co.,  20  Okla.  427,  16  Ann.  Cas. 
133,  23  L.  R.  A.  (N.  S.)  1074,  129 
Am.  St.  Rep.  747,  94  Pac.  533; 
Pope  V.  Ames,  20  Ore.  199,  25  Pac. 
393;  Regenstein  v.  Pearlstein,  30 
S.  C.  192,  8  S.  E.  850;  Texas  Trunk 
Ry.  Co.  V.  Lewis,  81  Tex.  1,  26 
Am.  St.  Rep.  776,  16  S.  W.  647; 
Baldwin  v.  Spear  Bros.,  79  Vt.  43, 
64  Atl.  235;  Temple  v.  Glasgow, 
80  Fed.  441,  25  C.  C.  A.  540;  Horn 


V.     Pere     Marquette     R.    Co.,   151 
Fed.  626. 

In  Steele  v.  Sturges,  5  Abb.  Pr. 
(N.  Y.)  442,  the  court  said:  "When 
the  court,  in  such  cases,  appoints 
a  receiver,  it  is  because  the  court 
has  first  adjudged  that  the  prop- 
erty is  no  longer  to  be  under  the 
control  of  the  parties  to  the  suit, 
but  it  is  thenceforth  to  be,  and  is, 
in  the  custody  of  the  court.  The 
receiver  becomes  then  merely  an 
agent  through  whom,  the  court 
acts;  and  whether  he  be  forthwith 
appointed  by  the  court,  as  in  this 
case,  or  a  reference  be  made  to  a 
master  or  referee  to  appoint  one, 
in  either  case  the  effect  is  the 
same;  the  title  of  the  receiver  is 
of  the  date  at  which  it  is  ordered 
that  a  receiver  shall  be  appointed. 
Then  the  title  of  the  partners  to 
control  dies,  and  then  the  title  of 
the  court  and  of  its  agent  or  ofli- 
cer  immediately  succeeds." 


U2 


LAW    OF    RECEIVERS. 


the  property  covered  by  the  receivership  order  will  not 
be  deemed  hi  the  custody  of  the  court  as  far  as  the 
maintenance  of  suits  for  its  protection  is  concerned  by 
the  defendant/  but  it  will  be  otherwise  as  far  as  tlie 
right  of  creditors  to  acquire  liens  upon  the  property 
during  such  period.'^ 

§  34.  General  Rule  as  to  Liability  of  Receiver  on  Contracts  of 
Defendant. 
The  respective  rights  of  the  parties  to  the  receivership 
litigation  are  preserved  as  they  existed  when  the  receiver 
was  appointed  but  are  ordinarily  not  determined  until 
the  final  hearing  of  the  matter.^  Where  the  obligation 
of  the  defendant  has  become  a  vested  right  on  the  part 
of  his  creditor,  the  estate  will  be  bound  by  the  obliga- 
tion existing  against  the  defendant  at  the  time  of  the 
appointment  of  the  receiver.^ 


1  Boston  etc.  Min.  Co.  v.  Mon- 
tana Ore  Purchasing  Co.,  27  Mont. 
431,  71  Pac.  471. 

2  Ex  parte  Tillman,  93  Ala.  101, 
9  So.  527;  Stanton  v.  Heard,  100 
Ala.  515,  14  So.  359. 

1  Mueller  v.  Stinesville  etc. 
Stone  Co.,  154  Ind.  230.  234,  56 
N.  E.  222;  American  Trust  etc. 
Bank  v.  McGettigan,  152  Ind.  582, 
71  Am.  St.  Rep.  345,  52  N.  E.  793; 
Strebel  v.  Bligh,  183  Ind.  537,  109 
N.  E.  45. 

2  In  a  suit  against  the  maker  of 
a  note  containing  a  stipulation  for 
the  payment  of  attorney's  fees, 
when  he  has  been  served  in  ac- 
cordance with  law  with  notice  of 
the  holder's  intention  to  sue  on 
the  note,  and  the  principal  and 
interest  of  the  note  have  not  been 
paid  on  or  before  the  last  return 
day  of  the  term  of  the  court,  the 
lilaintiff's  right  to  recover  for  at- 
torney's fees  is  not  affected  by  the 


fact  that  after  service  of  the  no- 
tice, a  court  of  equity  appointed 
receivers,  who  took  possession  of 
the  assets  of  the  debtor;  nor  is  it 
necessary  that  the  receivers  be 
thereafter  served  with  the  statu- 
tory notice  in  order  to  fix  the  lia- 
bility for  attorney's  fees.  Guar- 
antee Trust  &  Banking  Co.  v. 
American  Nat.  Bank,  15  Ga.  App. 
778.  84   S.  E.  222. 

A  pre-existing  debt  against  the 
property  is  as  much  of  a  liability 
against  the  receiver  as  is  a  debt 
contracted  by  him  for  the  benefit 
of  the  property.  In  determining 
his  liability  the  court  will  only 
determine  the  liability  of  the  prop- 
erty. Peoi)les  V.  Yoakum,  7  Tex. 
Civ.  App.  85,  25  S.  W.  1001. 

Negotiations  failed  for  a  tripar- 
tite agreement  whereby  one  party 
was  to  manufacture  lumber  from 
timber  cut  on  complainant's  land 
and  to  sell  to  defendant  at  fixed 


EFFECT    OF    APPOINTMENT    AND    DUTIES. 


143 


The  claims  of  creditors  are  presentable  when  the 
receiver  is  appointed,  and  that  date  fixes  their  status  and 
amount  regardless  of  when  they  are  in  fact  presented.^ 

The  general  rule,  however,  is  that'' a  receiver  is  not 
bound  by  the  unperformed  contracts  of  the  party  whose 
property  is  placed  in  a  receivership  unless  he  has 
adopted  them.'*    Where,  however,  the  contract  creates  an 


prices,  complainant  agreeing  to 
sell  the  timber  for  a  certain 
amount  advanced  for  such  party 
by  defendant.  Complainant  then 
agreed  to  pay  the  party  a  fixed 
price  for  manufactured  lumber, 
and  later  a  quantity  of  lumber  was 
sawed  and  piled,  defendant  mak- 
ing advances  in  the  meantime, 
which  were  paid  to  complainant 
on  orders  of  the  party.  Complain- 
ant also  made  advances  to  the 
party.  Held,  on  suspension  of  op- 
erations and  receivership  against 
the  lumber,  that  defendant  is  en- 
titled to  reimbursement  in  full  for 
his  advances  with  interest.  A.  B. 
Smith  Lumber  Co.  v.  Adams,  100 
Miss.  30,  56  So.  265. 

A  receiver  held  bound  by  sub- 
sisting contracts  under  which 
rights  and  obligations  have  be- 
come fixed,  but  not  by  executory 
contracts,  if  in  his  opinion  per- 
formance would  not  be  profitable 
or  desirable.  Coy  v.  Title  Guar- 
antee &  Trust  Co.,  198  Fed.  275. 

Where  contractor  with  a  city 
had  assigned  its  claim  against  the 
city,  the  contractor's  receiver  who 
completed  the  contract  was  prop- 
erly required  to  pay  over  the  pro- 
ceeds of  the  warrant  received 
from  the  city  to  the  assignee.  Mc- 
Gill  V.  Brown,  72  Wash.  514,  130 
Pac.  1142. 


3  People  V.  American  Loan  etc. 
Co.,  172  N.  Y.  371,  65  N.  E.  200. 

■i  Russ  Lumber  etc.  Co.  v.  Mus- 
cupiabe  Land  etc.  Co.,  120  Cal.  521, 
65  Am.  St.  Rep.  186.  52  Pac.  995, 
W^ells  v.  Hartford  Manilla  Co.,  76 
Conn.  27,  55  Atl.  599;  Scott  v. 
Rainier  Power  etc.  Co.,  13  Wash. 
108,  42  Pac.  531,  Central  Trust 
Co.  V.  East  Tennessee  Land  Co., 
79  Fed.  19:  Central  Trust  Co.  v. 
Continental  Trust  Co.,  86  Fed.  517, 
30  C.  C.  A.  235. 

The  general  rule  upon  the  sub- 
ject of  the  liability  of  the  receiver 
upon  the  contracts  uf  the  debtor, 
in  the  absence  of  a  lien,  is  that  he 
is  not  liable.  This  rule  is  based 
upon  the  fact  that  the  receiver  is 
not  the  representative  of  the 
debtor  for  the  fulfillment  of  his 
contracts  except  in  such  cases  as 
he  may  adopt  the  contract  as  his 
own.  Gaither  v.  Stockbridge,  67 
Md.  222,  9  Atl.  632,  10  Atl.  309; 
Commonwealth  v.  Franklin  Ins. 
Co.,  115  Mass.  278;  Brown  v.  War- 
ner, 78  Tex.  543,  22  Am.  St.  Rep. 
67,  11  L.  R.  A.  394,  14  S.  W.  1032; 
Central  Trust  Co.  v.  Marietta  & 
N.  G.  R.  Co.,  51  Fed.  15,  16  L.  R.  A. 
90;  Southern  Exp.  Co.  v.  Western 
N.  C.  R.  Co.,  99  U.  S.  194,  25  L.  Ed. 
320;  Central  Trust  Co.  v.  Wabash, 
St.  L.  &  P.  R.  Co.,  32  Fed.  566. 


144 


LAW    OP    RECEIVERS. 


equitalle  lien  upon  funds  in  his  possession  or  which  will 
come  into  his  possession  by  reason  of  the  contract  as  a 


Where  a  paper  mill  company 
was  under  contract  to  purchase 
large  quantities  of  pulp,  its  re- 
ceiver, where  the  receivership 
property  is  not  sufficient  to  pay 
creditors,  may  elect  not  to  per- 
form the  contract.  Wells  v.  Hart- 
ford Manilla  Co.,  76  Conn.  27,  55 
Atl.   599. 

Where  pending  the  partial  com- 
pletion of  a  contract,  a  receiver 
is  appointed,  the  contractor  may 
consider  the  contract  as  aban- 
doned or  he  may  wait  a  reasonable 
time  to  find  what  the  receiver  will 
do  in  respect  to  it.  Commonwealth 
R.  Co.  V.  North  American  Trust 
Co.,  135  Fed.  984,  68  C.  C.  A.  418. 

A  contract  of  employment  with 
a  corporation  ceases  upon  the  ap- 
pointment of  a  receiver,  such  a 
termination  being  impliedly  within 
the  contemplation  of  the  parties. 
Sullivan  etc.  Co.  v.  Black,  159  Ala. 
570,  48  So.  870;  Du  Pont  v.  Stan- 
dard etc.  Co.,  9  Del.  Ch.  315,  81 
Atl.  1089;  Commonwealth  v.  Eagle 
etc.  Ins.  Co.,  96  Mass.  (14  Allen) 
344;  Lenoir  v.  Linville  Imp.  Co., 
126  N.  C.  922,  51  L.  R.  A.  146,  36 
S.  E.  185;  Law  v.  Waldron,  230  Pa. 
St.  458,  Ann.  Gas.  1912A,  467,  79 
Atl.  647;  Williamson  County  etc. 
Trust  Co.  V.  Roberts  etc.  Co.,  118 
Tenn.  340,  12  Ann.  Gas.  579,  9 
L.  R.  A.  (N.  S.)  644,  101  S.  W.  421. 
A  contrary  rule  prevails  in  New 
Jersey.  Spader  v.  Mural  etc.  Mfg. 
Co.,  47  N.  J.  Eq.  18,  20  Atl.  378; 
Rosenbaum  v.  United  States  etc. 
Co.,  61  N.  J.  L.  543,  40  Atl.  591. 

The  appointment  of  a  receiver 
for  a  corporation  terminates  a 
contract  made  by  the  corporation 


employing  a  general  counsel, 
which  was  terminable  at  will. 
Burton  v.  Bay  State  Gas  Co.  of 
Delaware,  188  Fed.  161,  110  C.  C.  A. 
197. 

A  receivership  for  a  corporation, 
which  results  in  the  distribution 
of  all  of  its  property  among  its 
creditors,  has  the  same  effect  as 
its  bankruptcy  would  have  had 
upon  its  unperformed  contracts, 
and  an  employee,  under  an  unex- 
pired contract  of  employment 
which  has  not  been  adopted  by 
the  receiver,  may  treat  the  con- 
tract as  broken  and  prove  a  claim 
for  damages  for  the  breach  against 
the  estate,  provided  the  amount 
of  such  damages  can  be  deter- 
mined by  recognized  methods  of 
computation  within  the  time  al- 
lowed for  proving  claims.  Isaac 
McLean  Sons  Co.  v.  William  S. 
Butler  &  Co.,  227  Fed.  325. 

The  court  in  the  above  case 
said:  "Although  the  receivers 
might  have  adopted  the  contract, 
they  were  not  bound  to  do  so; 
their  decision  not  to  adopt  was 
made  without  delay,  and  In  the 
absence  of  adoption  by  them  the 
receivership  must  be  regarded  as 
having  prevented  the  company 
from  performing  it.  In  the  case 
of  an  uncompleted  contract  of  em- 
ployment like  this,  a  receivership 
of  the  employer's  property  and 
business  has  been  regarded  as 
preventing  completion  by  opera- 
tion of  law,  leaving  neither  party 
further  bound  by  it,  and  leaving 
the  employee  no  allowable  claim 
for  damages.  People  v.  Globe  etc. 
Ins.  Co.,  91  N.  Y.  174.     This  case 


EFP^ECT   OF   APPOINTMENT    AND    DUTIES.  145 

security  for  its  performance  the  receiver  will  be  held  ) 


has  been  followed  in  Malcomson 
V.  Wappoo  Mills,  (C.  C.)  88  Fed. 
680,  where  the  unperformed  con- 
tract was  for  the  sale  and  delivery 
of  goods;  also  in  Re  Inman  & 
Co.,  175  Fed.  312,  a  bankruptcy 
case,  where  the  effect  of  the 
seller's  bankruptcy  upon  a  like 
contract  was  in  question. 

"But,    in    bankruptcy,    the    view 
taken  in  this  circuit  has  been,  in 
cases  like  the  two  last  cited,  that 
the  purchaser's  bankruptcy  is  the 
equivalent    of    disenablement    and 
repudiation  on  his  part,  which  the 
seller  may  treat  as  a  breach  and 
thereby  acquire  a  provable  claim 
for  his   damages.     Re   Swift,   112 
Fed.  315,  50  C.  C.  A.  264;  Re  Pet- 
tingill   &   Co..   137   Fed.    143,    144; 
Pratt   V.    Auto   etc.    Co.,    196    Fed. 
495,  116   C.  C.   A.   261.    The  same 
effect  upon  the  contract  is  given, 
by  a  recent  decision  of  the  Court 
of  Appeals  for  the  Seventh  Circuit, 
to    the     bankruptcy    of    a    tranfer 
company    which    was    under    con- 
tract with  a  hotel  to  furnish  ser- 
vice for  a  term  of  years,  unexpired 
at  the  bankruptcy,  and  to  pay  for 
the  exclusive  privilege  of  doing  so. 
Re  Frank  E.    Scott  Transfer  Co., 
216    Fed.    308,    132    C.    C.    A.    452 
"A     receivership     resulting,     as 
this  is  to  result,  in  the  distribution 
by  the  court  of  all  the  defendant's 
property,  pro  rata,  among  its  cred- 
itors, is  to  be  regarded  as  having 
the  same  effect  as  its  bankruptcy 
would   have    had   upon   its   unper- 
formed contracts  like  the  one  here 
in     question.      See     Pennsylvania 
Steel  Co.  v.  New  York  etc.  R.  Co., 
198  Fed.  721,  743,  117  C.  C.  A.  503: 
in   the   Court   of  Appeals   for    the 
IRec. — 10 


Second  Circuit.    In  this  case,  as  in 
that,  there  was  no  appointment  of 
a  receiver  over  'an  objection  cor- 
poration'; but  the  defendant  is  to 
be   regarded   for  the   purposes  of 
the    present    question,    as    having 
participated    in    bringing    on    the 
appointment.   Its  answer  admitted 
the  allegations  of  the  bill.    Its  con- 
sent is  recited  in  the  decree  mak- 
ing the  appointment.     .     .     .     But 
for  the  purposes  of  a  distribution 
to  be  made  as  the  result  of  receiv- 
ership proceedings  in  equity  such 
as    these,    liabilities    from    which 
the    debtor    may    be    discharged 
under    the    Bankruptcy    Act    are 
not     the     only     liabilities     to     be 
considered.    Claims,   immature   or 
contingent   at   the   time   of   bank- 
ruptcy,  if   such   that  their   worth 
or    amount    can     be    determined 
by    recognized    methods    of    com- 
putation, as  of  some  date  within 
the    time    limited    for    the    pres- 
entation   of   claims    by    the    court 
and  without  hindering  expeditious 
administration,    and    if    of    a    na- 
ture   such    as     equitably   entitles 
them  to  share  in  the  distribution, 
are  no  less  entitled  to  recognition, 
upon  equitable  principles,  than  are 
fixed    liabilities    absolutely    owing 
at  the  institution  of  the  proceed- 
ings.    The    Court   of   Appeals    for 
the  Second  Circuit  has,   in  Penn- 
sylvania  Steel   Co.   V.   New   York 
etc.  R.  Co.,  198  Fed.  721,  739.  740, 
117  C.  C.  A.  503,  after  careful  con- 
sideration    of    the     questions     in- 
volved, thus  allowed  damages  for 
breach  of  an  unexpired   contract, 
whereby  the  railroad  company  in 
receivership   had    granted,    for   20 
years,  the  exclusive  right  of  mov- 


146 


LAW   OF   RECEIVERS. 


bound  by  the  contract.^  The  receiver  is  not  bound  to  adopt 


ing  express  matter  over  its  lines, 
and  agreed  to  furnish  cars  there- 
for, in  consideration  of  a  per- 
centage of  the  gross  earnings,  to 
be  proved  against  the  fund  for 
distribution.  This  decision,  in  the 
absence  of  any  to  the  contrary  in 
this  circuit,  is  to  be  regarded  as 
controlling  so  far  as  it  applies. 

"In  Ex  parte  Pollard,  2  Lowell 
411,  Fed.  Cas.  No.  11252,  above 
referred  to.  Judge  Lowell  declined 
to  regard  such  a  claim  as  this  as 
contingent.  A  different  view  upon 
this  question  appears  to  have  been 
taken  in  the  above  cited  decisions 
under  the  present  Bankruptcy  Act. 
But  that  the  amount  of  damages  for 
the  breach  of  such  a  contract  is,  at 
any  rate,  capable  of  being  deter- 
mined by  recognized  methods  of 
computation,  no  doubt  was  enter- 
tained, and  it  is  believed  that  there 
can  be  no  such  doubt.  If  there 
had  been  no  receivership,  but  the 
Butler  Company  had  discharged 
the  employee  without  sufficient 
I'eason  on  the  same  day,  there 
would  have  been  no  difficulty,  in  a 
suit  by  her  for  damages,  as  to 
their  assessment.  In  this  and  in  the 
similar  cases  below  mentioned  the 
agreed  period  of  employment  had 
not  long  to  run.  They  all  expire 
before  any  decree  of  distribution 
could  be  reached,  and  the  ascer- 
tainment of  damages  involves  com- 
paratively little  speculation  re- 
garding the  future." 

■">  Wood  V.  McCardell  etc.  Co., 
49  N.  J.  Eq.  433,  24  Atl.  228. 

The  distinctions  in  this  respect 
were  shown  by  the  court  in  Howe 
V.  Harding,  76  Tex.  17,  18  Am.  St. 
Rep.   17,   13   S.   W.  41,  where   the 


court  held  that  the  court  could 
not  in  every  case  refuse  to  exe- 
cute contracts  of  the  defendant. 

A  fund  in  a  bank  to  be  delivered 
to  the  person  entitled  becomes  a 
trust  fund  in  the  hands  of  a  re- 
ceiver. Capital  Nat.  Bank  v.  Cold- 
water  Nat.  Bank,  49  Neb.  786,  59 
Am.  St.  Rep.  572,  69  N.  W.  115. 

The  receiver  of  a  corporation 
succeeds  to  the  title  of  property 
of  the  corporation  in  possession 
of  a  factor,  subject  to  the  lien  for 
advances  in  favor  of  the  latter 
with  which  it  was  burdened  before 
h  i  s  appointment.  Cameron  v. 
Crouse,  11  App.  Div.  391,  42  N.  Y. 
Supp.  58. 

Where  a  party,  having  a  con- 
tract for  the  employment  of  claim- 
ant and  for  assignment  of  certain 
of  his  patent  rights,  went  into  the 
hands  of  a  receiver,  who  trans- 
ferred the  property  to  a  purchaser 
on  September  1,  1910,  but  did  not 
actually  deliver  the  property  until 
September  22,  1910,  claimant's 
contract  rights,  in  theory  at  least, 
not  being  affected  under  the  trans- 
fer, he  was  entitled  to  recover 
against  the  receivers  for  the  22 
days  in  September  during  which 
they  had  possession  of  the  prop- 
erty, and  neglected  or  refused  to 
employ  him,  and  deprived  him  of 
his  rights  under  the  contract,  and 
also  for  any  damage  he  can  show 
he  suffered  by  the  action  of  the  re- 
ceivers in  transferring  the  prop 
erty  to  the  purchaser,  as  well  as 
for  past-due  payments  under  his 
contract.  Ely  v.  Van  Kannel  Re- 
volving Door  Co.,  184  Fed.  459. 

The  receiver  is  not  bound  by  a 
contract    made    by    the    company 


EFFECT    OF   xVPPOIXTMENT    AND    DUTIES. 


147 


llio  contracts  of  the  defendant,  or  in  other  words  step  \ 


before  his  appointment  which  does 
not  constitute  a  lien  on  the  prop- 
erty, and  he  can  not  be  compelled 
to  perform  it.  Union  Trust  Co.  v. 
Curtis,  182  Ind.  61,  L.  R.  A.  1915A, 
699,  105  N.  E.  562. 

Where  an  agent  of  a  newspaper 
publishing  company  had  a  contract 
with  it  under  which  he  was  its 
agent  for  a  certain  period  to  pro- 
cure advertisements,  fix  rates  and 
collect  the  bills,  and  apply  the  col- 
lections to  repay  a  loan  made  by 
him  to  it,  upon  the  appointment 
of  a  receiver,  the  agent  is  entitled 
to  have  the  contract  enforced  as 
an  equitable  pledge  of  the  receipts 
from  the  advertisements  for  its 
purposes.  Commercial  Pub.  Co.  v. 
Beckwith,  167  N.  Y.  329,  60  N.  E. 
642. 

Where  certain  accounts  were 
assigned  as  security  for  certain 
loans  and  such  assignment  was 
accepted  by  the  debtor,  the  receiv- 
ers were  held  bound  by  it  as  it 
constituted  an  equitable  assign- 
ment of  a  certain  fund  and  vested 
the  assignee  with  a  power  coupled 
with  an  interest  in  the  fund.  Cur- 
tis V.  Walpole  Tire  etc.  Co.,  218 
Fed.  145,  134  C.  C.  A.  140. 

In  the  case  just  cited  the  court 
said:  "We  are,  however,  of  the 
opinion  that  the  District  Court  did 
not  err  in  this  particular,  and  that 
the  writings  of  April  16th  and 
April  23d,  when  read  together  and 
taken  in  connection  with  the  trans- 
action which  the  parties  were 
undertaking  to  carry  out,  show 
that  it  was  intended  to  assign  the 
entire  account  as  then  due  and  to 
become  due  from  the  Foster  Com- 
pany to  the  Tire  Company  to  se- 


cure the  claimant's  not*.  By  their 
delivery  to  the  claimant  with  this 
intention  there  was  an  actual  ap- 
propriation of  the  account  as  it 
then  existed,  and  a  constructive 
appropriation  of  it  as  to  sums  that 
might  become  due  in  the  future. 
The  transaction  was  not  a  mere 
promise  to  pay  the  note  out  of 
a  particular  fund.  Field  v.  Mayor 
etc.  of  City  of  New  York,  6  N.  Y. 
179,  57  Am.  Dec.  435;  Brill  v. 
Tuttle,  81  N.  Y.  454,  37  Am.  Rep. 
515;  Fourth  Street  Bank  v.  Yard- 
ley,  165  U.  S.  634,  17  Sup.  Ct.  439, 
41  L.  Ed.  855;  Ingersoll  v.  Coram, 
211  U.  S.  335,  368,  29  Sup.  Ct.  92, 
53  L.  Ed.  208;  Barnes  v.  Alex- 
ander, 232  U.  S.  117,  34  Sup.  Ct. 
276,  58  L.  Ed.  530;  Peugh  v.  Por- 
ter, 112  U.  S.  737,  5  Sup.  Ct.  361, 
28  L.  Ed.  859;  3  Pomeroy's  Eq. 
(2d  ed.),  §§1235,  1236,  1237.  The 
Tire  Company  retained  no  right 
to  collect  the  account  for  its  own 
benefit,  or  to  revoke  the  disposi- 
tion promised  as  to  the  future.  By 
the  assignment  an  equitable  inter- 
est in  the  account  as  it  then  stood, 
and  as  it  might  thereafter  accrue, 
passed  to  the  claimant  as  security 
for  his  note,  together  with  a  power 
to  collect  the  account  and  apply 
the  proceeds  in  satisfaction  of  the 
note.  As  the  assignment  vested  in 
the  claimant  an  equitable  interest 
in  the  account,  with  a  power  to 
collect  the  same,  he  thereby  be- 
came possessed  of  a  power  coupled 
with  an  interest  in  the  account 
assigned,  which  was  irrevocable. 
Hunt  V.  Rousmanier,  21  U.  S.  (8 
Wheat.)  174,  175,  5  L.  Ed.  589. 

"Being  of  the  opinion  that   the 
claimant  obtained   an  assignment 


148 


LAW   OF   RECEIVERS. 


into  his  shoes  in  respect  to  his  prior  contracts,  and  he 
is  entitled  to  a  reasonable  time  to  elect  whether  to  adopt 


of  the  entire  account  as  it  stood 
on  April  16th,  and  as  it  might 
thereafter  accrue,  and  the  sum 
turned  over  to  the  receivers  being 
more  than  sufficient  to  pay  the 
claims  of  the  Traders'  Company 
and  of  the  claimant  in  full,  many 
of  the  questions  argued  by  coun- 
sel for  the  receivers  and  the  cred- 
itor pass  out  of  the  case,  and  it  is 
imnecessary  to  consider  them." 

So  also  in  a  case  where  there 
was  a  bill  in  equity  by  an  express 
company  against  the  receiver  of  a 
railroad  company  to  compel  spe- 
cific performance  of  a  contract, 
made  before  the  appointment  of 
the  receiver,  to  carry  freight  for 
the  complainant,  the  court  in  re- 
fusing to  grant  specific  perform- 
ance said:  "The  road  is  in  the 
hands  of  a  receiver  In  a  suit 
brought  by  the  bondholders  to 
foreclose  their  mortgage.  The  ap- 
pellant has  no  lien.  The  contract 
neither  expressly  nor  by  implica- 
tion touches  that  subject.  It  is 
not  a  license,  as  insisted  by  coun- 
sel. It  is  simply  a  contract  for 
the  transportation  of  persons  and 
property  over  the  road.  A  specific 
performance  by  the  receivers 
would  be  a  form  of  satisfaction  or 
payment,  which  he  can  not  be 
required  to  make.  As  well  might 
he  be  decreed  to  satisfy  appellee's 
demand  for  money,  as  by  the  ser- 
vice sought  to  be  enforced."  South- 
ern Express  Co.  v.  Western  etc. 
R.  Co.,  99  U.  S.  191,  199,  25  L.  Ed. 
319,  320. 

The  same  principles  were  recog- 
nized in  Ellis  v.  Boston  etc.  R. 
Co.,   107  Mass.   1;    Commonwealth 


V.  Franklin  Ins.  Co.,  115  Mass.  278; 
Re  Brown,  3  Edw.  Ch.  (N.  Y.)  384. 

In  Ellis  V.  Boston  etc.  R.  Co., 
107  Mass.  1,  the  court  said:  "The 
receivers  are  officers  of  the  court 
for  this  purpose  [that  of  preserv- 
ing the  property]  and  act  under 
its  direction  and  control.  They 
continue  the  operation  of  the  road, 
and  conduct  its  business,  because 
this  is  essential  to  its  proper  pres- 
ervation. They  may  fulfill  the 
contracts  of  the  corporation  so  far 
as  beneficial.  They  may  not  pay 
its  debts  or  fulfill  contracts  which 
are  burdensome,  or  tend  to  dimin- 
ish the  value  of  property  under 
their  control,  unless  such  con- 
tracts are  charged  as  incum- 
brances in  the  property,  or  are 
necessary  to  its  proper  preserva- 
tion and  security." 

Upon  the  appointment  of  a  re- 
ceiver the  contract  of  employment 
of  the  general  manager  ceases, 
such  termination  being  impliedly 
within  the  contemplation  of  the 
parties  when  the  contract  was 
made.  Du  Pont  v.  Standard  etc. 
Co.,  9  Del.  Ch.  315,  81  Atl.  1089. 

Where  the  president  of  a  cor- 
poration by  a  verbal  agreement 
grants  permission  to  another  to 
box  and  gather  the  turpentine 
from  the  pine  trees  growing  on 
the  land  of  the  corporation,  such 
verbal  permit  amounts  only  to  a 
license,  which  terminates  on  the 
ajipointment  of  a  receiver  for  the 
properties  of  such  corporation  at 
the  suit  of  its  creditors.  McKin- 
non-Young  Co.  v.  Stockton,  53  Fla. 
734,  44  So.  237. 


EFFECT    OF   APPOINTMENT    AND    DUTIES. 


149 


or  repudiate  such  contracts,*^  but  this  power  on  the  part 
of  the  receiver  to  adopt  or  reject  such  contracts  does  not 
apply  to  the  other  party  to  the  contract.  The  theory 
of  the  law  in  this  respect  is  that  the  receiver  is  ap- 
pointed for  the  purpose  of  preserving  the  property  and 
that  if  he  did  not  have  the  right  to  terminate  the  con- 
tract the  assets  of  the  receivership  might  be  wasted  and 
dissipated  by  the  performance  of  unprofitable  contracts. 
In  other  words,  he  is  not' to  adopt  the  contract  unless  it 
appears  that  to  do  so  wdll  benefit  the  receivership.^  The 
mere  fact  that  the  receiver  has  taken  possession  of  prop- 
erty does  not  of  itself  prove  that  the  contract  in  regard 
to  it  has  been  adopted  by  him.^ 


6  Kansas  Pac.  Ry.  Co.  v.  Bayles, 
19  Colo.  348,  35  Pac.  744;  In  re 
Seattle  Lake  Shore  etc.  Ry.  Co., 
61  Fed.  541;  Sunflower  Oil  Co.  v. 
Wilson,  142  U.  S.  313,  35  L.  Ed. 
1025,  12  Sup.  Ct.  235;  United  States 
Trust  Co.  V.  Wabash  etc.  R.  Co., 
150  U.  S.  287,  37  L.  Ed.  1085,  14 
Sup.  Ct.  86. 

A  receiver  may  adopt  a  contract 
of  his  predecessor,  either  ex- 
pressly or  by  implication.  Craw- 
ford V.  Gordon,  88  Wash.  553, 
L.   R.  A.  1916C,  516,  153  Pac.  363. 

A  receiver,  of  course,  holds  the 
funds  under  his  control  subject  to 
the  orders  of  the  court.  Adams  v. 
Woods,  15  Cal.  206;  Johnson  v. 
Gunter,  6  Bush  (69  Ky.)  534;  In  re 
Sheets  Lumber  Co.,  52  La.  Ann. 
1337,  27  So.  809;  Penn  v.  White- 
heads, 12  Gratt.   (Va.)   74. 

The  receiver  may  avail  himself. 
of  the  rights  which  the  defendant 
had  to  enforce  or  defend  against 
instruments  executed  by  the  de- 
fendant. Williams  v.  Babcock,  25 
Barb.  (N.  Y.)  109;  Bell  v.  Shibley, 
33  Barb.  (N.  Y.)   610. 


7  A  receiver  is  not  bound  to  ac- 
cept property  of  an  onerous  and 
unprofitable  nature  which  would 
be  a  burden  instead  of  a  benefit  to 
the  estate.  Shreve  v.  Hankinson, 
34  N.  J.  Eq.  413;  Weeks  v.  Weeks, 
106  N.  Y.  626,  13  N.  E.  96;  McMinn- 
ville  &  M.  Railroad  v.  Huggins,  3 
Baxt.  (62  Tenn.)  177;  Sparhawk 
v.  Yerkes,  142  U.  S.  1,  35  L.  Ed. 
915,  12  Sup.  Ct.  104;  Glenny  v. 
Langdon,  98  U.  S.  20,  25  L.  Ed.  43; 
American  File  Co.  v.  Garrett,  110 
U.  S.  288,  28  L.  Ed.  149^  4  Sup.  Ct. 
90.  This  species  of  unprofitable 
property  is  termed  by  Lord  Ken- 
yon  damnosa  hfereditas,  cited  in  7 
East  342. 

Re  Thames  etc.  Co.  v.  The  Com- 
pany, 106  L.  T.  Rep.  674. 

In  Suydam  v.  Receivers,  3  N.  J. 
Eq.  114,  the  court  says  of  a 
"clearly  unlawful"  (but  moral) 
contract  entered  into  prior  to  the 
receivership:  "But  the  receivers 
might  have  ratified  it  in  their  dis- 
cretion on  the  ground  of  expe- 
diency." 

s  Scott  V.  Rainier  Power  etc.  Co., 
13  Wash.  108,  42  Pac.  531;    Craw- 


150 


LAW   OF   RECEIVERS. 


If  the  receiver  could  be  lielcl  to  the  performance  of  an 
uncompleted  contract,  the  performance  of  the  contract 


ford  V.  Gordon,  88  Wash.  553, 
L.  R.  A.  1916C  516,  153  Pac.  363. 
In  Peabody  Coal  Co.  v.  Nixon, 
226  Fed.  20,  140  C.  C.  A.  446,  the 
court  said:  "On  the  hearing  be- 
fore the  master  it  appeared  that 
under  the  old  contract  the  railroad 
company  had  bound  itself  to  pur- 
chase and  receive  from  the  coal 
company  f.  o.  b.  mines  for  its  fuel 
purposes  not  less  than  450  and  not 
more  than  900  tons  of  mine-run 
coal  per  day  produced  from  the 
mines  of  the  coal  company.  The 
price  for  the  coal  was  'to  be  deter- 
mined by  adding  ten  cents  per 
ton  to  the  average  actual  cost  to 
the  coal  company  per  ton  of  coal 
produced  from  all  such  mines  dur- 
ing such  month.' 

"The  contract  set  forth  in  detail 
the  items  which  were  to  enter  into 
the  cost  of  production  and  the  way 
in  which  the  average  actual  cost 
of  production  per  ton  should  be 
ascertained.  The  items  thus  enter- 
ing into  the  price  to  be  paid  by 
the  railroad  company  included  ren- 
tals, royalties,  depreciation,  inter- 
est on  part  of  the  investment, 
insurance  premiums,  cost  of  main- 
taining, repairing  and  renewing 
plant  (in  part),  wages  and  salaries 
of  employees,  payments  made  as 
damages,  cost  and  attorneys'  fees 
for  claims  for  personal  injuries  to 
employees,  for  insurance  against 
such  claims,  net  cost  of  props,  and 
all  other  supplies  and  material 
used  during  such  month,  wages 
and  salaries  of  officers,  and  all 
other  proper  expenses  usually 
chargeable  to  the  operation  of  coal 
mines,    all    of   which    were    to    be 


distributed  pro  rata  over  the  en- 
tire production  at  all  of  the  coal 
company's  mines,  to  which  was  to 
be  added  ten  cents  on  each  ton 
taken  by  the  railroad  company. 

"The  first  impression  is,  that 
this  is  unlike  an  agreement  be- 
tween parties  dealing  at  arms 
length.  The  coal  company  was  on 
the  ground,  the  railroad  company 
was  not.  It  bought  the  supplies, 
hired  and  paid  the  labor,  and  did 
everything  else  about  cost  of  pro- 
duction, and  kept  the  books.  There 
was  the  implied  right  to  re-check, 
but  that  would  be  an  additional 
expense  and  hardly  satisfactory  to 
a  business  man.  The  face  of  the 
contract  was  a  representation  that 
there  was  a  profit  of  only  ten  cents 
a  ton,  but  it  turned  out  from  the 
proof  to  be  much  more,  as  meas- 
ured by  the  market. 

"The  master  began  the  hearing 
on  September  3d  following  the  ref- 
erence. The  coal  company  at- 
tempted to  show  and  induce  the 
master  to  believe  that  the  old  con- 
tract was  beneficial  to  the  receiv- 
ers and  ought  to  be  affirmed,  but 
the  master  found  from  the  evi- 
dence that  appellant's  coal  under 
the  old  contract  would  cost  the 
receivers  $1.25  per  ton,  that  they 
could  obtain  the  coal  they  needed 
in  operation  at  $1  per  ton  and  thus 
save  annually  about  $50,000  to  the 
trust  estate.  He  recommended 
that  an  order  be  entered  approv- 
ing the  renouncement  of  the  con- 
tract.   .    .    . 

"We  had  occasion  in  another 
case  (Kansas  City  So.  R.  Co.  v. 
Lusk    et    al.,     224     Fed.    704,     140 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


151 


by  liim  would  be  equivalent  to  a  payment  or  satisfaction 
of  the  contract  indebtedness,  and  in  the  absence  of  ade- 
quate funds  for  that  purpose,  the  court  will  not  require 
him  to  do  so.*^ 


C.  C.  A.  244)  at  this  term  to  ob- 
serve that  it  is  not  the  rule  that 
the  contract  of  the  owner  of  a 
trust  estate  is  binding  on  the  re- 
ceivers until  renounced,  but,  con- 
tra, that  the  receivers  are  not 
bound  by  the  contract  until  they 
have  affirmed  it  and  assumed  its 
burdens  under  the  direction  of  the 
court.  We  need  not  say  much 
more.  There  can  be  no  claim  on 
the  facts  of  an  affirmance  by  con- 
duct or  an  estoppel  against  renun- 
ciation. Spencer  v.  World's  Colum- 
bian Exposition,  163  111.  117,  45 
N.  E.  250;  Nelson  v.  Kalkhoff  (In 
re  Bishop),  60  Minn.  305,  62  N.  W. 
335;  Commercial  Pub.  Co.  v.  Beck- 
with,  167  N.  Y.  329,  60  N.  E.  642; 
Howe  V.  Harding,  76  Tex.  17,  13 
S.  W.  41,  18  Am.  St.  Rep.  17.  The 
receivers  were  entitled  to  a  rea- 
sonable time  within  which  to 
investigate  and  determine  what 
course  they  would  take,  for  the 
engagements  of  the  great  railway 
system  which  the  court  took  in 
hand  were  multitude.  With  this 
in  mind  the  court  granted  them 
six  months  to  act.  Within  one 
month  after  their  appointment 
they  decided  that  the  contract  be- 
tween appellant  and  the  owner  of 
the  trust  estate  was  burdensome 
and  determined  that  it  should  be 
renounced,  and  immediately  pe- 
titioned the  court  for  an  approval. 
They  also  gave  notice  within  the 
month  to  appellant  that  they  would 
not  affirm  the  contract  and  assume 
its  burdens,  and  continued  thence 
to  assert  their  renouncement  until 


their  action  was  confirmed  by  the 
court,  which  would  have  been 
doubtless  granted  shortly  after 
their  request  but  for  the  resistance 
of  the  appellant  and  its  persistent 
elTort  to  convince  that  the  affirm- 
ance of  the  contract  would  be  ben- 
eficial to  the  trust  estate.  The 
facts  and  the  law  are  against  the 
appellant.  Ames  v.  Union  Pac.  R. 
Co.,  (C.  C.)  60  Fed.  966,  970;  Mer- 
cantile Trust  Co.  V.  Farmers'  Loan 
&  Trust  Co.,  81  Fed.  254,  258, 
26  C.  C.  A.  383;  Dayton  Hydraulic 
Co.  V.  Felsenthall,  116  Fed.  961, 
966,  54  C.  C.  A.  537;  General  Elec- 
tric Co.  V.  Whitney,  74  Fed.  664, 
20  C.  C.  A.  674;  Coy  v.  Title  etc. 
Trust  Co.,  (D.  C.)  198  Fed.  275, 
280,  and  authorities  cited  in  those 
cases." 

Receiver  of  corporation  may  pro- 
ceed with  a  contract  partly  per- 
formed until  he  has  ascertained 
that  its  performance  would  not  be 
beneficial  to  the  estate,  and  he  is 
entitled  to  be  paid  on  a  quantum 
meruit  for  the  work  so  performed. 
Butterworth  v.  Degnon  Contract- 
ing Co.,  214  Fed.  772,  131  C.  C.  A. 
184  (reversing  judgment  (D.  C.) 
208  Fed.  381). 

But  if  the  receiver  has  not  rati- 
fied the  agreement  and  has  in 
effect  suspended  its  operation,  he 
may  be  held  to  the  reasonable 
value  of  property  or  service  fur- 
nished to  him.  Odell  v.  Bedford 
Co.,  224  Fed.  996. 

0  Gaither  v.  Stockbridge,  67  Md. 
222,  9  Atl.  632,  10  Atl.  309;  Com- 
monwealth   v.    Franklin    Ins.    Co., 


152 


Lu\.W   OP   RECEIVERS. 


The  receiver  lias  no  right  to  impeach  or  disaffirm  the 
legal  and  authorized  acts  of  a  corporation,  as  where  a 
corporation  had  surrendered  a  note  upon  which  the 
receiver  subsequently  brought  suit,  no  fraud  or  mistake 
of  fact  being  shown,^''  for  in  such  a  case  the  receiver  is 
as  much  bound  by  the  act  of  the  company  as  the  company 
would  be.  He  may,  however,  avoid  the  illegal  and  unau- 
thorized act  of  the  company.^^ 


115  Mass.  278;  Ellis  v.  Boston  etc. 
R.  Co.,  107  Mass.  1;  Berry  v.  Gillis, 
17  N.  H.  9,  43  Am.  Dec.  584;  Gillet 
V.  Moody,  3  N.  Y.  479;  Brown  v. 
Warner.  78  Tex.  543,  22  Am.  St. 
Rep.  67,  11  L.  R.  A.  394,  14  S.  W. 
1032.  See,  contra,  Howe  v.  Hard- 
ing, 76  Tex.  17,  18  Am.  St.  Rep.  17, 
13  S.  W.  41;  Fidelity  Safe  Deposit 
&  T.  Co.  V.  Armstrong,  35  Fed. 
567;  Southern  Express  Co.  v. 
Western  etc.  R.  Co.,  99  U.  S.  191, 
25  L.  Ed.  319;  Central  Trust  Co. 
V.  Marietta  &  N.  G.  R.  Co.,  51  Fed. 
15,  16  L.  R.  A.  90;  Glenny  v.  Lang- 
don,  98  U.  S.  20,  25  L.  Ed.  43; 
American  File  Co.  v.  Garrett,  110 
U.  S.  288,  28  L.  Ed.  149,  4  Sup.  Ct. 
90;  Sparhawk  v.  Yerkes,  142  U.  S. 
1,  35  L.  Ed.  915,  12  Sup.  Ct.  104. 

As  to  leasehold  estates,  Mr.  Chief 
Justice  Fuller,  in  Quincy,  M.  &  P. 
R.  Co.  V.  Humphreys,  145  U.  S.  82, 
36  L.  Ed.  632,  12  Sup.  Ct.  787,  says: 
"If  the  order  of  court  under  which 
the  receiver  acts  embraces  the 
leasehold  estate  it  becomes  his 
duty  of  course  to  take  possession 
of  it.  But  he  does  not  by  taking 
such  possession  become  assignee 
of  the  term  in  any  proper  sense 
of  the  word.  He  holds  that  as  he 
would  hold  any  other  personal 
property  for  and  as  the  hand  of 
the  court  and  not  as  the  assignee 
of  the  term."  Re  Oak  Pits  Colliery 
Co.,  L.  R.  21  Ch.  Div.  322. 


10  Hyde  v.  Lynde,  4  N.  Y.  387. 
As  to  the  right  of  a  receiver  of  a 
railroad  to  sever  the  connection 
between  it  and  another  railroad, 
for  non-payment  of  the  sums 
agreed  to  be  paid  by  the  latter  for 
the  privilege  of  running  over  the 
road — determined,  in  a  case  de- 
pending upon  particular  facts,  see 
Elmira  Iron  &  S.  Roll.  Mill  Co.  v. 
Erie  Ry.  Co.,  26  N.  J.  Eq.  284. 

A  receiver  represents  both  the 
creditors  and  their  debtor,  the  in- 
solvent, he  being  the  trustee  of 
both  and  bound  to  serve  both,  but 
his  right  to  represent  the  creditors 
in  opposing  a  contract  entered 
into  by  the  debtor  is  generally 
limited  to  questions  of  fraud, 
though  he  may  be  heard  individ- 
ually when  he  asserts  a  personal 
right,  although  precluded  from 
being  heard  as  a  receiver.  In  re 
Pleasant  Hill  Lumber  Co.,  126  La. 
743,  52  So.  1010. 

11 A  receiver  represents  and 
stands  in  the  place  of  the  corpora- 
tion over  which  he  is  receiver  and 
can  enforce  only  such  contracts 
and  rights  as  the  corporation  itself 
could  enforce.  Russell  v.  Bristol, 
49  Conn.  251;  Greene  v.  A.  &  W. 
Sprague  Mfg.  Co.,  52  Conn.  330; 
Coope  V.  Bowles,  42  Barb.  (N.  Y.) 
87;  Leavitt  v.  Palmer,  3  N.  Y.  19, 
51  Am.  Dec.  333;   Gillet  v.  Moody, 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


153 


/^The  functions  of  the  receiver  are  merely  to  marshal 
/the  assets  and  distribute  the  assets  of  the  receivership 
to  the  creditors  as  directed  by  the  court  according  to 
their  respective  rights  and  interests.  He  is,  as  a  general 
rule,  but  the  agent  of  the  court,  and  is  not  the  agent  of 
the  owner  of  the  property  for  the  fulfillment  of  his  con- 
tracts, except  where  he  makes  the  contracts  his  own  by 
some  act  of  adoption.^ ^ 

If  the  receiver  were  required  to  complete  the  unfin- 
ished contract  of  the  owner  the  eifect  in  many  cases 
would  be  to  make  a  preference  in  favor  of  a  simple 
contract  creditor  as  against  a  lien  holder,  and  thus 
change  the  rights  of  the  parties  as  they  exist  at  the 
time  of  the  receiver's  appointment.^^ 


3   N.   Y.   479;    Brouwer  v.   Hill,   1 
Sandf.  (N.  Y.)  629. 

Although  the  general  rule  is  that 
a  receiver  takes  the  title  of  the 
lierson  or  entity  whose  receiver 
he  is,  suhject  to  the  defenses  ex- 
isting against  them,  still  he  may, 
in  the  interest  of  creditors,  dis- 
avow contracts  of  the  debtor 
which  are  in  fraud  of  the  rights 
of  the  creditors.  Porter  v.  Wil- 
liams, 9  N.  Y.  142,  59  Am.  Dec. 
519;  Curtis  v.  Leavitt,  15  N.  Y.  9. 
A  receiver  in  a  foreclosure  pro- 
ceeding has  no  power  to  contract 
for  municipal  aid  in  the  construc- 
tion by  him  of  the  unfinished  por- 
tion of  a  branch  road.  Smith  v. 
McCullough,  104  U.  S.  25,  26  L.  Ed. 
637. 

As  to  the  liability  of  the  receiver 
for  work  partially  completed  when 
appointed  and  continued  by  the 
contractor  thereafter  until  ordered 
to  suspend,  see  Girard  Life  Ins.  A. 
&  T.  Co.  v.  Cooper,  51  Fed.  332, 
2  C.  C.  A.  245,  4  U.  S.  App.  631. 
i2Hoyt  v.  Stoddard,  2  Allen  (84 


Mass.)  442;  Ellis  v.  Boston  etc.  R. 
Co.,  107  Mass.  1;  Commonwealth 
V.  Franklin  Ins.  Co.,  115  Mass.  278; 
Re  Brown,  3  Edw.  Ch.  (N.  Y.)  384; 
Woodruff  V.  Erie  R.  Co.,  93  N.  Y. 
609;  Re  Otis,  101  N.  Y.  580,  5  N.  E. 
571;  Brown  v.  Warner,  78  Tex.  543, 
22  Am.  St.  Rep.  67,  11  L.  R.  A.  394, 
14  S.  W.  1032;  St.  Joseph  &  St.'L. 
R.  Co.  V.  Humphreys,  145  U.  S.  105, 

36  L.  Ed.  690,  12  Sup.  Ct.  795; 
United  States  Trust  Co.  v.  Wabash 
etc.  R.  Co.,  150  U.  S.  287,  37  L.  Ed. 
1085,  14  Sup.  Ct.  86;  Seney  v.  Wa- 
bash Western  R.  Co.,  150  U.  S.  310, 

37  L.  Ed.  1092,  14  Sup.  Ct.  94; 
Peoria  &  P.  U.  R.  Co.  v.  Chicago, 
P.  &  S.  W.  R.  Co.,  127  U.  S.  200, 
32  L.  Ed.  110,  8  Sup.  Ct.  1125;  Sun- 
flower Oil  Co.  V.  Wilson,  142  U.  S. 
313,  35  L.  Ed.  1025,  12  Sup.  Ct.  235; 
Turner  v.  Richardson,  7  East  335. 

13  Olyphant  v.  St.  Louis  Ore  &  S. 
Co.,  28  Fed.  729;  Southern  Express 
Co.  V.  Western  etc.  R.  Co.,  99  U.  S. 
191,  25  L.  Ed.  319.  In  this  case 
there  was  a  contract  between  a 
railroad  company  and  an  express 


154  LAW   OP   RECEIVERS. 

The  court,  however,  may  order  the  receiver  to  com- 
plete unfinished  contracts  if  by  so  doing  the  interests  of 
all  parties  will  be  better  conserved,  and,  in  such  case, 
whatever  is  done  by  the  receiver  in  the  performance  of 
such  contracts  becomes  an  obligation  upon  the  receiver- 
ship and  its  property  to  be  protected  by  the  court.^^ 

It  is,  however,  as  much  the  duty  of  a  receiver,  in  admin- 
istering an  estate,  to  protect  valid  preferences  and  priori- 
ties, as  it  is  to  make  a  just  distribution  among  the  general 
creditors. ^^ 

§  35.    Performance  by  Receiver  of  Executory  Contracts. 

Following  the  rules  set  forth  in  the  preceding  section, 
it  is  apparent  that  unless  there  is  some  equitable  lien 
upon  the  receivership  property  which  demands  the  per- 
formance of  the  contract  as  part  of  its  obligation,  the 
receiver  is  under  no  obligation  to  perform  an  executory 
contract  entered  into  by  the  defendant  prior  to  his  ap- 
pointment. He  may  proceed  with  the  contract  if  he 
deems   such  continuance  to  be  beneficial  to  the  estate 

company     by     which     the     latter  St.   Louis   Ore   &    S.   Co.,    28   Fed. 

loaned  the  former  a  sum  of  money  729.      But    see   Elmira   Iron    &    S. 

to  be   expended   in  repairing  and  Roll.  Mill  Co.  v.  Erie  Ry.  Co.,  26 

equipping   the   road   in   considera-  ^^•  j   gq.  284. 

tion  of  the  privileges  and  facilities  ,5  American    etc.    Bank    v.    Mc- 

of  express  business  over  the  road.  ^^^^^.^^^^  ^^^  j^^    582^  ^^  Am.  St. 

Foreclosure   proceedings   were   in-  o,r    kom   -p^   7qq 

.    i.^A        Rep.  345,  52  N.  B.  793. 
stituted  and  a  receiver  appointed,  '' 

who  refused  to  perform  the  con-  A  receiver's  exclusive  posses- 
tract.  A  bill  for  specific  perform-  slon  of  property  does  not  interfere 
ance  of  the  contract  was  filed  by  with  or  disturb  any  pre-existing 
the  express  company.  The  court  liens,  pi-eferences,  or  priorities, 
held  that  a  specific  performance  if  He  simply  holds  the  property  in- 
decreed  would  be  a  form  of  satis-  tact  until  the  relative  rights  of 
faction  or  payment,  and  declined  all  parties  can  be  determined,  and 
to  grant  the  relief.  prevents  the  sacrifice  of  assets  by 
14  Florence  Gas,  E.  L.  &  P.  Co.  a  multiplicity  of  suits  and  execu- 
V.  Hanby,  101  Ala.  15,  13  So.  343;  tions.  Pelletier  v.  Greenville  Lum- 
Suydam  v.  Bank  of  New  Bruns-  her  Co.,  123  N.  C.  596,  68  Am.  St. 
wick,  3  N.  J.  Eq.  114;   Olyphant  v.  Rep.  837,  31  S,  E.  855, 


EFFECT    OF   APPOrTSTTMENT    AND    DUTIES. 


155 


or  abandon  it  if  lie  deems  it  not  beneficial  to  the  receiver- 
ship.^ The  privilege  of  a  receiver  in  tliis  respect  is 
for  the  purpose  of  acting  in  the  best  interests  of  the 
receivership  estate  and  its  creditors  and  it  extends  not 
only  to  the  right  to  elect  what  contracts  he  will  adopt 
but  also  to  making  such  election  without  subjecting  the 
receivership  fund  to  the  satisfaction  of  existing  claims 
of  creditors  for  damages  arising  from  the  breaches  of 
their  contracts.^ 

Although  the  receiver  may  not  be  bound  by  the  con- 
tract of  the  defendant  with  other  parties,  his  appoint- 
ment will  not  nor  can  any  act  on  his  part  impair  the 
obligations  of  the  contract  as  between  the  original  par- 
ties to  it  and  therefore  the  injured  party  to  the  contract 
may   recover    damages    against   the   defendant   for    its 


1  Where  the  receiver  of  a  cor- 
poration, when  appointed,  found  a 
contract  for  the  transportation  of 
large  quantities  of  stone  partly 
performed,  it  was  his  duty  to  pro- 
ceed with  the  contract  if  beneficial 
to  the  estate,  and  to  abandon  it  if 
not  beneficial.  Butterworth  v.  Deg- 
non  Contracting  Co.,  214  Fed.  772, 
131  C.  C.  A.  184,  reversing  judg- 
ment (D.  C.)  208  Fed.  381. 

Receiver  of  estate  of  insolvent 
corporation  has  the  right  to  ques- 
tion a  transaction  in  which  insol- 
vent borrowed  money,  paying  an 
alleged  usurious  rate  of  interest. 
James  Bradford  Co.  v.  United 
Leather  Co.,  (Del.  Ch.)  95  Atl.  308. 

In  Southern  Express  Co.  v. 
Western  etc.  R.  Co.,  99  U.  S.  199, 
25  L.  Ed.  319,  the  court  said:  "A 
specific  performance  by  the  re- 
ceiver would  be  a  form  of  satis- 
faction or  payment  which  he  can 
not  be  required  to  make.  As  well 
might  he  be  decreed  to  satisfy  aj)- 
pellee's  demand  by  money  as  by 
the  service  sought  to  be  enforced." 


A  receiver  who  comes  into  pos- 
session of  unfulfilled  contracts,  al- 
though not  bound  to  perform  them 
if  he  deems  it  unprofitable  to  the 
estate,  must  nevertheless  investi- 
gate the  matter  and  determine 
what  he  should  do  in  the  best  in- 
terests of  the  receivership.  Harri- 
gan  V.  Gilchrist,  121  Wis.  127,  352. 
99  N.  W.  909,  978. 

The  non-performance  of  a  con- 
tract can  not  be  recovered  for  if 
caused  by  the  appointment  of  a 
receiver  and  injunction  against  the 
further  transaction  of  business. 
Malcomson  v.  Wappoo  Mills,  88 
Fed.  680. 

A  guaranty  of  coal  that  may  be 
bought  may  be  enforced  by  a  re- 
ceiver, although  the  guaranty  was 
before  the  receivership,  and  the 
sale  of  coal  was  by  the  receiver 
himself.  Philadelphia  etc.  Iron  Co. 
V.  Daube,  71  Fed.  583. 

•2  Wells  V.  Hartford  Manilla  Co., 
76  Conn.  27,  55  Atl.  599. 


156 


LAW   OF   RECEIVERS. 


breach  and  the  receiver  is  not  a  necessary  party  to  such 
an  action.^ 

The  application  of  the  rules  discussed  in  these  sec- 
tions to  specific  subjects,  such  as  in  respect  to  leases 
and  public  ser^dce  corporations  and  the  like,  ^\^ll  be 
treated  more  fully  in  the  sections  devoted  to  such 
subjects. 

§  36.    Effect  of  Receiver  Adopting  Prior  Contracts. 

Where  a  receiver  having  a  right  to  repudiate  a  con- 
tract of  the  defendant  in  the  receivership  proceeding 
adopts  the  contract,  either  expressly  or  by  such  implied 
acts  as  leave  no  question  of  the  adoption,  he  must  comply 
\\i.th  all  of  its  terms  and  burdens.  He  can  not,  under 
such  circumstances,  accept  its  benefits  without  also 
assuming  its  burdens.^    Where  the  receiver  has  adopted 


3  Wolf  V.  National  Bank,  178  111. 
85,  52  N.  E.  896;  Chemical  Nat. 
Bank  v.  Hartford  Deposit  Co.,  156 
111.  522,  41  N.  E.  225  (affirmed  in 
161  U.  S.  1,  40  L.  Ed.  595,  16  Sup. 
Ct.   439). 

Money  due  upon  contracts  en- 
tered into  prior  to  the  receivership 
and  which  do  not  constitute  a  lien 
on  the  property  of  the  receiver- 
ship, constitutes  merely  a  part  of 
the  general  indebtedness  of  the 
receivership.  A  payment  of  such 
indebtedness  by  the  receiver  be- 
fore a  general  distribution  would 
in  effect  be  giving  a  preference  to 
creditors  who  were  not  entitled  to 
a  preference.  Ellis  v.  Boston  etc. 
R.  Co.,  107  Mass.  1  (same  case 
under  the  name  of  Graham  v.  Bos- 
ton etc.  R.  Co.,  118  U.  S.  161,  30 
L.  Ed.  196,  6  Sup.  Ct.  1009). 

No  act  of  a  receiver  could  re- 
lieve a  party  from  obligations  aris- 
ing from  a  valid  contract,  made 
before  the  receivership.    Arlington 


Heights  Realty  Co.  v.  Citizens'  Ry. 
&  Light  Co.,  (Tex.  Civ.)  160  S.  W. 
1109. 

Where  an  executory  contract 
made  by  a  corporation  is  termi- 
nated by  its  receivers  on  its  in- 
solvency, a  claim  by  the  other 
party  for  damages  for  loss  of  ex- 
pected future  profits  is  not  prov- 
able against  the  insolvent  estate. 
In  re  New  York  City  Ry.  Co.,  188 
Fed.  339;  Pennsylvania  Steel  Co. 
V.  New  York  City  R.  Co.,  188  Fed. 
343. 

1  De  W^olf  V.  Royal  Trust  Co., 
173  111.  435,  50  N.  E.  1049;  Spencer 
V.  World's  Columbian  Exposition, 
163  111.  117,  45  N.  E.  250;  Nelson 
V.  KalkhofE  (In  re  Bishop),  60 
Minn.  305,  62  N.  W.  335;  Commer- 
cial Pub.  Co.  V.  Beckwith,  167  N.  Y. 
329,  60  N.  E.  642;  Sumner  Iron 
Works  V.  Wolten,  61  Wash.  689, 
112  Pac.  1109;  Street  v.  Maryland 
Central  R.  Co.,  59  Fed.  25;  Cen- 
tral Trust  Co.  V.  Continental  Trust 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


157 


the  contract,  he  can  not  refuse  to  be  bound  by  the  terms 
fixed  by  it  and  be  willing  to  merely  pay  a  ''reasonable 


Co.,  86  Fed.  517,  30  C.  C.  A.  235; 
Dayton  etc.  Co.  v.  Felsenthall,  116 
Fed.  961,  54  CCA.  537;  Sunflower 
Oil  Co.  V.  Wilson,  142  U.  S.  313, 
35  L.  Ed.  1025,  12  Sup.  Ct.  235; 
Fames  v.  H.  B.  Claflin  Co.,  220 
Fed.  190. 

When,  however,  a  receiver 
adopts  a  contract  of  the  defendant, 
he  then  becomes  mutually  bound 
by  its  terms  with  the  other  party. 
General  Electric  Co.  v.  Whitney,, 
74  Fed.  664,  20  C  C.  A.  674.  ' 

He  will  be  directed  to  pay 
claims  made  on  account  of  mate- 
rial furnished  to  and  accepted  by 
him  as  such  receiver,  and  which 
are  either  admitted  by  him  to  be 
due  or  which  have  been  properly 
verified  and  presented  for  pay- 
ment. Vanderbilt  v.  Central  R. 
Co.,  43  N.  J.  Eq.  669,  12  Atl.   188. 

A  receiver  of  a  party  to  a  con- 
tract has  a  reasonable  time  within 
which  to  elect  to  adopt  or  perform 
the  contract,  where  performance 
is  necessary;  and  he  can  not  be 
put  in  default  for  not  adopting, 
or  performing,  or  tendering  such 
j  erioi-mance,  before  such  reason- 
rble  time  has  expired.  Rogers  v. 
Union  Iron  &  Foundry  Co.,  167 
Mo.  App.  228,  150  S.  W.  100. 

In  this  connection  see  also  But- 
terworth  v.  Degnon  Const.  Co.,  208 
Fed.  381. 

In  Easton  v.  Houston  etc.  Ry. 
Co.,  38  Fed.  784,  the  original  con- 
tract, whereby  certain  Pullman 
cars  were  transferred  from  plain- 
tiff to  the  railway  company,  im- 
posed certain  burdens  upon  the 
latter.  The  subsequent  receivers 
of  the  railway,  while  retaining  the 


cars,  declined  to  assume  such  bur- 
dens, having  never  themselves 
made  any  contract  or  agreement 
with  the  claimants.  But  the  court 
held  the  receivers  bound  to  per- 
form the  covenants  of  the  previous 
agreement,   saying: 

".  .  .  the  receivers,  with  full 
knowledge  of  the  obligations  of 
the  railway  company,  and  the  con- 
dition of  the  property  furnished 
thereunder,  did  take  possession  of 
the  lease  and  leased  property,  and 
operated  the  same,  enjoying  all 
the  advantages  thereof,  and  all  for 
the  benefit  of  the  trust  fund.  It 
would  seem  that,  under  this  state 
of  facts,  the  receivers,  fully  au- 
thorized thereto,  became  the  as- 
signees of  the  railway  company, 
and  thereby  legally  and  equitably 
obligated  themselves  to  perform 
the  several  covenants  undertaken 
by  the  company  as  to  the  care  and 
return  of  the  leased  property.  The 
lease  in  question  was  an  entirety; 
of  necessity  an  assignment  or 
assumption  thereof  was  of  the 
whole,  and  not  of  any  particular 
part."   (Citing  authorities.) 

In  Girard  Life  Ins.  etc.  Co.  v. 
Cooper,  162  U.  S.  529,  538,  40 
L.  Ed,  1062,  16  Sup.  Ct.  879,  where 
the  receivers  accepted  the  benefits 
of  the  performance  of  a  contract 
entered  into  prior  to  their  ap- 
pointment, which  contract  was  un- 
enforceable against  them,  the 
Supreme  Court  of  the  United 
States  said: 

"It  is  true  that  the  company,  in 
December,  1890,  was  put  into  the 
hands  of  receivers;  but,  with  full 
knowledge  of  all  that  was  being 


158 


LAW   OF   RECEIVERS. 


price"  to  be  fixed  by  the  court  for  the  materials  bought, 
services  rendered,  rentals  or  other  things  of  value  re- 


done, they  allowed  the  work  to 
continue  without  Interruption,  until 
June  3,  1891,  and  were  justly  held 
to  be  liable  for  what  had  been 
done  up  to  that  time,  according 
to  the  terms  of  the  contract." 

In  Central  Trust  Co.  v.  Conti- 
nental Trust  Co.,  86  Fed.  517,  30 
C.  C.  A.  235,  the  Eighth  Circuit 
Court  of  Appeals,  after  holding 
that  a  prior  lease  contract  is  not 
valid  as  against  the  receivers,  says: 
".  .  .  but  if,  after  due  investi- 
gation, the  receiver  decides  that 
it  is  best  not  to  sell  or  surrender 
the  leasehold  interest,  because  it 
is  indispensable  to  the  successful 
operation  of  the  trust  estate,  and 
the  court,  on  consideration,  so 
determines,  and  notifies  the  lessor, 
and  thereafter  continues  the  pos- 
session, such  acts  would  constitute 
an  adoption  of  the  lease,  and,  of 
consequence,  carry  with  it  the  ob- 
ligation of  the  receiver  to  pay 
according  to  the  stipulations  of 
the  lease." 

The  court  then  mentions  the 
fact  that  "the  law  implies  the  fact 
of  adoption  from  the  mere  refusal 
of  the  court  to  surrender  posses- 
sion to  the  lessor  upon  his  applica- 
tion"   (p.   526),  and  concludes: 

"If  the  lease  was  adopted,  the 
law  fixed  the  rental  specified  in 
the  lease  as  the  amount  of  com- 
pensation to  be  rendered." 

In  Dayton  etc.  Co.  v.  Felsenthall, 
116  Fed.  961,  54  C.  C.  A.  537,  the 
receivers  did  not  take  actual  pos- 
session of  the  previously  leased 
premises,  and  upon  demand  by  the 
claimants  refused  either  to  sur- 
render   the    premises    or    to    pay 


rent,  as  provided  in  the  lease.  The 
lower  court  finally  ordered  the 
premises  surrendered  to  claim- 
ants, but  declined  to  order  any 
payment  of  rent.  The  Circuit 
Court  of  Appeals,  in  reversing  this 
judgment,  held  that  the  refusal  of 
the  receiver  to  return  the  prop- 
erty amounted  to  an  election  to 
retain  it,  and  rendered  him  liable 
to  perform  the  covenants  of  the 
lease  rather  than  for  a  reasonable 
rental.  The  late  Mr.  Justice  Lur- 
ton,  speaking  for  the  court,  after 
remarking  that  the  controversy  in 
a  case  of  this  kind  is  usually 
"whether  rent  should  be  paid  ac- 
cording to  the  stipulations  of  the 
contract  between  lessor  and  les- 
see, or  upon  a  basis  of  a  reasoi- 
able  compensation  to  the  lessor," 
says: 

"His  (the  receiver's)  whole  con- 
duct was  that  of  one  who  was 
neither  willing  to  give  up  the 
premises,  nor  to  make  the  lease 
his  own.  .  .  .  These  considera- 
tions lead  us  to  the  conclusion  that 
the  receiver  has  apra'opriated  the 
premises  to  the  use  of  the  ctb-.r 
properties  committed  to  his 
charge,  in  the  way  in  which  it 
was  most  useful,  by  retaining  his 
hold  upon  the  term,  and  his  con- 
structive possession  of  the  prem- 
ises; and  that  from  July  16,  1896, 
he  ought  to  compensate  the  lessor 
by  paying  the  rents  stipulated  in 
the  lease,  and  the  taxes." 

Where  a  receiver  comes  into  the 
possession  of  an  executory  con- 
tract for  the  sale  of  corporation 
stock  or  land,  he  obtains  no 
greater  rights   under   it   than   the 


EFFECT   OF   APPOINTMENT   AND    DUTIES. 


159 


ceivetl  by  him  under  the  contract.     The  fundamentals 
going  to  the  make-up  of  a  contract  are  not  abrogated 


purchaser  has  under  its  provisions. 
He  can  not  obtain  the  property 
described  in  the  contract  without 
paying  for  it  any  more  than  can 
the  original  purchaser  under  the 
contract.  Continental  Trust  Co.  v. 
Brown,  (Tex.  Civ.)  179  S.  W.  939. 
In  the  case  just  cited  the  court 
said:  "Since  this  stock  contract 
is  executory,  whether  it  be  Hilde- 
brand,  Hopkins,  or  the  Boston  & 
Texas  Corporation,  they  neither 
had  the  legal  title  to  the  property, 
but  only  the  right  to  complete  the 
purchase  by  paying  the  price  and 
then  obtain  a  title.  It  is  not  dif- 
ferent from  a  man  who  buys  laud, 
and  the  vendor's  lien  and  superior 
title  are  reserved  until  the  bal- 
ance of  the  purchase  money  is 
paid.  The  title  there  remains  in 
the  seller;  the  purchaser  only  hav- 
ing the  right  to  complete  the  pur- 
chase and  obtain  a  title  by  paying 
the  price.  It  would  be  a  mon- 
strous proposition  of  law  if  the 
purchaser  of  this  stock  could  de- 
mand and  receive  the  stock  with- 
out first  paying  for  same.  And 
here  payment  of  the  $175,000  is 
not  even  tendered;  but  it  is  pro- 
posed to  do,  through  a  receiver, 
what  no  one  would  contend  that 
Hopkins  or  Hildebrand  would  have 
the  right  to  do  as  individuals, 
namely,  get  possession  of  the 
stock  without  first  paying  for  it. 
A  receiver  takes  no  greater  title 
to  or  right  in  property  than  the 
owner  had  prior  to  the  receiver- 
ship. The  appointment  of  a  re- 
ceiver does  not  do  away  with 
rights  fixed  by  contract,  and  the 
very   same   contract   under   which 


right  to  the  stock  is  here  asserted 
provides  that  the  executor  should 
hold  same  until  the  purchase 
money  should  be  paid." 

In  Commercial  Pub.  Co.  v.  Beckr 
with,  167  N.  Y.  329,  60  N.  E.  642, 
the  defendant  made  a  loan  to  the 
publishing  company  under  a  con- 
tract which  constituted  defendant 
the  agent  for  the  publishing  com- 
pany in  certain  territory  to  secure 
advertisements,  and  to  make  and 
apply  the  collections  therefor  to 
the  repayment  of  his  loan.  De- 
fendant secured  ad^^ertisements 
and  received  payments  from  the 
advertisers  for  them.  A  receiver 
was  then  appointed  for  the  pub- 
lishing company,  and  he  took  ad- 
vantage of  defendant's  labor  in 
securing  the  advertisements  by 
publishing  them  and  earning  their 
price.  The  defendant  then  claimed 
that  the  amounts  collected  for  the 
advertisements  could  be  retained 
by  him  under  the  contract  and 
applied  to  the  loan.  The  receiver 
repudiated  the  contract  and 
brought  suit  for  these  proceeds. 
But  the  New  York  Court  of  Ap- 
peals held  that  the  receiver  could 
not  receive  the  benefits  of  defen- 
dant's performance  of  the  contract 
(securing  the  advertisements)  and 
repudiate  the  burdens  and  obliga- 
tions of  the  same  contract.  The 
court,  in  holding  against  the  re- 
ceiver, said: 

"As  receiver  he  could  refuse  to 
carry  out  or  execute  the  contract 
of  the  defendant,  and  by  so  doing 
leave  him  with  his  claim  for  dam- 
ages for  a  breach  of  the  contract; 
or,   if  he  saw   fit,   he   could   carry 


160 


LAW   OF   RECEIVERS. 


merely  because  a  court  through  its  receiver  has  become 
a  party  to  the  contract.-     The  rule  in  this  respect  was 


out  and  perform  the  contract  of 
the  corporation,  and  thus  prevent 
any  claim  for  damages.  He  could 
not,  however,  perform  the  contract 
and  receive  the  benefits  without 
satisfying  the  obligations  of  the 
company  thereunder.  When,  there- 
fore, the  receiver  accepted  and 
published  the  advertisements  pro- 
cured by  the  defendant,  he  must 
be  deemed  to  have  done  so  under 
the  contract  which  the  defendant 
had  with  the  corporation;  and 
under  that  contract  the  defendant 
had  the  right  to  collect  the  moneys 
accruing  for  such  advertisements, 
and  to  retain  out  of  such  collec- 
tions a  sum  not  to  exceed  $1000 
per  month,  to  be  applied  upon  the 
loan." 

The  case  was  affirmed  by  the 
Supreme  Court  of  the  United 
States.  Commercial  Pub.  Co.  v. 
Beckwith,  188  U.  S.  567,  47  L.  Ed. 
598,  23  Sup.  Ct.  382. 

2  In  Spencer  v.  World's  Colum- 
bian Exposition,  163  111.  117,  45 
N.  E.  250,  the  claimant  and  the 
corporation  entered  into  a  con- 
tract for  the  lease  of  a  concession 
at  the  World's  Fair  for  the  stipu- 
lated price  of  25  per  cent  of  the 
gross  receipts.  The  corporation 
became  insolvent  and  a  receiver 
was  appointed  to  carry  on  its  busi- 
ness. The  receiver  continued  to 
occupy  the  premises  but  insisted 
that  he  should  be  required  to  pay 
only  a  reasonable  rental  for  the 
premises  and  not  the  25  per  cent 
of  the  gross  receipts  stipulated  for 
in  the  original  contract,  the  very 
contention  of  the  receivers  at  bar. 
But   the    court   held    that   the    re- 


ceiver, having  taken  the  benefits, 
must  also  assume  the  burdens  and 
pay  the  amount  fixed  by  the  con- 
tract rather  than  a  "reasonable" 
price  to  be  fixed  by  the  court. 
After  deciding  that  the  contract 
was  not  originally  valid  as  against 
the  receivers,  who  could  have  re- 
pudiated it,  the  court  says: 

".  .  .  the  question  is  whether, 
after  it  had  taken  possession,  and 
under  the  order  of  the  court  car- 
ried on  the  business  as  it  had 
theretofore  been  carried  on  by  the 
insolvent  company,  until  the  end 
of  the  term,  and  received  all  the 
benefits  and  profits  of  the  contract 
from  thenceforward,  it  should  not 
also,  in  view  of  the  circumstances 
shown  in  the  record,  be  required 
to  assume  the  burdens  and  pay 
the  stipulated  price  for  the  part 
of  the  term  it  so  carried  on  the 
business  and  received  the  receipts., 
.  .  .  But  appellant  insists  that  if 
the  receiver  was  bound  to  pay 
anything,  it  was  bound  to  pay  only 
a  reasonable  compensation  for  the 
privileges  enjoyed,  and  was  in  no- 
wise bound  by  the  price  stipulated 
in  the  contract;  and  insists  that 
it  is  shown  by  the  pleadings  upon 
which  the  question  arises  that  the 
contract  price  was  unreasonable 
and  excessive,  and  that  the  court 
erred  in  refusing  to  refer  the 
cause  to  the  master  to  take  proof 
as  to  the  reasonable  value  of  the 
privileges  the  receiver  enjoyed. 
This  position  can  not  be  sustained 
on  this  record.  .  .  .  But  we  have 
been  referred  to  no  cases  holding 
that,  where  the  lease  or  contract 
is  of  itself  a  thing  of  value  to  the 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


161 


well  stated  by  Mr.  Chief  Justice  Start  of  tlie  Supreme 


creditors,  and  the  receiver,  under 
the  order  of  the  court,  takes  pos- 
session of  the  premises,  and  con- 
ducts    the     business     which     the 
insolvent  had  been  unable  to  con- 
tinue,   and,    without    any    act    of 
disafhrmarice    or    notice    that    he 
would  not  be   bound  by    the   con- 
tract, completes  the  term,  and  re- 
ceives profits,  and  all  the  benefits, 
from   such  possession  and  contin- 
uance of  the  business,  the  receiver 
may  then  repudiate  the  contract, 
and   pay   only   on  the   basis   of  a 
quantum  meruit.    ...    In  view  of 
the  above-recited  facts  we  do  not 
deem  it  important  whether  appel- 
lee had  a  right  of  re-entry  or  not 
for    non-payment    of    the    percen- 
tages reserved  in  the  contract,  or 
whether  or  not  it  had  the  right  to 
declare    a   forfeiture;    for,    if   the 
receiver,    by    the    consent    of    the 
creditors,  elected  to  take  the  place 
of  the   insolvent,   and   to  perform 
the  contract  for  the  remainder  of 
the  terra,  and  did  so,  receiving  the 
benefits     therefrom,     a     court    of 
equity   would  not  permit  its   said 
receiver,  at  the  end  of  the  term, 
when  it  would  be  too  late  for  the 
other  party  to  take  any  action  it 
might  think  proper  for  the  protec- 
tion of  its   own  interests,   to   say 
that  it  had  not  assumed  the  obliga- 
tion to  pay  at  the  contract  price." 
In  De  Wolf  v.  Royal  Trust  Co., 
173    111.    435,    50    N.    E.    1049,    the 
court  said: 

"The  only  question  here  is 
whether  the  court  erred  in  .  .  . 
holding  the  receiver  not  bound  by 
the  covenants  of  the  lease.  The 
decision,  in  effect,  was,  that  the 
receiver  could  accept  the  lease- 
hold interest  vested  in  it  by  the 
I  Rec. — 11 


order  of  appointment  without  be- 
coming bound  by  the  terms  of  the 
lease,  and  could  remain  in  occu- 
pancy under  the  lease  for  so  much 
of  the  term  as  it  might  choose, 
and,  at  its  pleasure  and  election, 
abandon  the  premises  and  surren- 
der the  lease." 

The  court  then  recognizes  the 
fact  that  the  contract  was  not 
originally  enforceable  as  against 
the  receiver,  and  proceeds: 

"If  he  [the  receiver]  remains  in 
possession    beyond    a    reasonable 
time  to  make  the  election,  he,  by 
implication,   elects    to    accept   the 
lease,  and  becomes  bound,  as  re- 
ceiver, under  its   terms;    and  the 
remedy   of   the   landlord    for    rent 
may  be  sought  against  the  estate 
of  which  he  is  receiver.     If  a  re- 
ceiver elects  to  adopt  a  lease,  he 
becomes    vested   with   a   right   to 
the  leasehold  estate;  and  a  privity 
of   estate   is   thereby    created    be- 
tween   him    and    the    lessor,    by 
which  he  becomes  liable  upon  the 
covenant  to  pay  the  rent.    United 
States  Trust  Co.  v.  Wabash  W.  R. 
Co.,  150  U.  S.  287,  37  L.  Ed.  1085, 
14  Sup.  Ct.  86.    Neither  courts  nor 
receivers  have  any  right  to  disre- 
gard   contracts    or   violate   obliga- 
tions. The  only  question  open  here 
was    whether   the   receiver    would 
take  the  lease.    The  stipulation  in 
the   case   is   that   the  receiver,  at 
the     time     of     its     appointment, 
elected  to  take  possession  of  the 
premises,    and    occupy    the    same, 
and    did    occupy    them    for    three 
months.    This  was  for  more  than 
one-half  of  the  term  remaining  at 
the  time  of  the  appointment,  and 
that  length  of  time  was  not  neces- 
sary for  the  purpose  of  determin- 


162 


LAW    OF    RECEIVERS. 


Court  of  Minnesota  in  a  case  ^  involving  a  lease,  wherein 
he  observed : 

**When  the  receiver  took  possession  of  the  demised 
premises  in  this  case,  it  was  nnder  the  lease,  otherwise 
he  was  a  trespasser;  for  the  court  had  no  power  by 
its  receiver  to  take  possession  of  the  property  of  a 
third  party  without  his  consent,  and  then  make  its  own 
terms  as  to  the  compensation  to  be  paid  for  the  use 
thereof.  The  receiver  having  taken  possession  and  occu- 
pied the  premises  by  virtue  of  the  lease,  the  appellants 
are  equitably  entitled  to  rent  at  the  stipulated  rate,  unless 
some  new  arrangement  as  to  the  amount  to  be  paid  for 
the  use  of  the  premises  was  entered  into  between  the 
parties.     .     .     .     The  duty  of  the  receiver,  failing  to  se- 


ing    whether    it    would    take    the 
lease." 

The  court  then  approved  Spen- 
cer V.  World's  Columbian  Exposi- 
tion, 163  111.  117,  45  N.  B.  250,  and 
concludes: 

"The  rule  does  not  disregard  the 
rights  of  the  landlord,  and  a  I'e- 
ceiver  can  not  be  permitted  to  use 
his  situation  as  an  officer  of  the 
court  to  sequester  property  of  a 
landlord,  and  hold  the  same  with- 
out his  having  any  redress.  .  .  . 
The  receiver  could  not  take,  and 
the  court  could  not  authorize  it  to 
take,  that  estate,  except  as  a 
whole,  and  upon  the  terms  of  the 
lease." 

3  Nelson  v.  KalkhofE  (In  re 
Bishop),  60  Minn.  305,  62  N.  W. 
335.  In  this  case  the  receiver  took 
possession  of  claimant's  premises, 
occupied  them  for  a  month,  and 
then  notified  claimant  that  he 
would  not  recognize  the  previous 
lease,  as  the  rent  reserved  therein 
was   greater  than   the   reasonable 


rental  value  of  the  premises,  but 
would  pay  a  reasonable  rental 
therefor.  No  agreement  could  be 
reached  between  the  receiver  and 
the  claimant.  Upon  settlement 
the  claimant  petitioned  that  the 
receiver  comply  with  the  cove- 
nants in  the  lease.  The  receiver 
urged  that  he  was  liable  for  a 
reasonable  rental  only.  It  was  ad- 
mitted that  a  reasonable  rental 
was  $300  a  month,  while  the  lease 
stipulated  for  $500  a  month.  The 
lower  court  upheld  the  receiver's 
contention.  Upon  appeal  Chief 
Justice  Start  for  the  Supreme 
Court  of  Minnesota,  in  reversing 
the  cause,  said: 

"Are  the  appellants  equitably 
entitled  to  be  paid  rent  as  reserved 
in  the  lease  for  the  time  the  prem- 
ises were  in  the  possession  of  the 
receiver?  This  is  the  only  ques- 
tion in  the  case,  and  we  answer  it 
in  the  affirmative.    .    .    ." 

The  court  then  proceeded  to 
hold  that  the  lease  was  not  orig- 
inally valid  as  against  the  receiver. 


EFFECT   OP   APPOINTMENT    AND    DUTIES.  163 

cure  more  favorable  terms  tlian  those  in  tLe  lease,  was 
either  to  surrender  the  premises  at  once,  or  retain  them 
at  the  stipulated  rent,  if  he  deemed  it  for  the  interest 
of  the  trust  estate  so  to  do.  It  is  true  that  the  ap- 
pellants' petition  is  addressed  to  the  equitable  side  of 
the  court,  but  equity  must  regard  the  contract  rights  of 
the  appellants,  and  it  would  clearly  be  inequitable  for 
the  receiver  to  take  possession  of  the  premises  by  vir- 
tue of  the  lease,  enjoy  its  benefits,  then  repudiate  its 
burdens  and  ask  the  court  to  make  a  new  contract  for  the 
parties,  which  the  appellants  refused  to  make." 

And  on  the  other  hand,  the  receiver  will  not  be  allo\A'ed 
to  exercise  his  judgment  without  the  approval  of  the 
court  in  adopting  a  contract  in  which  he  as  an  indi- 
vidual is  a  party  and  in  which  contract  he  is  to  obtain 
compensation  for  ser^dces  which  he  should  perform  in 
his  capacity  of  receiver.  He  must,  in  adopting  or  reject- 
ing such  contracts,  be  guided  solely  by  the  question 
whether  the  contract  will  or  will  not  operate  beneficially 
on  behalf  of  the  receivership.^   Wliere  several  contracts 

4  In  appeal  of  Pramuk,   250  Pa.  ceiver  is  an  officer  of  the  court; 

45,  95  Atl.   326,  the  receiver  of  a  and,    by    accepting    such    appoint- 

brewing  company  had  prior  to  the  ment,  he  accepts  the  responsibili- 

receivership  a  contract  for  a  com-  ties   of  his   office,   which  involves 

mission  upon  certain  sales  of  beer  the  exercise  of  his  best  business 

which  he  controlled,  but  this  con-  experience  and   influence   for   the 

tract  was  substituted  by  another  benefit    of    the    company    in   the 

in    which    he    accepted    a    salary  same  manner  as  if  he  were  the 

of    $600    a    month    in    lieu    of    his  sole  owner  of  the  business.     For 

commissions.      During   his   receiv-  these  services  the  law  recognizes 

ership,  which  continued  for  thirty-  the  justice  of  compensation  meas- 

five     months,     he     paid     himself  ured  by  the  circumstances  of  the 

$21,000    by    way    of    salary    under  case.     Beyond  such  compensation, 

this     contract,     he     having     been  the  receiver  may  not  profit  by  his 

authorized    by    the    court   to   con-  position   to   the   detriment  of  the 

tinue    the    business    as    a    going  creditors   or   owners   of   the   busi- 

concern.     He  conducted  the  busi-  ness.     The  very  fact  of  his  ability 

ness  in  better  shape  than  before  to  control  trade  or  his  familiarity 

the  receivership.      The   court   dis-  with  the  business  might  have  been 

allowed  him  the  $21,000  which  he  and  probably  was  the  inducement 

paid    to   himself,    saying:    "A    re-  for  appellant's  appointment  by  the 


1(54:  LAW   OF   RECEIVERS, 

relative  to  a  matter  exist  but  are  severable  and  not  con- 
nected with  each  other,  an  acceptance  of  one  is  not  neces- 
sarily an  adoption  of  the  other.  Thus  where  a  corporation 
accepts  orders  sent  in  by  the  general  sales  agent,  but 
before  they  are  filled  the  company  goes  into  the  hands 
of  a  receiver,  he  may,  if  he  does  not  adopt  the  general 
sales  contract  with  the  agent,  fill  the  orders  on  hand 
without  being  liable  as  receiver  for  the  commissions  of 
the  agent  under  the  contract ;  the  agent  as  to  such  com- 
missions being  in  the  same  position  as  other  creditors.^ 

§37.    Conditional   Sales,    Consignments,    and   Purchases   with 
Knowledge  of  Insolvency. 

Where  property  is  sold  under  a  contract  conditioned 
that  the  title  to  it  shall  remain  in  tlie  seller  until  it  is 
paid  for,  title  does  not  pass  to  the  buyer  until  the  con- 
ditions are  fulfilled,  and  in  the  event  of  a  receiver 
being  appointed  for  the  buyer,  such  receiver  is  enti- 
tled to  a  reasonable  time  within  which  to  elect  whether 
he  will  adopt  the  contract  or  return  the  property, 
paying,  of  course,  the  stipulated  rental  for  the  prop- 
erty for  the  time  during  which  he  has  used  it.  If  he 
elects  to  take  the  property  subject  to  the  conditions  named 

court  as  a  person  most  likely  to  service  he  would  be  entitled  to 
successfully  wind  up  the  affairs  receive  the  compensation  usually 
of  the  corporation,  especially  allowed  receivers.  In  view  of  the 
where,  as  here,  the  purpose  was  fact  that  his  entire  time  was  not 
to  keep  it  a  going  concern.  If  ap-  employed  in  the  performance  of 
pellant  could  not  afford  to  under-  his  receivership  duties,  the  com- 
take  the  duties  required  by  the  pensation  of  $15,000  allowed  him 
appointment  at  the  compensation  by  the  auditor  was  both  ample  and 
usually  allowed  under  such  cir-  reasonable  under  the  circum- 
cumstances,  the  time  to  make  this  stances,  and  the  surcharge  of  the 
known  was  when  the  appointment  $21,000,  which  he  paid  to  himself 
was  made  by  the  court.  Not  hav-  under  his  contract  with  the  com- 
ing done  so,  and  having  accepted  pany  at  the  time  of  his  appoint- 
the  appointment,  his  duty  to  the  ment  as  receiver,  was  entirely 
court  required  of  him  the  exercise  proper." 

of  his  utmost  ability  and  fnfluence  5  Brandenburg  v.  Coxe,  228  Pa. 

in  closing  the  business,  for  which  212,  77  Atl.  455. 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


165 


in  tlie  contract  he  is  bound  to  perform  the  conditions 
before  he  can  obtain  title  to  it.^    Where,  however,  the 


1  Commonwealth  v.  Franklin  Ins. 
Co.,  115  Mass.  278;  Sunflower  Oil 
Co.  V.  Wilson,  142  U.  S.  313,  35 
L.  Ed.  1025,  12  Sup.  Ct.  235;  Tur- 
ner V.  Richardson,  7  East  335. 

Where  the  seller  of  property  re- 
serves title  to  it  until  the  payment 
of  the  purchase  price,  the  receiver 
of  the  purchaser  obtains  no 
greater  title  to  the  property  than 
the  purchaser  had  and  hence  can 
not  convey  title  to  the  property. 
Sayles  v.  National  Water  etc.  Co., 
62  Hun  618,  16  N.  Y.  Supp.  555, 
.41  N.  Y.  St.  Rep.  856  (affirmed  by 
memorandum  opinion  in  141  N.  Y. 
603,  36  N.  E.  740). 

Seller  under  conditional  sale 
contract  is  entitled  to  retake  from 
receiver  or  trustee  in  bankruptcy 
property  not  paid  for.  In  re  Weg- 
man  Piano  Co.,  221  Fed.  128. 

If  a  receiver  purchases  personal 
property,  but  fails  to  make  pay- 
ment therefor,  the  vendor  may, 
as  in  the  case  of  a  sale  to  a  pri- 
vate person,  resell  the  property 
for  the  best  price  he  can  obtain, 
for  the  purpose  of  ascertaining  his 
damages,  and  without  first  apply- 
ing to  the  court  for  permission  to 
make  such  sale.  Moore  v.  Potter, 
155  N.  Y.  481,  63  Am.  St.  Rep.  692, 
50  N.  E.  271. 

In  Street  v.  Maryland  Cent.  R. 
Co.,  59  Fed.  25,  the  court  said: 
"The  New  York  Equipment  Com- 
pany furnished  for  the  use  of  the 
railroad  certain  locomotives  and 
cars,  under  contracts  of  lease  and 
conditional  sale,  retaining  the  title 
to  the  property  and  the  right  to 
reclaim  the  property  upon  default 
in  payment  of  the  installments  of 


purchase  money.  The  Morton 
Safety  Heating  Company  supplied 
heating  apparatus  for  passenger 
cars  under  similar  contracts.  All 
this  property  is  now  in  possession 
of  the  receiver,  and  he  can  not 
operate  the  road  without  it.  He 
can  not  retain  it  without  comply- 
ing with  the  contracts,  and  must 
pay  the  current  installments  and 
those  which  have  fallen  due  since 
the  property  has  been  in  his 
hands." 

In  Sumner  Iron  Works  v.  Wol- 
ten,  61  Wash.  689,  112  Pac.  1109, 
the  appellant  had  sold  to  the  cor- 
poration some  machinery  under  a 
conditional  bill  of  sale,  reserving 
title  in  the  seller  until  paid.  A 
receiver  of  the  insolvent  purchas- 
ing corporation  was  subsequently 
appointed,  who  took  possession  of 
the  machinery.  The  vendor  then 
filed  his  claim  in  the  receivership 
proceeding  and  asked  that  either 
the  property  be  returned  to  it  or 
that  it  be  secured  in  the  payment 
of  the  purchase  price.  The  lower 
court  dismissed  the  claim.  But 
the  court  in  disposing  of  the  mat- 
ter by  reversing  the  action  of  the 
trial  judge,  said: 

"It  would  have  been  the  courts 
duty  to  thereupon  inquire  into  the 
demand,  and  if  it  found  it  well 
taken,  to  order  the  receiver  to 
comply  therewith  and  surrender 
the  machinery  or  pay  the  balance 
due.  The  receiver  could  obtain 
no  better  or  different  title  or  claim 
to  the  machinery  than  the  insol- 
vent lumber  company.  Its  rights 
were  his  rights;  no  more,  no  less. 
.    .    ,    The  appointment  of  a  re- 


166 


LAW   OF   RECEIVERS. 


statute  requires  such  conditional  contracts  to  be  executed 
in  a  certain  manner  and  recorded,  it  is  necessary  that  the 
seller  has  complied  with  the  statute  in  order  to  recover 
the  property  from  the  receiver.^ 


ceiver  could  not  give  the  lumber 
company  any  additional  contrac- 
tual rights,  nor  deprive  it  of  any 
old  ones.  ...  it  was  right  and 
proper  to  pray  the  court  which 
had,  by  its  adjudication  of  insol- 
vency and  appointment  of  re- 
ceiver, assumed  jurisdiction  over 
all  property  and  property  rights 
of  the  insolvent  debtor,  to  uphold 
the  contract  and  enforce  its 
rights." 

And  Mr.  Justice  Chad  wick  (con- 
curring)  said: 

"On  its  face,  it  (the  petition) 
discloses  a  clear  right  in  the  ap- 
pellant to  either  a  return  of  its 
property  or  the  payment  of  the 
balance  due  on  the  purchase 
price." 

2  Under  Rev.  St.  1908,  §§5523- 
5525  (Mills'  Ann.  St.  1912,  §§  6172- 
6174),  a  seller  of  locomotives  to 
railroad  under  a  conditional  sale 
contract  duly  recorded,  pursuant 
to  the  statute,  on  which  balance 
remained  unpaid,  is  entitled  to 
possession  a^  against  receivers. 
Central  Locomotive  &  Car  Works 
V.  Smith,  27  Colo.  App.  449,  150 
Pac.  241. 

Though  Code  1906,  §  3101,  by 
recording  notice  as  prescribed, 
gives  the  seller  a  right  to  reserve 
title  to  chattels  sold  as  security 
for  the  purchase  price,  when  such 
reserv-ation  relates  to  property 
sold  to  special  receivers  to  be 
used  by  them  in  the  original  con- 
struction of  a  manufacturing  plant, 
subject  to  prior  liens  and  to  the 


paramount  lien  of  receivers'  cer- 
tificates, fixed  by  decree  under 
which  such  receivers  are  author- 
ized to  act,  such  reservation  of 
title  to  the  property  sold  and  af- 
fixed to  the  plant  will  be  protected 
only  when  it  can  be  done  without 
detriment  to  the  rights  of  such 
prior  lienors.  Lazear  v.  Ohio  Val- 
ley Steel  Foundry  Co.,  65  W.  Va. 
105,  63  S.  E.  772. 

A  receiver  appointed  to  convert- 
into  money  the  property  of  an  in- 
solvent debtor  can  avoid,  under 
Rev.  St.  Mo.  1909,  §  2889,  the  un- 
recorded condition  in  a  contract 
of  conditional  sale  to  the  debtor 
of  personalty  found  in  his  posses- 
sion. T.  L.  Smith  Co.  v.  Orr,  224 
Fed.  71,  139  C.  C.  A.  517. 

Where,  in  replevin  against  a  re- 
ceiver for  goods  conditionally  sold 
his  insolvent  on  a  contract,  the 
rights  of  insolvent  under  which 
had  been  forfeited  by  insolvent, 
defendant  defends  on  the  ground 
that  there  were  certain  named 
creditors,  and  perhaps  others,  of 
insolvent,  who  became  such  after 
the  sale,  relying  on  insolvent's 
ownership  of  the  property,  so  that, 
under  Laws  1903,  p.  6,  ch.  6,  the 
contract  not  being  on  file,  the  sale 
became  absolute  so  far  as  con- 
cerns such  creditors,  they  may  not 
intervene,  it  being  unnecessary; 
they  being  represented  by  the  re- 
ceiver. Springer  v.  Ayer,  50  Wash. 
642,   97   Pac.   774. 

The  receiver  of  a  corporation  to 
which    personal    property    is    sold 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


167 


In  other  words,  the  receiver's  rights  in  tlie  property 
taken  in  possession  by  him  are  subject  to  all  the  exist- 
ing equities  against  tbe  defendant.^ 

Hence  where  property  found  by  the  receiver  in  pos- 
session of  defendant  was  purchased  by  him  subject  to 
trial  and  acceptance  thps  same  rule  applies  as  in  respect 


on  condition  that  the  title  shall 
pass  only  on  payment  of  a  speci- 
fied price  is  not  the  "personal  rep- 
resentative" of  the  corporation, 
within  Conn.  Pub.  Acts  1895,  ch. 
212,  sec.  2,  providing  that  all  con- 
ditional sales  of  personal  property 
which  are  not  made  in  conformity 
with  the  provisions  of  sec.  1  shall 
be  held  to  be  absolute  sales,  ex- 
cept as  between  the  vendor  and 
the  vendee  or  their  personal  rep- 
resentatives, and  all  such  prop- 
erty shall  be  subject  to  attach- 
ment and  execution  for  the  debts 
of  the  purchaser  the  same  as  any 
other  unexempt  property.  Re  Wil- 
cox &  Howe  Co.,  70  Conn.  220,  39 
Atl.   163. 

In  North  Coast  Dry  Kiln  Co.  v, 
Montecoma  Inv.  Co.,  82  Wash.  247, 
144  Pac.  58,  the  plaintiffs  had  sold 
machinery  to  a  corporation  on  a 
conditional  bill  of  sale,  but  failed 
to  record  it  in  the  proper  county. 
The  corporation  continued  in  busi- 
ness thereafter,  and  incurred  other 
debts  and  then  became  insolvent 
and  went  into  the  hands  of  a  re- 
ceiver. The  court  decided  that  the 
conditional  bill  of  sale  not  having 
been  filed  as  required  by  statute, 
the  penalties  of  the  statute  applied 
and  the  sale  became  absolute  as 
to  the  subsequent  creditors  of  the 
vendee  corporation,  and  that  there 
fore  the  receiver,  representing 
such  creditors,  could  assert  this 
absolute  title  in  the  property,  as 


authorized  by  the  statute.  The 
court  further  held  that  the  ques- 
tion of  the  vendor's  preference  as 
a  general  claimant  over  certain 
other  claimants  should  have  been 
litigated  all  in  one  proceeding  and 
could  not  be  asserted  in  a  different 
proceeding  as  against  a  bona  fide 
purchaser  of  the  property  from  the 
receiver. 

3  Hyde  v.  Lynde,  4  N.  Y.  387, 
392;  Ford  v.  Cobb,  20  N.  Y.  344, 
348. 

Where  a  receiver  was  a  mere 
bailee  as  to  property  in  his  pos- 
session, equity  would  restore  pos- 
session to  the  intervener,  who 
proved  a  title  superior,  to  all 
others,  except  a  conditional  seller, 
who  had  the  legal  title  until  the 
balance  of  the  price  was  paid  by 
intervener.  Penton  v.  Hall,  140 
Ga.  576,  79  S.  E.  465. 

The  seller  is  entitled  to  have 
the  property,  on  which  his  privi- 
lege rests,  seized  and  sold  forth- 
with and  the  proceeds  distributed 
to  him.  J.  P.  Hudson  &  Sons  v. 
Uncle  Sam  Planting  &  Mfg.  Co., 
136  La.  1071,  68  So.  129. 

A  creditor  for  coal  furnished 
before  the  receivership  to  carry 
on  the  business  has  an  equitable 
lien  on  the  earnings  prior  to  the 
rights  of  bondholders  under  a 
mortgage  covering  income  and 
profits.  Homer  v.  Baltimore  Re- 
frigerating &  Heating  Co.,  117  Md. 
411,  84  Atl.  176. 


168  LAW   OF   RECEIVERS. 

to  property  sold  on  conditional  contracts,  and  the  seller 
may  compel  the  return  of  the  property  since,  as  was  said 
by  the  chancery  court  of  Delaware  :^ 

''Though  the  seller  might  have  regarded  the  deten- 
tion and  use  as  unreasonable  and  chosen  to  regard  it  as 
an  acceptance,  it  may  not  choose  to  do  so,  and  it  remains 
unaccepted  so  far  as  the  seller  is  concerned.  The  buyer 
can  not  by  his  unreasonable  detention  acquire  against 
the  will  of  the  seller  a  right  to  the  goods  sold  on  trial. 
The  seller  may  acquire  a  right  against  the  buyer  by  the 
detention,  but  not  the  buyer  against  the  seller.  This  is 
both  a  reasonable  and  just  principle.  Title  did  not, 
therefore,  pass  to  the  buyer,  even  if  there  had  been  an 
agreement  as  to  the  prices." 

"Where  goods  are  received  by  a  party  under  a  selling 
agreement  under  which  he  is  to  sell  them  to  the  public 
but  does  not  undertake  to  safe-keep  the  funds  received 
from  such  sales,  but  on  the  contrary  mingles  such  funds 
with  his  own  and  such  mingling  is  in  fact  stipulated  in 
the  contract,  the  only  express  duty  being  to  account  for 
them  at  agreed  times,  no  such  trust  relation  in  regard 

4  James  Bradford  Co.  v.  United  machine  sold  on  trial  was  used  by 
Leather  Co.,  (Del.  Ch.)  97  Atl.  620;  the  buyer  until  it  became  bank- 
see,  also,  Wolf  Co.  V.  Monarch  etc.  rupt,  and  with  continued  refusals 
Co.,  252  111.  491,  50  L.  R.  A.  (N.  S.)  to  accept,  or  pay  for  the  machine. 
808,  96  N.  E.  1063,  to  the  same  When  the  buyer  was  adjudicated 
effect.  a   bankrupt,   the   seller   sought  to 

Where,     however,     property     is  reclaim  the  machine.     It  was  held 

sold   on   sixty   days'   time,   but   is  that     there    was     no     acceptance 

used    for   nearly    a  year    and    the  which  under  the  contract  was  es- 

seller   had  made  unconditional  de-  sential  to  constitute  a  completed 

mands    for    the    payment    of    the  sale    to    diA^est    the    title    of    the 

price,  it  was  held  that  the  unquali-  seller,    and    the    seller   having   re- 

fied  demands  for  payment  put  an  fused  to  accept  until  bankruptcy, 

end    to   the   trial    period    and    the  whether,   or  not,  the  refusal   was 

title    of   a   trustee   in    bankruptcy  justified     or    made   in    bad    faith, 

was  absolute.  In  re  Downing  Paper  neither  the  bankrupt,  nor  its  trus- 

Co.,   147  Fed.  858.  tee,  could  claim  an  acceptance  as 

In  re  George  M.  Hill  Co.,  123  a  basis  of  reclamation  of  the  ma- 
Fed.  866,  59  C.  C.  A.  354,  where  a  chine. 


EFFECT   OF   APPOtNTMENT    AND    DUTIES. 


169 


to  them  is  established  as  will  give  tlie  seller  a  specific 
interest  or  equitable  charge  upon  the  funds  received  for 
the  goods  as  against  the  receiver  of  the  buyer.^ 

But  where  one  sells  goods  to  a  merchant  without  knowl- 
edge of  his  insolvency  and  before  the  goods  are  delivered 
a  receiver  is  appointed  for  such  merchant  the  receiver 
can  not  keep  the  goods  unless  he  pay  for  them  in  accord- 
ance with  the  purchase  agreement.® 

§  38.    General  Liability  of  Receiver  on  His  Own  Contracts. 

A  receiver  is  not  individually  liable  on  contracts 
made  by  him  in  his  official  capacity  under  the  orders  of 
the  court.  The  only  remedy  which  the  other  contracting 
party  has  under  such  circumstances  must  be  sought  in 
the  receivership  proceeding.^ 


5  Isaac  McLean  Sons  Co.  v.  Wil- 
liam S.  Butler  &  Co.,  208  Fed.  730. 

6  Where,  on  a  creditors'  bill  to 
sequestrate  the  assets  of  an 
insolvent  corporation,  receivers 
were  appointed,  and  thereafter, 
but  before  the  receivers  had  filed 
their  bond  or  taken  possession  of 
the  property,  a  seller,  who  had 
contracted  to  sell  merchandise  to 
the  corporation,  and  who  had  no 
knowledge  of  the  insolvency  or 
receivership,  delivered  the  mer- 
chandise to  the  corporation,  the 
receivers  could  not  retain  posses- 
sion thereof  without  paying  the 
purchase  price,  whether  their 
possession  related  back  to  their 
appointment  or  not,  since  the  cor- 
poration could  not  accept  posses- 
sion after  the  decree  appointing 
the  receivers  had  been  made,  un- 
less the  receivers  rejected  the 
contract  of  purchase  and,  if  the 
receivers  elected  to  accept  the 
contracts  as  assets  of  the  corpora- 
tion,   they   must   also    accept   the 


burdens  of  such  contracts.  The 
retention  of  the  goods  delivered 
in  these  circumstances  must  be 
deemed  an  election  to  accept  the 
contracts.  The  receivers  must 
either  pay  for  the  goods  the  con- 
tract price  or  abandon  all  claim 
to  them  and  allow  the  sellers  to 
retake  them.  Eames  v.  H.  B.  Claf- 
lin  Co.,  220  Fed.  190. 

1  Bayles  v.  Kansas  Pac.  R.  Co.. 
13  Colo.  181,  197,  5  L.  R.  A.  480, 
22  Pac.  341;  Brown  v.  Wabash  R. 
Co.,  96  111.  297;  Ellis  v.  Little,  27 
Kan.  707,  41  Am.  Rep.  434;  Avey  v. 
Burnley,  167  Ky.  26,  179  S.  W. 
1050;  Arnold  v.  Suffolk  Bank,  27 
Barb.  (N.  Y.)  424,  425;  Farmers' 
Loan  etc.  Co.  v.  Central  R.  Co., 
7  Fed.  537,  2  McCrary  181. 

Thus,  where  the  receiver  sold 
certain  judgments  which  were  part 
of  the  assets  of  the  receivership, 
and  in  his  official  capacity  cov- 
enanted that  they  were  due 
and  unpaid,  he  can  not  be  held 
personally  responsible  on  the  cov- 


170 


LAW   OF   RECEIVERS. 


Persons  contracting  with  a  receiver  are  cliargeable  with 
notice  that  contracts  made  by  him  must  be  authorized  or 
ratified  by  the  court.^  A  court  may  modify  or  repudiate 
contracts  made  by  its  receiver  Avithout  its  sanction  or 
approval.^ 

If  no  advantage  accrues  to  the  receivership  f imd  from 
obligations  or  disbursements  by  the  receiver,  tlie  court 
will  not  approve  his  account  including  them.^ 

A  receiver  may  be  personally  liable  in  a  contract  en- 
tered into  by  him  without  the  sanction  of  the  court  even 
though  in  relation  to  a  matter  which  otherwise  would 
be  a  charge  against  the  receivership.^  But  a  receiver  who 
is  managing  a  receivership  as  a  going  concern  has  implied 
power  to  make  sucli  reasonable  contracts  as  are  neces- 
sary for  the  proper  management  of  the  receivership.*' 


enant.     Livingston  v.  Pettigrew,  7 
Lans.   (N.  Y.)    405. 

2  Hendrie  &  Bolthoff  Mfg.  Co.  v. 
Parry,  37  Colo.  359,  86  Pac.  113; 
Tripp  V.  Boardman,  49  Iowa  410; 
Ellis  V.  Little,  27  Kan.  707,  41  Am. 
Rep.  434. 

3  Mooney  v.  British  Commercial 
Life  Ins.  Co.,  9  Abb.  Pr.  (N.  S.) 
(N.  Y.)   103. 

4  Schwartz  v.  Rosetta  Gravel 
etc.  Co.,  110  La.  619,  34  So.  709. 

5  Allen  V.  Kittrell  (Tex.  Civ.), 
162  S.  W.  397. 

6  Jourdan  v.  Long  Island  R.  Co., 
42  Hun  657,  6  N.  Y.  St.  Rep.  89; 
Dahlstrom  v.  Hudelson,  80  Ore. 
520,  157  Pac.  798;  Central  Trust 
Co.  V.  Wabash  etc.  R.  Co.,  52  Fed. 
908. 

A  court  of  equity  has  power  to 
authorize  its  receiver  to  purchase 
goods  or  make  contracts  for  the 
benefit  of  the  property  in  his 
hands.  John  H.  McGowan  Co.  v. 
Ingalls,  60  Fla.   116,  53   So.   932. 


Where  a  receiver  enters  into 
contracts  under  the  express  or 
implied  authority  of  the  court, 
they  can  not  be  annulled  at  the 
pleasure  of  the  court.  Vanderbilt 
v.  Central  R.  Co.,  43  N.  J.  Eq.  669, 
12  Atl.  188;  State  Bank  v.  Domes- 
tic Sewing  Machine  Co.,  99  Va. 
411,  86  Am.  St.  Rep.  891,  39  S.  E. 
141. 

A  receiver  of  a  railway,  even 
though  authorized  by  the  court  to 
make  all  contracts  necessary  in 
carrying  on  the  business  of  the 
road,  has  no  authority  to  lease 
offices  for  a  term  of  years  without 
the  authority  of  the  receivership 
court.  Chicago  Deposit  etc.  Co.  v. 
McNulta,  153  U.  S.  554,  14,  Sup. 
Ct.  915,  38  L.  Ed.  819;  Braman  v. 
Farmers'  Loan  etc.  Co.,  114  Fed. 
18,   51  C.  C.  A.  644. 

The  receiver  and  manager  of  a 
corporation  may  contract  for  sup- 
plies but  not  for  ten  months  in 
advance  without  the  sanction  of 
the    court.      Brunner    etc.     Co.    v. 


EFFECT   OF   APPOINTMENT    AND    DUTIES.  171 

Wliere  the  contract  is  made  with  the  authority  of  tlie 
court  it  will  require  the  receiver  to  perform  it."  Of 
course,  it  is  not  required  that  a  receiver  should  be  obliged 
to  go  to  the  court  for  an  order  for  every  trifling  matter. 
It  is  the  practice  in  such  cases  for  the  receiver  to  act  as 
he  would  in  conducting  his  own  affairs  having  in  mind 
that  he  is  acting  in  a  trust  capacity  and  that  his  acts 
require  the  approval  of  the  court  in  order  to  relieve  him 
from  individual  responsibility.^  Where  there  are  two 
receivers  and  one  receiver  enters  into  a  contract  with  tlie 
sanction  and  approval  of  the  court,  the  contract  is  en- 
forceable notwithstanding  that  the  other  receiver  did  not 
join  in  the  contract.'^ 

The  rule  in  short  is,  that  if  a  receiver  contracts  debts 
on  behalf  of  the  receivership  without  having  been  author- 
ized by  the  court  or  without  his  acts  in  so  doing  having 
been  ratified  by  the  court,  he  will  be  personally  respon- 
sible to  the  creditors  for  the  debts  so  incurred,  but  if, 
however,  he  has  been  previously  authorized  or  his  acts 
have  been  ratified  by  the  court,  the  creditor  will  be  obliged 
to  look  to  the  receivership  fund  for  his  payment  unless 
the  receiver  has  in  his  individual  capacity  guaranteed  the 
debts.  In  other  words,  a  creditor  in  dealing  with  a  court 
acting  through  its  receiver  is  bound  to  use  the  same  com- 
mon sense  in  extending  credit  as  he  would  expect  to  use 
in  dealing  with  an  individual,  namely,  look  to  the  assets 
behind  the  individual  or  take  chances  upon  the  individual 
not  succeeding  with  the  enterprise  which  he  is  conducting. 
It  is,  of  course,  true,  as  we  will  find  when  considering  the 
issuance  of  receiver's  certificates,  that  courts  ought  ndt 
to  place  themselves  in  the  humiliating  position  of  con- 

Central  Glass  Co.,  18  Ind.  App.  174,  Fanning   Ball   Bearing  Chain    Co., 

63    Am.    St.    Rep.    339,    47    N.    E.  118  Iowa  698,  92  N.  W.  712 

^^6-  9  Girard     Life     Ins.    etc.    Co.    v. 

T  Farmers'  Loan  etc.  Co.  v.  Bur-  Cooper,  162  U.  S.  529,  16  Sup    Ct. 

lington  etc.  Ry.  Co.,  32  Fed.  805.  879.  40   L.   Ed.  1062    (affirming  51 

t  State     Central     Sav.    Bank    v.  Fed.  332,  2  C.  C.  A.  245). 


172  LAW   OF   RECEIVERS. 

tracting  debts  which  they  can  not  liquidate,  and  without 
doubt,  on  account  of  the  dignified  and  peculiar  position  of 
courts  in  their  functions  toward  the  public,  they  ought  to 
be  very  astute  not  to  allow  their  receivers  to  incur  obliga- 
tions Avith  only  their  hope  of  being  able  to  pay  as  their 
principal  asset. 

§39.   Binding  Force  of  Contracts   of   One  Receiver  on  His 
Successor. 

A  receivership  is  continuous  notwithstanding  that  there 
is  a  change  of  receivers  during  the  course  of  the  admin- 
istration of  the  receivership.^  It  has,  however,  been  held 
that  one  receiver  who  succeeds  another  is  not  liable  on 
the  contracts  of  his  predecessor,  since  he  can  not  be  said 
to  be  the  representative  of  his  predecessor  in  the  legal 
sense  of  the  term.-  But  we  do  not  understand  the  courts 
to  hold  that  where  the  contract  has  been  authorized 
or  ratified  by  the  court,  any  one  who  happened  to  be 

1  Knickerbocker    v.    Benes,   195      how  he  was  under  the  least  legal 

111    434,  63  N.  E.  174.  duty  to  perform  them,  nor  under 

2KansasPac.'Ry.Co.v.  Bayles,      ^'^at   legal   rule   he    can   be   held 

liable,  at  law,  for  not  performing 


19   Colo.   348,   35   Pac.   744;    Craw- 
ford   V.    Gordon,    88    Wash.     553, 


them.  He  can  not  be  said  to  have 
broken  them,  because  he  was  un- 
L.  R.  A.  1916C.  516,  153  Pac.  363.  ^^^  ^^  obligation  to  perform  them. 
It  was  held,  however,  by  the  j^e  had  promised  nothing,  and 
same  court  in  Kerr  v.  Little,  42  could  not  therefore  be  re- 
N.  J.  Eq.  528,  9  Atl.  110,  that  a  quired  to  perform  anything, 
suit  for  damages  could  be  main-  n^  jg  ^0^  ^^g  representative  of 
tained  against  a  receiver  for  the  his  predecessor.  In  his  char- 
non-performance  of  the  contract  g^ter  as  receiver,  his  predeces- 
of  a  former  receiver.  goj.  can  have  no  representative, 
In  Lehigh  Coal  etc.  Co.  v.  Cen-  in  the  legal  sense  of  that  term, 
tral  R.  Co.,  38  N.  J.  Eq.  175,  the  He  was,  at  best,  a  mere  agent  or 
court  said:  "It  is  certain  the  pres-  instrument,  and  when  he  died,  his 
ent  receiver  is  no  party  to  these  power  died  also,  and  he  left  noth- 
contracts.  He  neither  negotiated  ing  behind  him,  as  receiver,  of 
them  nor  assented  to  them.  He  either  property  or  power,  in  which 
has  not  been  directed  by  the  chan-  he  can  be  represented  so  as  to 
cellor  to  perform  them.  It  is  not  make  his  acts  binding  on  his  suc- 
possible,  therefore,  for  me  to  see  cessor." 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


173 


receiver  at  any  subsequent  time  would  not  be  bound  by  it 
since  it  is  clear  that  a  properly  authorized  contract  is 
not  that  of  an  individual  receiver  but  that  of  the  court, 
and  if  the  receivership  continues  regardless  of  changes  in 
the  personnel  of  the  receiver  the  contract  if  originally 
valid  will  continue  to  be  valid."  If  a  receiver  has  any 
doubts  about  the  validity  or  fairness  of  a  contract  made 
by  a  preceding  receiver  he  may  refuse  to  perform  it  until 
he  has  sought  the  advice  of  tlie  court.*  A  remarkable 
case  along  these  lines  was  that  of  Crawford  v.  Gordon,^ 


3  Farmers'  Loan  etc.  Co.  v.  Bur- 
lington etc.  R.  Co.,  32  Fed.  805. 

4  Re  Angell,  131  Mich.  345,  91 
N.  W.  611;  Haines  v.  Buckeye 
Wheel  Co.,  224  Fed.  289,  139 
C.  C.  A.  525. 

5  Crawford  v.  Gordon,  88  Wash. 
553,  L.  R.  A.  1916C,  516,  153  Pac. 
363. 

In  the  course  of  the  opinion  in 
the   above    case    the   court   said: 

"No  cases  just  like  the  case  at 
hand  have  been  cited,  nor  have  we 
found  any.  But  if  authority  be 
essential,  the  principle  involved 
may  be  sustained  by  reference  to 
analogous  cases.  We  see  no  dif- 
ference between  this  case  and  one 
where  a  receiver  comes  into  a 
property  burdened  with  a  lease  or 
a  contract  providing  for  payments 
under  an  extended  term  or  an 
executory  contract  that  puts  a 
burden  upon  the  trust  property. 
When  a  receiver  comes  into  pos- 
session of  property  which  is  held 
under  contract,  it  is  his  duty  pri- 
marily to  take  possession  of  it, 
but  he  does  not,  by  such  act,  adopt 
the  contract.  Scott  v.  Rainier 
Power  &  Railway  Co.,  13  Wash. 
108,  42  Pac.  531;  Casey  v.  North- 
ern Pacific  Ry.  Co.,  15  Wash.  450, 
48  Pac.  53.    But  all  the  books  hold 


that  a  contract  that  is  voidable — 
that  is  no  contract  if  the  receiver 
elects  so  to  declare — may  be  rati- 
fied by  conduct  as  well  as  by  an  ex- 
press affirmation.  The  rule  and 
its  limitation  are  stated  in  the  case 
of  Spencer  v.  World's  Columbian 
Exposition,  163  111.  117,  45  N.  E. 
250.  The  limitation  is  thus  ex- 
pressed: 

"  'But  we  have  been  referred  to 
no  case  holding  that  where  the 
lease  or  contract  is  of  itself  a 
thing  of  value  to  the  creditors,  and 
the  receiver,  under  the  order  of 
the  court,  takes  possession  of  the 
premises  and  conducts  the  busi- 
ness which  the  insolvent  had  been 
unable  to  continue,  and,  without 
any  act  of  disaffirmance  or  notice 
that  he  would  not  be  bound  by  the 
contract,  completes  the  term  and 
receives  the  profits  and  all  the 
benefits  from  such  possession  and 
continuance  of  the  business,  the 
receiver  may  then  repudiate  the 
contract  and  pay  only  on  the  basis 
of  a  quantum  meruit.' 

"See,  also.  High  on  Receivers 
(4th  ed.),  p.  273;  Pennsylvania 
Steel  Co.  V.  New  York  City  Ry. 
Co.,  198  Fed.  721,  117  C.  C.  A.  503; 
Street  v.  Maryland  Central  Ry.  Co. 
(C.  C),  59  Fed.  25;  Sunflower  Oil 


174 


LAW   OP    RECEIVERS. 


whicli  recently  came  before  the  Supreme  Court  of  tlie 
State  of  Wasliiiigtoii  in  which  it  was  contended  by  re- 


Co.  V.  Wilson,  142  U.  S.  313,  12 
Sup.  Ct.  235,  35  L.  Ed.  1025;  Cen- 
tral Trust  Co.  V.  Continental  Trust 
Co.,  86  Fed.  517,  30  C.  C.  A.  235; 
De  V'olf  V.  Royal  Trust  Co.,  173 
111.  435,  50  N.  E.  1049;  Easton  v. 
Houston  etc.  Ry.  Co.  (C.  C),  38 
Fed.  784;  Dayton  Hydraulic  Co.  v. 
Felsenthall,  116  Fed.  961,  54 
C.  C.  A.  537,  Ann.  Cas.  1912C,  949, 
note. 

"So,  too,  it  is  generally  held  that 
a  receiver  is  not  bound  by  con- 
tracts made  by  a  preceding  re- 
ceiver, and  that  a  succeeding 
receiver  is  not  liable  in  damages 
for  refusing  to  perform  the  con- 
tracts of  his  predecessors. 

"Stripping  this  case  to  its  bare 
elements,  we  have  the  same  situ- 
ation as  if  the  present  receivers 
were  repudiating  a  contract  made 
by  their  own  predecessors,  for 
whatever  process  of  reasoning  we 
employ,  it  all  comes  down  to  this, 
that  here  is  a  transaction  that  the 
present  receivers  were  not  bound, 
in  law,  to  carry  out. 

"In  Kansas  Pac.  Ry.  Co.  v. 
Bayles,  19  Colo.  348,  35  Pac.  744, 
a  contract  made  by  prior  receivers 
and  repudiated  by  a  present  re- 
ceiver was  considered  by  the 
court,  and  although  it  was  held 
that  the  contract  made  by  the 
prior  receivers  was  a  valid  con- 
tract, it  did  not  follow  that  it  was 
binding  upon  their  successors.  The 
court  quoted  from  the  Lehigh  Coal 
&  Navigation  Co.  v.  Central  Rail- 
road Co.,  38  N.  J.  Eq.  175:  .  .  . 
"In  this  case  the  receivers,  be- 
ing in  essentially  the  same  posi- 
tion, did  not  repudiate  the  con- 
.  tract  but,  by  every  act  that  would 


mark  an  affirmance  and  ratifica- 
tion of  it  if  this  were  a  contro- 
versy between  private  parties, 
adopted  and  acted  upon  it. 

"Counsel  meets  these  cases   by 
the  suggestion  that  in  all  of  them 
there  was  a  valid  subsisting  con- 
tract which,  but  for  the  receiver- 
ship,  would     have     been     binding 
upon   the   insolvent   estate   and   a 
charge  in  equity  upon  its  property. 
This  may  be  admitted  without  do- 
ing  violence    to   the   principle    in- 
voked.   The   fact   remains  that  in 
all  cases  where  the  question  has 
arisen  there  was  either  a  voidable 
contract  or  one  subject  to  repudi- 
ation.    If  it  be   said   that  in   the 
cases  cited  the  contract  was  valid 
as  against  the  company  or  party 
but  for  the  receivership,  it  may  be 
said  likewise  that  the  contract  in 
this   case  would  have   been  valid 
if  the  federal  court,  which,  barring 
the  fact    that    there    had    been    a 
prior  assertion  of  jurisdiction  on 
the  part  of  the  state  courts,  had 
continued  to  administer  the  trust 
through  its  own  receivers.     That 
court  had  jurisdiction  of  the  sub- 
ject-matter, and  jurisdiction  to  de- 
termine its  own  jurisdiction,   and 
while  its  receivers  were  in  charge 
of  the  property,  they  were  at  least 
de  facto  officers  of  a  court  of  com- 
petent jurisdiction.     In  finally  de- 
ciding that  it  had  no  jurisdiction 
to   proceed    as    against    the    state 
court,  it  had  no  power  or  author- 
ity  to   hold    anything   beyond    the 
fact    that    it    had    acted    without 
jurisdiction.     The  appellants  were 
not  parties  to  that  proceeding,  and 
the  legality  and  binding  force  of 
their  contract  was  and  is  a  mat- 


EFFECT    OF    APPOINTMENT    AND    DUTIES.  175 

coivers  appointed  by  a  state  court  that  they  were  not 
bound  to  pay  the  agreed  purchase  price  of  certain  rail- 
way cars  bought  by  receivers  appointed  in  a  federal  court 
•on  credit  under  a  conditional  contract  whereby  the  seller 
retained  title  until  paid.  Tliey  contended  that  they  had 
a  right  to  retain  the  property  and  pay  merely  a  rea- 
sonable price  regardless  of  the  price  and  conditions  in 
the  contract.  This  contention  on  the  part  of  the  receivers 
was  based  on  the  point  that  a  succeeding  federal  judge 
had  reversed  the  order  appointing  the  receivers  who 
had  purchased  the  property  under  the  authority  of  the 
appointing  court  on  the  ground  that  there  the  federal 
court  had  no  jurisdiction  because  tJiere  had  been  a  prior 
application  for  a  receiver  pending  in  the  state  court. 
Thereupon  the  federal  court  annulled  all  the  receivership 
proceedings  had  in  the  federal  court.  The  receivers  ap- 
pointed by  the  state  court  took  possession  of  the  cars 
from  the  federal  receivers  and  subsequently  were  noti- 
fied by  the  seller  of  the  conditional  agreement  respecting 
the  cars.  The  receivers  in  the  State  Court  did  not  for- 
mally adopt  the  agreement,  but  used  the  cars  for  a  long 
period  and  in  answer  to  tlie  claim  of  the  seller  for  com- 
pensation asserted  that  the  purchase  by  the  federal  re- 
ceivers was  void  because  the  court  had  no  jurisdiction 
to  appoint  them  and  that  their  own  possession  was  the 
result  of  a  conversion  by  themselves  which  Avas  subject  to 
a  judgment  for  tlie  reasonable  value  of  the  cars.  The 
sellers  contended  tliat  the  receivers  had  impliedly  adopted 

ter  for   the  state   court  to   deter-  "to    pay    the    contract    price.     We 

mine  under  the   general   rules  of  think  it  can  be   said   with   entire 

law  and  equity.  assurance      that      the      complaint 

"Suppose  the  appellants  had  not  would  be  held  bad  on  demurrer.   A 

delivered    the    cars    and    the    re-  court  would  necessarily  say  that  if 

ceivers  had  brought  an  action  set-  the  receivers  did  not  want  to  take 

ting  up  the  contract  and  the  initial  the    property    under   the    contract 

payment,  and  undertook  to  put  the  and  pay  such  price  as  the  owners 

owners  to  the  hazard  of  a  trial  to  were  willing  to  take,  they  would 

determine  the  reasonable  value  of  be  under  a  legal  duty  to  repudiate 

the    property,    instead   of  offering  the  contract  In  toto." 


176  LAW    OF   RECEIVERS. 

the  contract  and  were  obliged  to  either  return  the  cars 
or  pay  for  them  in  accordance  with  the  contract.  The 
trial  court,  however,  ruled  against  them,  but  the  Supreme 
Court  very  properly  lield  that  the  receivers  were  bound 
by  the  contract  of  purchase,  and  Mr.  Justice  Chadwick  in 
the  course  of  his  opinion  said : 

*'We  know  of  no  case  holding,  nor  has  any  been  cited 
by  counsel  that  wi]l  allo^\'  an  agent  or  an  officer  of  the 
court  to  plead  his  own  tort  to  defeat  a  contract.  Such,  in 
effect,  is  the  receiver's  present  attitude.  Not  having 
disaffirmed  the  contract  promptly  or  within  a  reasonable 
time,  they  will  not  now  be  heard  to  say:  We  repudiate 
the  written  contract  under  whicli  you  reserved  title ;  we 
will  deny  you  a  recovery  upon  your  contract  and  compel 
you  to  affirm  our  tort  and  take  whatever  may  be  awarded 
to  you  upon  a  quantum  valebant. 

''The  title  to  the  cars  is  in  appellants.  They  did  not 
part  with  it  when  they  sold  to  the  federal  receivers,  nor 
will  the  law  compel  them  to  part  with  it  by  resort  to  the 
fiction  of  a  conversion.  Ha^dng  title,  they  may  select 
their  own  remedy,  and  although  the  contract  of  sale  may 
have  been  a  voidable  thing,  they  can  not  be  compelled 
to  accept  a  contract  in  lieu  thereof  Avhich  has  been  made 
for  them  by  the  receivers;  that  is  to  say,  take  a  substitu- 
tion of  a  contract  to  sell  upon  quantum  valebant  for  a 
contract  to  sell  at  an  agreed  price.  Courts  have  great 
powder,  but  they  can  not  make  contracts.  If  they  can  not, 
it  follows  that  their  agents  and  servants  can  not  coerce 
others  into  an  involuntary  contract. 

**The  receivers  knew  the  sale  was  voidable.  They  had 
the  property  in  possession  and  in  use,  and  it  was  up  to 
them  to  repudiate  it  within  a  reasonable  time  or  to  bring 
it  to  the  notice  of  the  court.  When  they  said,  'Proof  re- 
quired,' and  then  continued  to  use  the  property  without 
calling  for  proof  beyond  the  prima  facie  case  made  by 
the  appellants,  they  ratified  the  contract. 


EFFECT   OF    APPOINTMENT    AND    DUTIES.  177 

"It  would  not  be  fair  dealing,  eitlier  on  the  part  of 
individuals  or  the  officers  of  the  court,  to  hold  property 
parted  with  in  good  faith  upon  a  contract  merely  void- 
able, upon  the  theory  that  the  seller  is  remediless,  and 
therefore  bound  to  resell  upon  such  terms  as  his  adver- 
sary may  dictate.  The  power  of  the  receiver  is  the  power 
of  the  court,  and  we  are  not  disposed  to  sanction  by  judi- 
cial decree  anj'thing  done,  or  omitted  to  be  done,  by  the 
court's  officers  which  would  put  the  court  in  the  attitude 
of  sanctioning  a  tort. 

''Neither  do  we  think  that  appellants  were  bound  to 
elect  whether  they  would  stand  upon  their  contract  or 
waive  it  and  take  the  reasonable  value  of  their  property. 
The  duty  to  elect  within  a  reasonable  time  was  upon  the 
receivers.*'  They  were  bound  to  deny  or  affirm  the  con- 
tract under  which  the  property  had  come  to  the  estate 
which  was  subject  to  their  administration.  They  did  not 
disaffirm  until  called  to  the  bar  of  the  court.  As  against 
this  tardy  disaffirmance,  we  must  measure  the  continued 
use  and  assertion  of  ownership  in  the  property." 

The  receivers  in  this  case  also  took  the  position  that 
the  sellers  in  case  they  desired  the  return  of  the  cars 
should  have  returned  the  money  paid  on  account,  but  the 
court  held  that  they  had  no  right  to  repudiate  the  con- 
tract on  the  theory  that  it  was  void,  that  having  been 
solely  a  privilege  which  could  have  been  exercised  by  the 
receivers.'^ 

6  Citing  United  States  Trust  Co.  desire  the  return  of  the  cars,  they 

V.  Wabash  W.  Ry.  Co.,   150  U.   S.  should    have    returned   the   money 

287,  14  Sup.  Ct.  86,  37  L.  Ed.  1085;  paid  them  under  the  terms  of  the 

Sparhawk  v.  Yerkes,   142  U.  S.  1,  void  obligation.' 

12  Sup.  Ct.  104,  35  L.  Ed.  915,  Sun-  "Counsel   have   failed    to   appre- 

flower  Oil  Co.  v.  Wilson,  142  U.  S.  ciate   the   exceptions    to   the    gen- 

313,  12  Sup.  Ct.  235,  35  L.  Ed.  1025.  eral    rules    of    law    as    they   are 

T  The  court  in  this  respect  said:  applied  to  receivership  cases.    Ap- 

"Counsel  for  respondents  say  in  pellants    had    no    lawful    right    to 

their  briefs:  repudiate    the    contract  upon   the 

"  'If   they   [meaning  appellants]  theory  that  it  was  void.     The  re- 
IRec. — 12 


-j^yg  LAW   OP   RECEIVERS. 

We  have  given  considerable  attention  to  the  case  of 
Crawford  v.  Gordon  because  it  covers  points  of  law  on 
questions  of  great  importance  in  respect  to  the  relations 
of  receivers  toward  parties  with  whom  they  have  con- 
tractual relations.  The  question  which  probably  was 
most  confusing  in  the  case  was  that  relating  to  the  effect 
of  the  order  in  the  Federal  Court  annulling  the  appoint- 
ment of  the  receivers  and  all  proceedings  had  by  them. 
The  receivers  in  the  State  Court  failed  to  realize  that 
if  they  had  any  title  to  the  property  it  must  have  been 
through  the  contract  rather  than  by  wrongfully  holding 
the  property  by  way  of  conversion. 

Although  subrogation  is  not  founded  upon  contract  but 
upon  principles  of  equity,  and  may  be  enforced  where 
no  contract  or  privity  of  any  kind  exists  between  the 
parties,  still  it  is  well  settled  that  where  the  liability  of  a 
party  is  fixed  by  contract  or  by  statute,  courts  will  not 
resort  to  equity  to  either  enlarge  or  defeat  them.* 

8  40.   Effect  of  Order  of  Appointment  as  Res  Judicata. 

It  is,  of  course,  elementary  that  where  a  court  has  jur- 
isdiction of  the  subject-matter  and  the  parties  to  the 
action  tliat  its  orders  and  decrees  in  the  suit  are  not  sub- 

ceivers   alone   were   privileged   to      on    Receivers,  Alderson's  Edition, 

,     .,  ,.  §  328,  p.  332. 

do  that.  ^  ^  ...         ,       ■  .  . 

,  .  ,       .         X  *!,„  "It  is  because  of  the  rule  wnicn 

"  'The   rule  which  gives   to  the  ,       ^        ^  *.     *     ^.;^ 

lue   luic  6  binds  the  adversary  party  to  his 

receiver  the  right  to  adopt  or  re-  ^^^^^^^^^  ^^^^^  ^he  principle  of  rati- 
ject  the  contracts  of  the  defendant  ^^^^j^^  jg  ^^^^  ^^  ^pply  to  re- 
is  not  reciprocal,  and  hence  is  ggiygj-s.  The  rule  that  binds  the 
anomalous.  It  does  not  matter  adversary  party  to  his  contract, 
how  burdensome  the  contract  may  while  making  it  optional  with  the 
be  to  the  latter,  he  must  render  receiver,  compels  its  corollary,  in 
performance,  if  the  receiver  so  de-  proper  cases;  that  is,  that  the  re- 
mands. The  power  to  adopt  or  ceiver  must  elect  whether  he  will 
reject  the  defendant's  contracts,  ratify  or  reject  the  contract,  and 
to  accept  those  which  are  of  ad-  that  within  a  reasonable  time." 
vantage  to  the  trust  estate,  and  8  Southwestern  Surety  Ins.  Co.  v. 
reject  the  burdensome  ones,  is  re-  Pacific  Coast  etc.  Co.,  92  Wash, 
stricted    to    the    receiver.'     Beach  654,  159  Pac.  788. 


EFFECT   OF    APPOINTMENT    AND    DUTIES. 


179 


joct  to  collateral  attack.  If  the  court  appointing  a  re- 
ceiver has  jurisdiction  of  the  parties  and  the  subject- 
matter  of  the  suit,  its  order  making  the  appointment  will 
not  be  subject  to  collateral  attack  even  though  it  be  in- 
valid and  voidable  on  a  direct  attack.^   WJiere,  however, 


1  In  First  Nat.  Bank  v.  United 
States  Encaustic  Tile  Co.,  105  Ind. 
227,  4  N.  E.  846,  it  is  held  that  an 
erroneous  appointment  of  a  re- 
ceiver is  not  void,  but  voidable,  as 
where  the  court  had  jurisdiction 
of  the  subject-matter  and  of  the 
parties.  Cook  v.  Citizens'  Nat. 
Bank,  73  Ind.  256;  Howard  v. 
Whitman,  29  Ind.  557;  Pressley  v. 
Lamb,  105  Ind.  171,  4  N.  E.  682. 

In  O'Mahoney  v.  Belmont,  62 
N.  Y.  133,  it  is  held  that  in  the 
matter  of  the  county  and  a  person 
appointed  receiver  it  is  no  objec- 
tion that  the  appointment  was 
void  in  a  case  where  it  appeared 
that  the  receiver  was  appointed 
and  obtained  control  of  the  fund 
without  the  consent,  and  contrary 
to  the  wishes,  of  the  parties. 

An  appointment  of  a  receiver 
upon  the  application  of  plaintiff 
is  not  invalid  because  of  the  er- 
roneous overruling  of  a  previous 
motion  by  defendant  to  require 
plaiutifC  as  a  non-resident  to  file 
a  bond  for  costs  under  Ind.  Rev. 
Stat  1894,  1698.  Galloway  v. 
Campbell,  142  Jnd.  324,  41  N.  E. 
597. 

In  Commercial  Nat.  Bank  v. 
Burch,  141  III.  519,  33  Am.  St.  Rep. 
331,  31  N.  E.  420,  it  is  held  that 
where  the  court,  appointing  a 
receiver  for  an  insolvent  corpor- 
ation, has  jurisdiction  of  the  sub- 
ject-matter and  of  the  parties,  the 
order  appointing  him  can  not  be 
questioned  collaterally,  no  matter 
how  erroneous  it  may  be.     It  can 


not  be  attacked  upon  appeal  from 
an  order  refusing  to  give  an  inter- 
vening petitioner  a  preference  in 
payment  on  his  claim  of  an  equi- 
table lien  on  the  assets  of  the  cor- 
poration. See,  also,  Richards  v. 
People,  81  111.  551;  Comer  v.  Bray, 
83  Ala.  217,  3  So.  554;  Florence 
Gas  etc.  Co.  v.  Hanby,  101  Ala.  15, 
13  So.  343;  Lowenstein  v.  Finney, 
54  Ark.  124,  15  S.  W.  153;  Illinois 
Trust  etc.  Bank  v.  Pacific  Ry.  Co., 
115  Cal.  285,  47  Pac.  60;  Title  Ins. 
etc.  Co.  v.  Girdner,  152  Cal.  746,  94 
Pac.  601;  Ward  v.  Farwell,  97  111. 
593;  Great  W^estern  etc.  Co.  v. 
Gray,  122  111.  630,  14  N.  E.  214; 
Commercial  Nat.  Bank  v.  Burch, 
141  111.  519,  33  Am.  St.  Rep.  331, 
31  N.  E.  420;  Equitable  Trust  Co. 
v.  Wilson,  200  111.  23,  65  N.  E.  430; 
Vandalia  v.  St.  Louis  etc.  R.  Co., 
209  111.  73,  70  N.  E.  662;  Bodkin  v. 
Merit,  102  Ind.  293,  1  N.  E.  625; 
Pressley  v.  Lamb,  105  Ind.  171,  4 
N.  E.  682;  First  Nat.  Bank  v. 
United  States  Encaustic  Tile  Co., 
105  Ind.  227,  4  N.  E.  846;  Hatfield 
V.  Cummings,  152  Ind.  280,  50  N.  E. 
817,  53  N.  E.  231,  Metropolitan 
Nat.  Bank  v.  Commercial  State 
Bank,  104  Iowa  682,  74  N.  W.  26; 
Paine  v.  Mueller,  150  Iowa  340,  130 
N.  W.  133;  Green  wait  v.  Wilson, 
52  Kan.  109,  34  Pac.  403;  State  v. 
Judge  of  Civil  Dist.  Court,  45  La. 
Ann.  1418,  14  So.  308;  Converse  v. 
Ayer,  197  Mass.  443,  84  N.  E.  98; 
Skinner  v.  Lucas,  68  Mich.  424,  36 
N.  W.  203;  Basting  v.  Ankeny,  64 
Minn.  133,  66  N.  W.  266;  Whitney 


180 


LAW   OF   RECEIVERS. 


the  court  making  the  order  of  appomtment  was  without 


V.  Hanover  Nat.  Bank,  71  Miss. 
1009,  23  L.  R.  A.  531,  15  So.  33, 
Keokuk  N.  L.  Packet  Co.  v.  David- 
sou,  13  Mo.  App.  561 ;  Neiin  v.  Black- 
stone  etc.  Assn.,  149  Mo.  74.  50 
S.  W.  436;  State  (ex  rel.  Connors) 
V.  Shelton,  238  Mo.  281,  142  S.  W. 
417;  Andrews  v.  Steele  City  Bank, 
57  Neb.  173,  77  N.  W.  342;  Murphy 
V.  Fidelity  etc.  Ins.  Co.,  69  Neb. 
489,  95  N.  W.  1022;  Dean  v. 
Thatcher,  32  N.  J.  L.  470;  Scott 
V.  Dunscombe,  49  Barb.  (N.  Y.)  73; 
Whittlesey  v.  Frantz,  74  N.  Y.  456; 
Stanley  v.  National  Union  Bank, 
115  N.  Y.  122,  22  N.  E.  29;  Jones 
V.  Blun,  145  N.  Y.  333,  39  N.  E. 
954;  Brynjolfson  v.  Osthus,  12 
N.  D.  42,  96  N.  W.  261;  Threadgill 
v.  Colcord,  16  Okla.  447,  85  Pac. 
703;  Thompson  v.  HoUaday,  15 
Ore.  34,  14  Pac.  725;  First  Nat. 
Bank  v.  Mack,  35  Ore.  122,  57  Pac. 
326;  Eichman  v.  Hersker,  170  Pa. 
St.  402,  33  Atl.  229;  Edrington  v. 
Pridham,  65  Tex.  612;  New  Britain 
Mach.  Co.  v.  Watt  (Tex.  Civ.),  180 
S.  W.  624;  Radebaugh  v.  Tacoma 
etc.  R.  Co.,  8  Wash.  570,  36  Pac. 
460;  Elderkin  v.  Peterson,  8  Wash. 
674,  36  Pac.  1089;  Smith  v.  Hop- 
kins, 10  Wash.  77,  38  Pac.  854; 
Carroll  v.  Pacific  Nat.  Bank,  19 
Wash.  639,  54  Pac.  32;  Wood  v. 
Blythe,  46  Wis.  650;  Neeves  v. 
Boos,  86  Wis.  313,  56  N.  W.  909; 
Davis  V.  Shearer,  90  Wis.  250,  62 
N.  W.  1050;  Gunby  v.  Armstrong, 
133  Fed.  417,  66  C.  C.  A.  627;  Mer- 
cantile  Trust  Co.  v.  Pittsburgh  & 
W.  R.  Co.,  29  Fed.  732. 

A  creditor  who  has  brought  suit 
against  a  private  corporation  in 
a  federal  court,  and  caused  its 
property  to  be  attached  and  se- 
questered    on     a     vendor's     lien. 


which  property  is  subsequently 
ordered  to  be  surrendered  to  a 
receiver  previously  appointed  in  a 
state  court,  can  not  successfully 
assail  the  order  of  appointment 
for  informality  in  the  proceedings, 
without  asking  judgment  on  its 
demand,  or  disclosing  a  well- 
grounded  claim  for  damages 
against  the  receiver  personally. 
Remmington  Paper  Co.  v.  Watson, 
49  La.  Ann.  1296,  22  So.  355. 

An  order  directing  a  receiver  to 
distribute  certain  funds  in  his 
possession,  even  though  erroneous, 
can  not  be  questioned  in  a  col- 
lateral proceeding.  Piatt  v.  New 
York  etc.  Co.,  170  N.  Y.  451,  63 
N.  E.  532. 

Under  N.  Y.  Stat,  vol.  w.,  p. 
463,  sec.  36,  it  was  held  that  if 
the  appointment  was  binding  upon 
the  corporation  no  one  else  could 
question  it.  Whittlesey  v.  Frantz, 
74  N.  Y.  456;  Peters  v.  Carr,  2 
Dem.  (N.  Y.)  22;  Bamett  v.  Nel- 
son, 54  Iowa  41,  37  Am.  Rep.  183, 
6  N.  W.  49;  Thompson  v.  Greeley, 
107  Mo.  577,  17  S.  W.  962;  Elder- 
kin  V.  Peterson,  8  Wash.  674,  36 
Pac.  1089. 

But  a  contract  by  receivers, 
whose  appointment  it  was  subse- 
quently declared  was  not  author- 
ized, to  purchase  necessary  prop- 
erty is  not  void,  but  only  voidable, 
and  may  be  ratified.  Crawford  v. 
Gordon,  88  Wash.  553,  L,  R.  A. 
1916C,   516,  153  Pac.  363. 

Where  a  federal  court  having 
jurisdiction  over  the  subject-mat- 
ter attempted  to  appoint  a  re- 
ceiver, but  subsequently  revoked 
the  appointment,  because  the  state 
courts  had  already  acquired  juris- 
diction  over    the     suit,    such    re- 


EFFECT   OF    APPOINTMENT    AND    DUTIES, 


181 


such  jurisdiction  of  the  subject-matter  and  parties,  the 


ceiver  is  at  least  a  de  facto  officer, 
and  a  contract  entered  into  by  him 
under  the  authority  of  the  court 
is  not  void,  but  merely  voidable, 
and  may  be  ratified.  Crawford  v. 
Gordon,  88  Wash.  553,  L.  R.  A. 
1916C,  516,  153  Pac.  363. 

Under  Code,  574,  authorizing  the 
appointment  of  a  receiver  without 
notice,  and  section  922,  permitting 
chancellors  of  districts  other  than 
that  in  which  the  suit  is  pending 
to  act,  an  order  of  appointment 
reciting  that  such  appointment 
was  made  in  a  cause  pending  in 
another  district,  and  that  the 
chancellor  of  the  district  was  ill, 
and  absent,  will  be  presumed  to 
have  been  made  on  a  sufficient 
showing.  Pearson  v.  Kendrick,  74 
Miss.  235,  21  So.  37. 

Where  testimony  is  introduced 
on  an  application  for  a  receiver 
before  a  court  of  competent  juris- 
diction, and  the  court,  after  find- 
ing insolvency,  appoints  a  re- 
ceiver, the  proceedings  are  not 
null  and  void  and  are  not  subject 
to  collateral  attack.  W.  L.  Nelson 
&  Co.  V.  Adolphe  Rocquet  &  Co., 
123  La.  91,  48  So.  756. 

Where  an  order  appointing  a 
receiver  showed  on  its  face  that 
it  was  not  made  and  signed  until 
the  bill  had  been  filed,  such  order, 
on  being  filed  and  entered,  became 
a  judicial  record  importing  abso- 
lute verity,  which  could  not  be  im- 
peached, either  by  parol,  by  a 
statement  of  the  chancellor,  or 
otherwise,  except  for  fraud.  Bank 
of  Meadville  v.  Hardy,  94  Miss. 
587,  48   So.  731. 

Where  a  receiver  is  appointed 
over  an  insurance  company  on  the 
ground   of  its   insolvency,   the   in- 


solvency being  admitted  by  the 
company,  a  policy  holder  can  not 
in  a  suit  against  him  to  collect  an 
assessment  question  the  appoint- 
ment of  the  receiver  on  the 
ground  that  the  company  was  not 
in  fact  insolvent.  Eichman  v. 
Hersker,  170  Pa.  St.  402,  33  Atl. 
229. 

The  order  appointing  a  receiver 
can  not  be  questioned  on  a  writ 
of  error  to  review  an  order  au- 
thorizing the  issuance  of  receiver 
certificates  where  the  court  had 
jurisdiction  of  both  the  subject- 
matter  and  parties.  Vandalia  v. 
St.  Louis  etc.  R.  Co.,  209  111.  73, 
70  N.  E.  662. 

A  decree  appointing  a  receiver 
in  an  administration  suit  can  not 
be  attacked  collaterally  by  man- 
damus proceeding,  where  no  ap- 
peal has  been  taken  therefrom  and 
it  stands  unreversed.  Ex  parte 
Hurt,  157  Ala.  368,  47  So.  264. 

Nor  is  the  appointment  invali- 
dated by  irregularity  or  error  in 
the  proceeding.  As  where  one  of 
the  firm  is  not  made  a  party  to  the 
proceeding,  it  not  appearing  that 
he  was  within  the  jurisdiction  of 
the  court,  or  had  a  substantial 
interest  in  the  partnership.  Stel- 
zer  V.  La  Rose,  79  Ind.  435.  Or 
where  the  court  fails  to  require 
adequate  security.  Nesbitt  v.  Tur- 
rentine,  83  N.  C.  535.  Nor  does 
the  fact  that  an  execution  was  not 
sued  out  and  returned  nulla  bona, 
in  a  creditor's  proceeding,  where 
no  objection  was  interposed  at 
the  time  of  the  appointment,  and 
where  according  to  the  facts  and 
admissions  it  would  have  been  an 
idle  ceremony  and  of  no  benefit. 
Sage  V.  Memphis  &  L.  R.  R.  Co., 


182 


LAW    OF   RECEIVERS. 


order  is  void  and  may  be  attacked  in  a  collateral  pro- 


125  U.  S.  361,  31  L.  Ed.  694,  8  Sup. 
Ct.  887.  Nor  where  the  clerk  of 
court  is  appointed  in  violation  of 
the  statute.  Moore  v.  Taylor,  40 
Hun  56.  Nor  the  failure  to  give 
notice  as  required  by  law.  Corbiu 
V.  Berry,  83  N.  C.  27.  Nor  where 
the  findings  of  the  court  are  not 
reduced  to  writing  until  three  or 
four  days  after  the  entry  of  the 
order.  Forsaith  Mach.  Co.  v.  Hope 
Mills  L.  Co.,  109  N.  C.  576,  13  S.  E. 
869.  Nor  where  the  order  did  not 
specify  the  newspapers  in  which  it 
was  to  be  published,  as  required 
by  the  code.  In  re  Christian  Jen- 
sen Co.,  128  N.  Y.  550,  28  N.  E.  665. 
Nor  by  reason  of  defects  in  the 
averments  of  the  bill.  Comer  v. 
Bray,  83  Ala.  217,  3  So.  554.  See, 
also,  Stith  V.  Jones,  101  N.  C.  360, 
8  S.  E.  151.  Nor  where  the  re- 
ceiver neglects  to  be  sworn,  as 
required  by  statute.  American 
Bank  v.  Cooper,  54  Me.  438. 

One  intervening  in  receivership 
proceedings  with  knowledge  of  the 
application  for  the  receivership 
and  the  answer  thereto,  which  he 
claims  show  upon  their  face  fraud 
in  appointing  the  receiver,  can  not 
thereafter  attack  the  appointment 
of  receiver  on  that  ground.  Dilley 
V.  Jasper  Lumber  Co.  (Tex.  Civ.), 
114  S.  W.  878. 

The  Supreme  Court  will  not  re- 
view the  question  whether  the  ap- 
pointment of  a  receiver  is  void 
in  an  action  against  the  sureties 
on  a  bond  of  the  original  defen- 
dant to  effectuate  a  stay  pending 
En  appeal  from  the  order  of  ap- 
pointment where  the  court  has 
previously  affirmed  the  order  ap- 
pointing the  receiver,  and  such 
has  been  held  to  be  the  rule  even 


where  the  record  on  the  appeal 
from  said  order  was  such  as  to 
preclude  a  review  of  the  merits 
of  the  action  of  the  court  in  mak- 
ing it  and  the  decision  was  in  fact 
made  to  rest  on  the  legal  pre- 
sumption of  the  due  regularity  of 
the  proceeding  culminating  in  the 
making  of  the  order,  since  the  af- 
firmance of  the  order  involves  a 
conclusive  determination  of  the 
question  and  is  consequently  res 
adjudicata.  Borges  v.  Hillman,  29 
Cal.  App.  144,  154  Pac.  1075. 

The  appointment  of  a  receiver 
for  a  private  corporation  by  a 
state  court  of  general  jurisdiction 
having  power  under  the  state  stat- 
utes to  make  such  appointment  in 
a  proper  case  is  a  judicial  act, 
v.'hich  can  not  be  questioned  col- 
laterally bj''  any  other  court.  In 
re  Benwood  Brewing  Co.,  202  Fed. 
326. 

The  order  of  appointment  can 
not  be  collaterally  attacked  in  a 
court  other  than  the  one  in  which 
the  appointment  was  made  on  the 
ground  of  having  been  made  with- 
out proper  notice.  McKay  v.  Van 
Kleeck,  133  Mich.  27,  94  N.  W.  367. 

In  a  suit  by  a  receiver  of  a  mu- 
tual fire  insurance  company  to  re- 
cover an  assessment,  defendant 
can  not  question  the  right  of  the 
plaintilT  on  the  ground  that  the 
receiver  was  appointed  as  suc- 
cessor of  a  prior  one  without  no- 
tice. Nichol  v.  Murphy,  145  Mich. 
424,  108  N.  W.  704. 

In  a  suit  by  a  receiver  in  rela- 
tion to  matters  connected  with  his 
trust  the  order  of  appointment 
will  be  conclusive.  Neeves  v.  Boos, 
86  Wis.  313.  56  N.  W.  909;  Ver- 
mont &  C.  R.  Co.  V.  Vermont  C.  R. 


EFFECT   OF    APPOINTMENT   AND    DUTIES, 


183 


Co.,  46  Vt.  792;  Attorney  General 
V.   Guardian   Mut.   L.   Ins.   Co.,    77 
N.    Y.    272;     Stanley    v.    National 
Union  Bank,  115  N.  Y.  122,  22  N.  E. 
29;   Block  v.  Estes,  92  Mo.  318,  4 
S.  VV.  731;  Cox  v.  Volkert,  86  Mo. 
505;   Keokuk  N.  L.  Packet  Co.  v. 
Davidson,  13  Mo.  App.  561;  Rich- 
ards  V.  People,  81  111.  551;    Com- 
mercial  Nat.   Bank  v.   Burch,   141 
111.   519,   33   Am.   St.   Rep.   331,   31 
N.   E.    420;     Barbour   v.    National 
Exch.   Bank,   45    Ohio  St.    133,    12 
N.  E.   5;    Beverley    v.    Brooke,  4 
Gratt.  (Va.)  187;  Neall  v.  Hill,  16 
Cal.  145,  76  Am.  Dec.  508.     It  can 
not  be  attacked  in  a  matter  relat- 
ing  to   the    compensation    of   the 
receiver;    nor  by  a  creditor  who 
accepts    a   dividend    from    the    re- 
ceiver.    Greeley  v.  Provident  Sav. 
Bank,  103  Mo.  212,  15  S.  W.  429. 
Nor  by  one  consenting  to  the  ap- 
pointment.    Russell  V.   White,   63 
Mich.  409,  29  N.  W.  865.     Nor,  in 
the  absence  of  fraud  or  mistake, 
can  a   purchaser  of  the  receiver 
deny  the  validity  of  his  appoint- 
ment.    Stelzer  v.  La  Rose,  79  Ind. 
435.    See,  generally,  Lowenstein  v. 
Finney,  54  Ark.  124,  15  S.  W,  153; 
Florence  Gas,  Elec.  L.  &  P.  Co.  v. 
Hanby,    101   Ala.    15,   13    So.    343; 
Comer  v.  Bray,  83  Ala.  217,  3  So. 
554;    Moore    v.    Taylor,     40     Hun 
(N.  Y.)   56;   Case  v.  Marchand,  23 
La.    Ann.    60;    Edrington   v.    Prid- 
ham,  65  Tex.  612;   Texas  etc.  Ry. 
Co.  V.  Gay,  86  Tex.  571,  25  L.  R.  A. 
52,   26  S.  W.   599;    Wilson  v.  Bar- 
ney, 5  Hun  (N.  Y.)  257. 

The  possession  of  a  receiver  ap- 
pointed by  the  court  is  the  posses- 
sion of  the  court;  and  the  right 
of  the  court  to  grant  the  receiver- 
ship can  not  be  questioned  in  pro- 
ceedings for  contempt  by  disturb- 
ing such  possession.     Albany  City 


Bank    v.    Schermerhorn,    9    Paige 
(N.  Y.)  372,  38  Am.  Dec.  551. 

The  proper  record  evidence  of 
an  appointment  as  receiver  is  con- 
clusive evidence  of  the  right  to 
act  as  such,  until  it  is  impeached. 
It  is  immaterial  whether  the  order 
of  appointment  was  erroneous  or 
improper;  while  it  is  a  subsisting 
order  the  receiver  will  be  sus- 
tained in  his  possession  of  prop- 
erty. Vermont  &  C.  R.  Co.  v.  Ver- 
mont C.  R.  Co.,  46  Vt.  792;  Press- 
ley  V.  Lamb,  105  Ind.  171,  203,  4 
N.  E.  682;  Bodkin  v.  Merit,  102 
Ind.  293,  298,  1  N.  E.  625;  First 
Nat.  Bank  v.  United  States  En- 
caustic Tile  Co.,  105  Ind.  227,  4 
N.  E.  846;  Thompson  v.  Holladay, 
15  Ore.  34,  14  Pac.  725;  Dann  Mfg. 
Co.  V.  Parkhurst,  125  Ind.  317,  25 
N.  E.  347;  Greenawalt  v.  Wilson, 
52  Kan.  109,  34  Pac.  403;  Rade- 
baugh  v,  Tacoma  &  P.  R.  Co.,  8 
Wash.  570,  36  Pac.  460;  Elderkin 
V.  Peterson,  8  Wash.  674,  36  Pac. 
1089. 

The  appointment  of  a  receiver 
can  not  be  collaterally  attacked  in 
an  action  by  the  receiver  to  re- 
cover an  assessment,  where  the 
court  appointing  him  had  jurisdic- 
tion of  the  subject-matter  and  of 
the  parties.  Rand,  McN.  &  Co.  v. 
Mutual  F.  L  Co.,  58  111.  App.  528. 
A  party  to  a  proceeding  for  the 
appointment  of  a  receiver,  who 
contests  the  application  and  fails 
to  appeal  from  the  order  of  ap- 
pointment, can  not  afterwards 
assert  a  claim  based  on  the  irregu- 
larity or  wrongfulness  of  the  ap- 
pointment. Saunders  v.  Kempner 
(Tex.  Civ.  App.),  32  S.  W.  585. 

A  judgment  appointing  a  re- 
ceiver in  purely  statutory  proceed- 
ings in  which  such  appointment  is 
not  authorized  is  void,  and  may  be 


184 


LAW    OF   RECEIVERS. 


ceediiig.2   j^n^j  where  the  court  was  without  jurisdiction 


collaterally  assailed.  Murray  v. 
American  Surety  Co.,  70  Fed.  341, 
17  C.  C.  A.  138. 

An  insurance  company  does  not 
have  such  an  interest  in  an  as- 
signment by  a  corporation,  by 
reason  of  a  suit  against  it  on  a 
policy  by  a  receiver  to  whom  the 
assignee  was  directed  to  deliver 
all  the  property  of  the  corporation, 
as  will  authorize  it  to  intervene 
in  the  receivership  proceedings  for 
the  purpose  of  having  the  appoint- 
ment of  the  receiver  and  all  pro- 
ceedings taken  by  him  set  aside. 
Barth  v.  Enger-Kress  Co.  (Ameri- 
can Ins.  Co.),  92  Wis.  225,  65  N.  W. 
1035. 

A  levying  creditor  can  not  inter- 
vene to  attack  the  appointment  of 
a  receiver  on  the  ground  of  want 
of  jurisdiction.  Holmes  v.  Knapp 
Electrical  Works,  59  111.  App.  58. 

If  the  court  had  jurisdiction  of 
the  subject-matter  the  validity  of 
the  appointment  can  not  be  ques- 
tioned in  an  action  by  the  receiver. 
Davis  V.  Shearer,  90  Wis.  250,  62 
N.  W.  1050. 

An  erroneous  appointment  on 
an  inadequate  showing  will  not 
affect  the  jurisdiction  of  the  court 
over  the  subject-matter.     Id. 

Appointment  can  not  be  at- 
tacked in  a  collateral  proceeding. 
State  V.  Scarritt,  128  Mo.  331,  30 
S.  W.  1026.  See  State  v.  Ross,  122 
Mo.  435,  23  L.  R.  A.  534,  25  S.  W. 
947;  Yore  v.  Superior  Court,  108 
Cal.  431,  41  Pac.  477;  Smith  v. 
Hopkins,  10  Wash.  77,  38  Pac.  854. 

A  judgment  creditor  not  a  party 
by  intervention  or  otherwise  can 
not  appear  in  the  action  without 
leave  and  move  to  vacate  the  or- 
der of  appointment.     Wooding  v. 


J.  Wooding  &  Co.,  10  Wash.  531, 
39  Pac.  137. 

2  St.  Louis  etc.  Min.  Co.  v.  San- 
doval Coal  etc.  Co.,  Ill  111.  32; 
Whitney  v.  Hanover  Nat.  Bank, 
71  Miss.  1009,  23  L.  R.  A.  531,  15 
So.  33;  Smith  v.  Ely  etc.  Dry 
Goods  Co.,  79  Miss.  266,  30  So.  653; 
State  V.  Ross,  122  Mo.  435,  23 
L.  R.  A.  534,  25  S.  W.  947;  State 
V.  District  Court,  21  Mont.  155,  69 
Am.  St.  Rep.  645,  53  Pac.  272;  Gib- 
son V.  Sexson,  82  Neb.  475,  118 
N.  W.  77;  Texas  etc.  Ry.  Co.  v. 
Gay,  86  Tex.  571,  25  L.  R.  A.  52, 
26  S.  W.  599. 

A  collateral  attack  on  the  ap- 
pointment of  a  receiver  may  be 
made  only  when  the  court  making 
the  appointment  was  without  jur- 
isdiction. Harned  v.  Beacon  Hill 
Real  Estate  Co.,  9  Del.  Ch.  232, 
80  Atl.  805. 

If  it  appears  upon  the  face  of 
the  proceedings  that  a  court's 
order  appointing  a  receiver  was 
without  authority  of  law,  and 
therefore  void,  the  order  may  be 
assailed  collaterally  by  any  one. 
State  V.  District  Court,  21  Mont. 
155,  69  Am.  St.  Rep.  645,  53  Pac. 
272. 

The  appointment  of  a  receiver 
by  a  federal  court  in  an  action  to 
foreclose  a  mortgage  is  absolutely 
void  and  subject  to  collateral  at- 
tack, where  the  court  never  ac- 
quired any  jurisdiction  of  the 
cause.  Thurber  v.  Miller,  11  S.  D. 
124,  75  N.  W.  900. 

Where  a  receiver  appointed  to 
collect  the  rents  and  profits  of 
mortgaged  property  pending  fore- 
closure brought  an  action  to  re- 
cover possession  of  certain  cattle 
claimed  by  him  to  be  part  of  the 


EFFECT    OF   APPOINTMENT    AND    DUTIES. 


185 


to  appoint  a  receiver,  the  order  of  appointment  as  well  as 


rents  and  profits  of  the  mortgaged 
property,  the  defendant  may  show 
in  such  action  that  the  appoint- 
ment was  void  on  the  ground  that 
the  court  had  no  jurisdiction  to 
make  such  appointment.  Baker  v. 
Varney,  129  Cal.  564,  79  Am.  St. 
Rep.  140,  62  Pac.  100. 

The  jurisdiction  of  the  court  to 
appoint  the  receiver  may  be  ques- 
tioned collaterally  in  any  action  in 
which  the  appointment  or  the  al- 
leged receiver's  title  is  involved. 
In  an  action  of  claim  and  delivery 
against  an  alleged  receiver,  it  may 
be  shown  that  he  wrongfully 
seized  possession  under  a  void 
order  of  appointment.  And  where 
the  court  vacated  the  void  order 
of  appointment,  the  receiver  was 
thereby  deprived  of  any  semblance 
of  authority  to  retain  the  posses- 
sion of  property  seized  thereunder. 
He  can  neither  justify  under  the 
void  order,  nor  insist  that  author- 
ity must  first  have  been  granted 
before  suing  him  in  claim  and  de- 
livery. He  thereafter  holds  the 
property  seized  only  in  his  indi- 
vidual capacity,  and  the  true 
owner  may  reclaim  the  same. 
Bibby  v.  Dieter,  15  Cal.  App.  45, 
113  Pac.  874. 

And  where  a  receiver  was  ap- 
pointed over  a  corporation  on  the 
application  of  the  corporation  but 
without  filing  a  bill  and  without 
notice,  the  order  of  appointment 
will  be  subject  to  collateral  attack, 
although  the  proceeding  in  which 
the  attack  was  a  writ  of  prohibi- 
tion which  appears  to  have  been 
regarded  as  a  direct  attack  on  the 
order.  State  v.  Ross,  122  Mo.  435, 
23  L.   R.  A.  534,  25  S.  W.  947. 

But  in  First  Nat.  Bank  v.  Mack, 


35  Ore.  122,  57  Pac.  326,  in  a 
case  where  the  receiver  had  been 
appointed  in  a  suit  commenced  by 
a  stockholder  on  the  sole  ground 
of  its  insolvency,  the  court  held 
the  validity  of  the  order  of  ap- 
pointment could  not  be  raised  in 
a  suit  by  the  receiver  to  have  a 
certain  judgment  declared  not  a 
lien  upon  the  assets  of  the  receiv- 
ership. 

The  appointment  of  a  receiver 
of  a  dissolved  corporation  without 
notice  to  it  is  void  where  the  ap- 
pointment is  made  without  requir- 
ing the  complainant  to  give  bond, 
in  violation  of  Ala.  Acts,  1894-95, 
p.  226,  although  such  corporation 
may  have  been  in  contempt  in  join- 
ing in  a  request  in  another  court 
for  the  appointment  of  a  receiver. 
Capital  City  Water  Co.  v.  Weath- 
erly,  108  Ala.  412,  18  So.  841. 

In  St.  Louis  etc.  Min.  Co.  v. 
Sandoval  Coal  etc.  Co.,  Ill  111.  32, 
the  doctrine  is  laid  down  that  a 
judgment  or  decree  rendered 
where  jurisdiction  is  wanting  of 
either  the  subject-matter  or  par- 
ties is  void  and  a  nullity,  and  all 
acts  performed  under  it  are  void 
and  no  right  can  be  devested  by 
it  or  acquired  thereunder.  Cf.  Mul- 
ford  V.  Stalzenback,  46  111.  303, 
306;  Campbell  v.  McCahan,  41  111. 
45;  Johnson  v.  Baker,  38  111.  98, 
87  Am.  Dec.  293;  Chambers  v. 
Jones,  72  111.  275;  Grand  Tower 
Min.,  Mfg.  &  T.  Co.  v.  Schirmer, 
64  111.  106;  Haywood  v.  Collins, 
60  111.  328;  Chase  v.  Dana,  44  111. 
262;  White  v.  Jones,  38  111.  159; 
Curtiss  V.  Brown,  29  111.  201,  229; 
Pardon  v.  Dwire,  23  111.  572. 

Otherwise,  however,  where  there 
is   a    mere   error   or    irregularity. 


186 


LAW   OF   RECEIVERS. 


everything  done  in  tlie  alleged  receivership  is  void  and 
subject  to  impeachment  in  a  collateral  proceeding.-^  So 
also  where  a  person  has  hj  some  act  on  his  part  recog- 
nized the  validity  of  the  order  appointing  the  receiver, 
he  Anil  be  precluded  from  thereafter  questioning  it  in 


Adams  v.  Larrimore,  51  Mo.  130; 
Wenner  v.  Thornton,  98  111.  156; 
Harris  v.  Lester,  80  111.  307;  Wing 
V.  Dodge,  80  111.  564;  Hernandez  v. 
Drake,  81  111.  34.  Cf.  Neeves  v. 
Boos,  86  Wis.  313,  56  N.  W.  909; 
Stanley  v.  National  Union  Bank, 
115  N.  Y.  122,  22  N.  E.  29;  Green- 
await  V.  Wilson,  52  Kan.  109,  34 
Pac.  403. 

In  Texas  &  P.  Ry.  Co.  v.  Gay, 
86  Tex.  571,  25  L.  R.  A.  52,  26  S.  W. 
599,  the  court  exhaustively  dis- 
cusses the  question  of  jurisdiction, 
not  only  as  between  courts,  but 
also  as  to  what  constitutes  juris- 
diction over  the  subject-matter,  as 
well  as  jurisdiction  over  the  par- 
ties to  the  suit,  and  also  holds 
that  a  receiver  appointed  under  a 
void  order  must  be  deemed  to 
have  been  simply  the  agent  of  the 
railway  company  over  whose  prop- 
erty he  was  appointed,  and  it  is 
liable  for  injuries  resulting  from 
his  management  of  the  railway  to 
the  same  extent  and  in  the  same 
manner  as  if  such  receiver  were 
made  agent  in  the  ordinary  course 
of  business;  and  the  same  rule 
applies  where  the  receiver  is  ap- 
pointed by  collusion,  In  such  case 
he  being  treated  as  the  agent  of 
the  parties  procuring  the  appoint- 
ment. 

So,  also,  where  the  appointment 
of  a  receiver  of  an  insolvent  cor- 
poration was  made  ex  parte  and 
without  the  filing  of  a  bill,  the 
order  of  appointment  is  subject  to 


collateral  attack.  Smith  v.  Ely  etc. 
Co.,  79  Miss.  266,  30  So.  653. 

Goods  taken  by  a  receiver  under 
an  appointment  which  is  void  need 
not  be  restored  before  hearing  an- 
other application  for  the  appoint- 
ment of  a  receiver,  as  void  ap- 
pointments may  be  entirely  disre- 
garded and  a  second  appointment 
made  without  vacating  the  first. 
Nor  does  such  an  appointment  of 
a  receiver  by  a  void  order  dis- 
qualify him  from  being  appointed 
under  a  second  order,  under  Ind. 
Rev.  Stat.  1894,  §  1237,  providing 
that  no  party,  attorney,  or  "other 
person  interested"  in  any  action 
shall  be  appointed  receiver  therein. 
Robinson  v.  Dickey,  143  Ind.  214, 
42  N.  E.  638. 

3  Jones  V.  Schaff  Bros.  Co.,  187 
Mo.  App.  597,  174  S.  W.  177. 

Where  an  order  appointing  a 
receiver  was  without  jurisdiction 
subsequent  orders  approving  his 
acts,  allowing  and  approving  his 
expenditures  and  authorizing  him 
to  issue  receivership  certificates 
therefor,  were  erroneous.  Ander- 
son v.  Robinson,  63  Ore.  228.  126 
Pac.  988  (rehearing  denied,  127 
Pac.  546). 

Where  the  court  appointing  a 
receiver  had  no  jurisdiction,  it  can 
not  claim  "jurisdiction  o^^er  the 
property  seized  without  jurisdic- 
tion, and  pay  costs  and  expenses 
of  the  receivership  therefrom. 
Hawes  v.  First  Nat.  Bank  of  Madi- 
son, 229  Fed.  51,  143  C.  C.  A.  645. 


EFFECT    OF    APPOINTMENT    AND    DUTIES. 


187 


accordance  with  the  general  rules  relating  to  the  law  of 
estoppel.^ 


•4  The  doctrine  of  estoppel  ap- 
plies also  to  receivers.  Wilming- 
ton Star  Min.  Co.  v.  Allen,  95  111. 
288;  Peabody  Coal  Co.  v.  Nixon, 
226  Fed.  20,  140  C.  C.  A.  446. 

Consent  or  long  acquiescence  in 
the  appointment  will  estop  a  party 
from  questioning  the  legality  of 
the  appointment  where  the  court 
had  jurisdiction.  Pagett  v.  Brooks, 
140  Ala.  257,  37  So.  263;  Dickerson 
V.  Cass  County  Bank,  95  Iowa  392, 
64  N.  W.  395;  Post  v.  Dorr,  4  Edw. 
Ch.  (N.  Y.)  412;  Zieverink  v.  Kem- 
per, 50  Ohio  St.  208,  34  N.  E.  250; 
Pitts  V.  New  Mammoth  etc.  Min. 
Co.,  23  Utah  623,  65  Pac.  1076; 
Brown  v.  Lake  Superior  Iron  Co., 
134  U.  S.  530,  33  L.  Ed.  1021, 
10  Sup.  Ct.  604. 

The  legality  of  an  appointment 
of  a  receiver  made  in  open  court, 
in  the  presence  of  the  adverse 
party,  without  objection  or  excep- 
tion, can  not  be  raised  by  motion 
to  set  it  aside.  Gray  v.  Oughton, 
146  Ind.  285,  45  N.  E.  191. 

Creditors  who  have  admitted  the 
necessity  of  an  appointment  of  a 
receiver,  and  who  have  made  ap- 
plication for  another  appointment 
than  that  made,  can  not  urge  suc- 
cessfully that  the  proceedings  for 
the  prior  appointment  are  null, 
because  of  defect  or  insufficiency 
in  the  pleadings.  McGilliard  v. 
Donaldsonville  Foundry  etc.  Wks., 
104  La.  544,  81  Am.  St.  Rep.  145, 
29  So.  254. 

A  creditor  who  has  brought  suit 
against  a  private  corporation  in 
a  federal  court,  and  caused  its 
property  to  be  attached  and  se- 
questered on  a  vendor's  lien,  which 
property    is   subsequently   ordered 


to  be  surrendered  to  a  receiver 
previously  appointed  in  a  state 
court,  can  not  successfully  assail 
the  order  of  appointment  for  infor- 
mality in  the  proceedings,  without 
asking  for  judgment  on  its  de- 
mand, or  disclosing  a  well-grounded 
claim  for  damages  against  the 
receiver  personally.  Remington 
Paper  Co.  v.  Watson,  49  La.  Ann. 
1296,  22  So.  355. 

Where  parties  stipulate  that  a 
receiver  acted  as  such  and  should 
be  protected,  the  validity  of  the 
appointment  can  not  be  ques- 
tioned. Kelsey  v.  Sargent,  40  Hun 
(N.  Y.)  150. 

A  lien  creditor  of  a  judgment 
debtor,  who  was  not  a  party  to 
the  proceedings  in  which  the  judg- 
ment was  rendered,  is  not,  by  con- 
senting to  the  appointment  of  a 
receiver  in  aid  of  execution,  es- 
topped to  object  to  the  possession 
and  control  of  the  property  by  the 
receiver.  First  Nat.  Bank  v.  Cook, 
12  Wyo.  492,  2  L.  R.  A.  (N.  S.) 
1012,  76  Pac.  674,  78  Pac.  1083. 

Where  receivers  within  the  time 
allowed  by  the  court  for  that  pur- 
pose therefor  petitioned  the  court 
for  approval  of  their  disaffirmance 
of  a  contract,  there  could  be  no 
claim  of  an  affirmance  by  conduct 
or  an  estoppel  against  disaffirm- 
ance. Peabody  Coal  Co.  v.  Nixon, 
226  Fed.  20,  140  C.  C.  A.  446. 

The  appointment  of,  or  refusal 
to  appoint,  a  receiver  pending  de- 
termination of  an  action,  does  not 
conclude  either  of  the  parties  upon 
the  ultimate  question  involved. 
Lyon  V.  United  States  F.  &  G.  Co., 
48  Mont.  591,  Ann.  Cas.  1915D, 
1036,  140  Pac.  86. 


188 


LAW   OF   RECEIVERS. 


The  recital  of  jurisdictioiial  facts  in  the  order  of  ap- 
pointment is  prima  facie  evidence  of  the  existence  of  such 
facts."   The  validity  of  the  order  must  be  determined  by 


The  vendee  of  a  receiver  can 
not,  in  the  absence  of  fraud  or 
mistake,  deny  the  validity  of  the 
appointment,  where  possession 
has  been  taken  by  the  receiver. 
Stelzer  v.  La  Rose,  79  Ind.  435; 
Jay  V.  DeGroot,  17  Abb.  Pr.  (N.  Y.) 
36,  note;  Storm  v.  Ermantrout,  89 
Ind.  214. 

Giving  a  bond  to  release  a  ves- 
sel for  which  a  state  court  has 
appointed  a  receiver  in  a  proceed- 
ing under  a  state  statute  to  en- 
force a  lien  for  Injury  done  by  it 
to  a  bridge,  waives  any  question  of 
the  regularity  of  the  receivership. 
West  V.  Martin,  51  Wash.  85,  21 
L.  R.  A.  (N.  S.)  324,  97  Pac.  1102. 

Plaintiff's  assignor  having  been 
a  party  to  proceedings  by  which 
the  receiver  took  charge  of  the 
assets  of  defendant  corporation 
under  the  orders  of  a  Mississippi 
court,  the  assignor  thereby  recog- 
nized the  jurisdiction  of  that  court, 
and  would  not  be  in  a  position  to 
invoke  the  rule  that  local  cred- 
itors are  entitled  to  a  preference 
over  foreign  creditors  in  regard 
to  funds  in  the  jurisdiction  of 
courts  of  this  state.  De  Mattos  v. 
Camp  &  Hinton  Co.,  129  La.  251, 
55  So.  832. 

Where  creditors,  in  proceedings 
to  perfect  a  lien,  sued  both  the 
debtor  corporation  and  receivers 
which  had  been  appointed  to  con- 
serve its  property,  they  can  not,  in 
a  subsequent  proceeding,  attack 
the  validity  of  the  receivership. 
State  (ex  rel.  Connors)  v.  Shelton, 
238  Mo.  281,  142  S.  W.  417. 

Where    an    order    uppoiut.ing    a 


receiver  is  void,  it  is  not  made 
valid  by  a  motion  to  quash  the 
order  and  acquiescence  in  the 
order  of  the  court  denying  the  mo- 
tion. "To  move  to  strike  from 
the  record  a  void  order  does  not 
make  the  order  valid,  nor  does  it 
estop  the  moving  party  from  ques- 
tioning subsequent  acts  of  the 
court  based  on  the  order."  State 
V.  Superior  Court,  86  Wash.  584, 
150  Pac.  1153. 

Plaintiff  was  not  estopped  to 
question  the  propriety  of  the  ap- 
pointment of  a  receiver,  by  his 
failure  to  appeal  from  an  order 
refusing  to  vacate  the  receiver- 
ship. Lyon  V.  United  States  F.  & 
G.  Co.,  48  Mont.  591,  Ann.  Cas. 
1915D,  1036,  140  Pac.  86. 

Where  parties  stipulate  that  a 
receiver  acted  as  such  and  should 
be  protected,  the  validity  of  the 
appointment  can  not  be  ques- 
tioned. Kelsey  v.  Sargent,  40  Hun 
(N.    Y.)    150. 

And  the  mere  failure  to  appear 
and  contest  the  appointment  of  a 
receiver  does  not  preclude  the 
party  from  asserting  the  invalidity 
of  the  appointment.  Albritton  v. 
Lott-Blackshear  Commission  Co., 
167  Ala.  541,  52  So.  653. 

5  Starr  v.  Bankers'  Union  of  the 
World,  81  Neb.  377,  129  Am.  St. 
Rep.  684,  116  N.  W.  6L 

The  general  presumption  ap- 
plicable to  courts  of  general  jur- 
isdiction is  that  proof  without 
which  the  judgment  could  not 
have  been  given  was  duly  made 
at  the  hearing.  Cole  v.  Price,  22 
Wash.  18,  60  Pac.  153. 


EFFECT    OF   APPOINTMENT   AND    DUTIES.  189 

the  proceedings  upon  which  it  is  based  and  it  can  not  be 
validated  by  any  subsequent  proceedings.^  A  denial  by  the 
court  of  an  application  for  tlie  appointment  of  a  receiver 
will  be  controlling  in  respect  to  a  subsequent  application 
based  upon  the  same  grounds.'^ 

The  same  general  principles  of  law,  of  course,  apply  to 
orders  appointing  receivers  in  respect  to  their  void  and 
voidable   character   as   apply  to   other   orders   and   de- 
crees, and  the  same  loose  language  on  the  part  of  the 
courts  in  dealing  with  the  subject  of  collateral  attacks  on 
such  orders  is  found  in  respect  to  orders  appointing  re- 
ceivers as  is  often  found  in  many  of  the  decisions  on 
the  general  subject.   There  is  often  a  careless  use  on  the 
part  of  judges  in  writing  tlieir  opinions  of  the  terms  void 
and  voidable  in  characterizing  orders  or  decrees  under 
consideration,  and  language  is  used  which  is  good  law 
in  the  particular  case  at  bar,  but  which  is  unsound  if  ap- 
plied as  a  general  statement  of  the  law  on  the  general 
subject. 

§  41.    Source  and  Extent  of  Possessory  Rights  of  a  Receiver. 

The  powers  of  the  receiver  are  derived  from  the  order 
appointing  him,  and  he  is,  therefore,  entitled  to  take  pos- 
/  session  of  all  the  property  described  in  the  order  of  ap- 
pointment.^ 

He  is  appointed  on  behalf  of  all  parties  and  not  of  the 
complainant  or  defendant  only.   He  is  appointed  for  the 

cBibby  v.  Dieter,  15   Cal.  App.  A    receiver    being    the    arm    of 

45,  113  Pac.  874.  the    court    which    appoints    him, 

7  Dudley  v.  Piatt,  70  Misc.  Rep.  whatever  he  does  under  the  order 

322,  127  N.  Y.  Supp.  154.  ^j  ^j^^   court  regarding  the   prop- 

iQuincy    etc.    R.    Co.    v.    Hum-  ^^^^    .^    ^.^   ^^^^^    j^   ^^^   ^^^   of 

phreys,  145  U.  S.  82,  36  L.  Ed.  632,  ^^^    ^^^^^^    .^^^^^      ^^^^^    ^^^    ^^j 

12   Sup.  Ct.  787.  Sullivan)  v.  Reynolds,  209  Mo.  161. 

A  receiver  can  not  be  sued  inai-  

vidually  upon  a  contract  made  by  1--^     T".      „     ,     rxi    Q^   Qfi-i    in7 

him  as  a  receiver.    Avey  v.  Burn-  198.  15   L.   R.  A.   (N.  S.)   963.  107 

ley,  167  Ky.  26,  179  S.  W.  1050.  S.  W.  487. 


190  LAW   OF   RECEIVERS. 

benefit  of  all  parties  who  may  establisli  rights  in  the 
cause.  He  has  no  powers  except  such  as  are  conferred 
upon  him  by  the  order  of  his  appointment  and  the  course 
and  practice  of  the  court.^  And  an  order  of  appointment 
which  is  prima  facie  regular  and  valid  is  a  sufficient  justi- 
fication for  his  acts  as  a  recei^'er.^  The  extent  of  the 
powers  of  a  receiver  under  the  order  of  his- appointment 
was  well  set  forth  by  the  late  Mr.  Chief  Justice  Beattj- 
in  the  case  of  Havemeyer  v.  Superior  Court/  in  which  he 
said : 

''When  a  receiver  holds  by  a  valid  appointment  con- 
taining no  directions  in  excess  of  the  jurisdiction  of  the 
court,  so  long  as  he  acts  in  pursuance  of  the  orders  of 
the  court  he  can  not  ordinarily  invade  the  rights  of  par- 
ties or  strangers  to  the  litigation.  If  he  does  an  injury, 
he  does  it  by  exceeding  his  autliority.  In  such  case  the 
fault  is  his,  and  his  alone.  If  he  attempts  to  take  prop- 
erty lawfully  in  the  possession  of  another  and  to  which 
he  is  not  entitled,  his  attempt  m^j  be  resisted,  and  the 
person  defending  his  lawful  possession  is  not  brought  in 

2  Atlantic  Trust  Co.  v.  Chapman,  s  Edee  v.   Strunk,   35   Neb.   307, 

208    U.    S.    360,    28    Sup.    Ct.    406,  53  N.  W.  70. 

52  L.  Ed.  528,  13  Ann.  Gas.  1155.  In  Holcombe  v.  Johnson,  27  Minn. 

In  Buckley  v.  George,  71  Miss.  353,  7  N.  W.  364,  a  receiver  was 
580,  15  So.  46,  it  is  held  that  where  appointed  in  a  supplementary  pro- 
an  order  appointing  a  receiver  is  ceeding  over  specific  property  of 
appealed  from  and  a  supersedeas  the  judgment  debtor  and  the  order 
granted  the  effect  is  to  retroact  and  appointing  the  receiver  was  subse- 
suspend  the  order  by  which  the  quently  reversed  on  appeal.  It 
receiver  was  appointed  by  which  was  held  that  the  action  of  the 
there  was  no  longer  any  efficacy  lower  court  was  not  void,  but  re- 
in the  decree  to  uphold  the  pos-  mained  in  force  until  reversed,  and 
session  of  the  receivers,  and  the  furnished  a  protection  to  the  re- 
right  of  the  party  from  whom  the  ceiver  for  acts  done  under  it  in 
property  is  taken  is  revested  in  strict  conformity  with  the  require- 
him.  Cf.  State  v.  Johnson,  13  Fla.  ments  of  the  order  as  long  as  the 
33;  Blondheim  v.  Moore,  11  Md.  order  was  in  force. 
365;  Everett  v.  State,  28  Md.  190.  4  Havemeyer  v.  Superior  Court. 
See,  also,  Johnson  v.  Powers,  21  84  Cal.  327,  18  Am.  St.  Rep.  192, 
Nob.  292,  32  N.  W.  62.  10  L.  R.  A.  627,  24  Pac.  121. 


EFFECT   OF   APPOINTMENT   AND    DUTIES.  191 

conflict  with  the  court.    If  he  by  any  means  gains  pos- 
session of  the  property  claimed  by  a  stranger,  the  court 
will  either  order  him  to  restore  it,  or  if  the  title  is  in 
doubt,  permit  an  action  to  be  brought  against  him  to 
try  the  title.   But  when  the  court  has  exceeded  its  juris- 
diction in  appointing  a  receiver,  or  in  directing  him  to 
take  specific  property  out  of  the  possession  of  a  stranger, 
the  injury  that  results  is  directly  due  to  the  action  of  the 
court ;  the  wrong  is  in  the  order  of  the  court,  not  in  the 
receiver's  transgression  of  the  order.    In  such  case  it 
seems  clear  that  the  appropriate  remedy  is  in  some  writ 
or  proceeding  which  operates  upon  the  court,  as  such,  to 
restrain  the  judicial  action,  and  not  in  the  sort  of  resist- 
ance that  may  be  opposed  to  an  ordinary  wrong-doer,  or 
in  such  an  action  as  may  be  brought  against  a  private 
person  who  has  coimiiitted  a  trespass.    However  confi- 
dent he  may  be  of  his  right  to  resist,  no  prudent  man 
will  take  the  risk  of  resisting  the  plain  terms  of  an  order 
of  court,  and  no  rule  of  practice  should  be  laid  down 
which  will  compel  a  man  in  that  situation  to  defend  his 
possession  by  force  in  order  to  avoid  the  necessity  of  re- 
sorting to  an  action  to  recover  it.    On  tlie  contrary,  all 
men  should  be  encouraged  to  avoid  forcible  resistance 
to  orders  of  courts,  no  matter  how  plainly  in  excess  of 
jurisdiction,  by  firmly  upholding  and  freely  administer- 
ing the  remedies  provided  for  the  summary  correction  of 
such  excesses." 

A  receiver  can  not  ordinarily  take  into  custody  prop- 
erty found  in  possession  of  a  stranger  to  the  record 
claiming  title,  although  where  the  stranger  intervenes 
and  submits  his  riglits  to  the  receivership  court,  he  is  not 
entitled  to  a  writ  of  prohibition  to  restrain  the  court  from 
determining  those  rights.^ 

Except  where  power  is  given  to  the  receiver  in  the 

5  State  V.  McClure,  17  N.  M.  694,  Ann.  Gas.  1915B,  1110,  47  L.  R.  A. 
(N.  S.)  744,  133  Pac.  1063. 


192  LAW   OF   RECEIVERS. 

order  of  appointment  or  by  statute,  the  proper  practice 
is  for  tlie  receiver  to  apply  by  petition  to  the  court  for 
specific  authority  and  direction  in  all  matters  involving 
his  official  action  and  duty  where  the  result  of  his  action 
may  seriously  affect  the  receivership  property  or  fund. 
The  interest  of  the  parties  and  his  responsibility  to  the 
court  require  this.  In  such  case  the  order  of  court  is 
based  upon  the  petition  and  should  so  recite.*^ 

The  powers  of  a  receiver  are  derived  from  two  gen- 
eral sources,  and  are  to  be  determined  from  the  nature 
of  the  proceeding  and  the  duties  imposed  upon  him,  by 
virtue  of  his  office.  As  we  have  seen,  the  appointment  of 
a  receiver  is  the  exercise  of  a  purely  provisional  remedy 
by  a  court  of  chancery.  The  courts  of  chancery,  both  in 
this  country  and  in  England,  by  a  long  line  of  decisions 
reaching  back  for  more  than  two  centuries,  have  marked 
out  the  jurisdiction  exercised  by  courts  in  this  respect 
and  defined,  with  tolerable  accuracy,  the  cases  in  which 
this  extraordinary  power  is  exercised.'^  So  that  as  a 
primary  source  of  power  we  are  to  look  to  the  rules  of 
practice  as  established  by  courts  of  equity  in  the  appoint- 
ment of  receivers.  In  those  states  and  countries  where 
no  chancery  courts  exist  as  distinctive  courts  of  general 
jurisdiction,  the  common  laAv  courts  of  general  jurisdic- 
tion are  vested  with  cliancery  powers  and  administer  this 
branch  of  equity  jurisprudence',  but  nevertheless  are  still 

6  Cammack  v.  Johnson,   2  N.  J.  Egberts  Woolen  Mills  Co.,  31  Misc. 

Eq.  163;   Curtis  v.  Leavitt,  1  Abb.  Rep.  523,  64  N.  Y.  Supp.  466. 

Pr.  (N.  Y.)  274;   Missouri  Pac.  R.  The    office    of    receiver    had    its 

Co.    V.    Texas    &    P.    R.    Co.,    31  origin   in   equity   practice,   and   to 

Fed.   864;    People  v.  St.   Nicholas  that  practice  we  must  look  to  as- 

Bank,  76  Hun  (N.  Y.)  522,  28  N.  Y.  certain  his  rights  and  duties  when 

Supp.  114;  Re  Van  Allen,  37  Barb.  not   prescribed   by   statute.     State 

(N.  Y.)  225.  (ex  rel.  Fichtenkamm)   v.  Gambs, 

He  has  no  powers  except  such  68    Mo.    289;    Wilder   v.    New    Or- 

as   are   conferred   on   him    in    the  leans,  87  Fed.  843,  848,  31  C.  C.  A. 

course  and  practice  of  the  court.  249. 

He  has  very  little  discretion.   Blair  7  Corey    v.    Long,    12    Abb.    Pr. 

V.  Core,  20  W.  Va.  265;   Fulton  v,  N.   S.    (N.   Y.)    427. 


EFFECT   OF   APPOINTMENT   AND    DUTIES.  193 

guided  by  the  general  principles  established  by  the 
courts  of  chancery.  Witli  the  introduction  of  the  code 
practice  in  most  of  the  states  of  this  country,  and  the 
modifications  of  the  common  law  practice,  by  statutory 
enactments,  the  jurisdictions  of  courts  in  the  appoint- 
ment of  receivers  have  been  somewhat  enlarged,  as  well 
as  the  scope  and  powers  of  receivers,  in  some  particulars, 
but  the  general  scope  of  the  law  of  receivership  practice 
and  powers  of  receivers  remains  comparatively  unaf- 
fected by  the  code  enactments.  In  many  of  the  states, 
however,  are  found  special  statutes  relating  to  insol- 
vency, corporations,  and  kindred  matters  wherein  are 
special  provisions  relating  to  the  appointment  of  statu- 
tory receivers,  their  functions,  powers,  duties,  and  official 
relations,  which  are  siii  generis,  and  are  treated  of  herein 
under  special  chapters.  Of  such  character  are  the  Com- 
panies Act,  and  various  winding-up  acts  of  England, 
principally  relating  to  corporations,  in  which  the  minis- 
terial officers  charged  with  specific  duties  analogous  to 
those  of  receivers,  and  designated  as  liquidators,  are 
appointed,  sometimes  by  the  corporations,  and  some- 
times by  the  courts. 

§  42.    Manner  of  Determining  Extent  of  a  Receiver's  Power. 

Owing  to  the  nature  of  the  proceeding,  and  the  objects 
sought  to  be  accomplished  by  the  receivership,  and  to  the 
fact  that  the  appointment  of  a  receiver  rests,  in  all  cases, 
in  the  sound  judicial  discretion  of  the  court,  the  receiver's 
powers  and  duties  should  be  embodied  in  the  order  of 
appointment.  1    The  order  of  appointment  should  point 

1  The    rules    and    orders    of   the  ceive  and  collect  all  rents  payable 

courts  constitute  the  law   for  the  to  the   debtor,  or  to  make  leases 

direction   of   such    receivers,    who  from  time  to  time  as  may  be  nec- 

are    officers    of    the    court    which  essary.     Shreve  v.  Hankinson,  34 

appointed    them,    and    always    act  N.  J.  Eq.  413. 

under    its     direction.     The     court  Grant    v.    Davenport,    18    Iowa 

may,  by  general  or  special  rule  or  179;    Davis  v.   Gray,  83  U.   S.    (16 

order,  authorize  Its  receiver  to  re-  Wall.)  203,  21  L.  Ed.  447-  HooDer 
I  Rec— 13 


194 


LAW    OF    RECEIVERS. 


out  distinctly  the  general  scope  of  the  receiver's  powers 
and  duties  so  that,  at  least  in  a  general  sense,  he  wili  be 
enabled  to  understand  the  ofificial  duties  imposed  upon 
him,  and  for  the  faitliful  discharge  of  which  he  is  to 
become  responsible.  By  the  earlier  English  practice  the 
receiver  was  supposed  to  occupy  a  position  of  such  ex- 
treme indifference  as  between  the  parties  that  all  appli- 
cations to  the  court  for  directions  to  the  receiver  were 
to  be  made  by  the  proper  parties  to  the  suit,  and  the 
receiver  was  not  permitted  to  apply  to  the  court  for 
directions  until  he  had  first  made  request  of  the  plaintiff 
or  defendant  to  make  the  desired  application  and  had 
been  refused  by  him.-     This  rule  of  practice,  however, 


V.  Winston,  24  111.  353.  In  this 
case  it  was  contended  that  the 
powers  of  the  receiver  were  en- 
larged and  extended  by  stipula- 
tion of  the  parties,  and  that  by 
reason  thereof  he  was  vested  with 
larger  discretionary  powers  than 
ordinarily  attach  to  a  receivership. 
But  the  court  say:  "We  do  not 
deny  that  he  had  some  discretion 
in  this  matter,  but  it  was  very 
limited.  We  hold,  being  an  officer 
of  court,  he  should  have  applied 
to  the  court  for  leave  to  make 
these  expenditures,  and  he  is  an- 
swerable to  the  court  for  the  exer- 
cise of  all  his  powers."  In 
Benneson  v.  Bill,  62  111.  408;  Yea- 
ger  V.  Wallace,  44  Pac.  294,  296; 
People  V.  St.  Nicholas  Bank,  76 
Hun  (N.  Y.)  522,  28  N.  Y.  Supp. 
114;  Verplanck  v.  Mercantile  Ins. 
Co.,  2  Paige  (N.  Y.)  438,  452;  Re 
Colvin's  Estate,  3  Md.  Ch.  278.  See 
discussion  of  the  powers  of  tem- 
porary and  permanent  receivers  in 
Herring  v.  New  York,  L.  E.  &  W. 
R.  Co.,  105  N.  Y.  340,  12  N.  E.  763. 
As  to  what  is  embraced  in  the 
scope  of  the  order,  see  Benneson 


V.  Bill,  62  111.  408;  American  Const. 
Co.  V.  Jacksonville,  T.  &  K.  W.  R. 
Co.,  52  Fed.  937.  While  it  is  true 
that  the  receiver  is  an  officer  of 
the  court,  yet  that  fact  does  not 
confer  upon  him  any  special  privi- 
leges so  far  as  rights  of  action 
are  concerned  over  other  persons 
bringing  suit.  State  Bank  at  New 
Brunswick  v.  First  Nat.  Bank,  34 
N.  J.  Eq.  450.  Such  a  receiver  has 
only  the  power  and  authority 
given  him  in  his  orders.  Chau- 
tauqua County  Bank  v.  White,  6 
Barb.  (N.  Y.)  589;  Republic  L.  Ins. 
Co.  V.  Swigert,  135  111.  150,  12 
L.  R.  A.  328,  25  N.  E.  680. 

Whether  the  order  be  compre- 
hensive in  regard  to  the  power 
given  the  receiver,  or  his  power  be 
given  from  time  to  time,  as  occa- 
sion requires,  the  court  is  in  fact 
the  real  custodian  of  the  property, 
and  the  acts  of  the  receiver  are 
acts  of  the  court  designed  to  pre- 
serve the  property  for  the  benefit 
of  the  parties  subsequently  shown 
to  be  entitled  to  it.  Devendorf  v. 
Dickinson,  21  How.  Pr.  (N.  Y.)  275. 

;:  Parker  v.  Dunn,   8  Beav.  497; 


EFFECT    OF    APPOINTMENT    AND    DUTIES. 


195 


]ias  no  force  in  this  country,  since  owing  to  the  fact  that 
tlie  receiver  is  the  instrument  or  arm  of  tlie  couit,  he  is 
I)rivileged,  and  it  is,  in  fact,  liis  (hity,  to  apply  to  the 
court  at  any  and  all  times  for  instructions  and  directions 
as  to  his  powers  and  duties,  and  he  should  do  so  especially 
where  there  are  conflicting  interests,  rights,  liens,  and 
matters  which  may  give  rise  to  future  litigation.^ 


Re  Doolan,  2  Connor  &  L.  232 
Clark  V.  Fisher,  Sausse  &  Sc.  684 
O'Connor  v.  Malone,  1  Ir.  Eq.  20 
Wrixson  v.  Vize,  5  Ir.  Eq.  276 
Richards  v.  Goold,  7  Ir.  Eq.  209. 

A   mere  order   of  the   court   di- 
recting receivers  to  talie  charge  of 
the  property  of  an  insolvent  rail- 
road company,  including  its  leased 
lines,     and     taking     possession 
thereof  by  the  receivers,  does  not 
have  the   effect  to   change   either 
the    title   to    the    property    or   the 
right  of  possession  in  the  property. 
The  receivers  thereby  become  the 
mere    custodians   of   the    property 
for  the  court.    Central  Trust  Co.  v. 
Continental  Trust  Co.,  86  Fed.  517, 
30  C.  C.  A.  235,  58  U.  S.  App.  605; 
Tradesman  Publishing  Co.  v.  Knox- 
ville  Carwheel  Co.,  95   Tenn.   634, 
49   Am.   St.    Rep.  943,   31    L.    R.  A. 
593,    32    S.   W.    1097,   and   he   may 
obtain  an  order  that  tenants  shall 
attorn   to    and   pay   their   rent   to 
him.     But  a  receiver  of  a  property 
of   a  judgment   debtor,    appointed 
in   pursuance  of  proceedings  sup- 
plementary   to    an    execution,    be- 
comes vested  with  the  title  of  the 
debtor   by    virtue   of   his    appoint- 
ment, and  may  maintain  all  actions 
incidental  to  a  reversionary  estate 
in  the  land.     Porter  v.  Williams, 
9  N.  Y.  142,  59  Am.  Dec.  519. 

3  The  original  order  may  be  en- 
larged from  time  to  time  as  the 
exigencies    of    the    case    may    re- 


quire. "Since  the  receiver  is  an 
officer,  or,  as  he  is  sometimes 
called,  'the  hand'  of  the  court,  it 
would  be  singular  if  he  could  not, 
at  any  time,  go  to  it  with  his  com- 
plaint, or  for  instructions  in  regard 
to  any  matter  touching  the  fund 
placed  in  his  custody."  People  v. 
Security  L.  Ins.  &  Annuity  Co., 
79  N.  Y.  267,  270;  Curtis  v.  Leavitt, 
1  Abb.  Pr.  (N.  Y.)  274. 

In  Smith  v.  New  York  Consoli- 
dated Stage  Co.,  28  How.  Pr. 
(N.  Y.)  377,  the  court  say:  "The 
court  has  sanctioned  the  practice 
of  the  receiver  to  ask  for  instruc- 
tions regarding  the  receivership 
business." 

In  People  v.  Security  L.  Ins.  & 
A.  Co.,  79  N.  Y.  267,  the  court  say: 
"Since  the  receiver  is  an  officer, 
or,  as  he  is  sometimes  called,  the 
hand  of  the  court,  it  would  be  sin- 
gular if  he  could  not  at  such  stage 
go  to  it  with  his  complaint  or  for 
instructions  in  regard  to  any  mat- 
ter touching  the  fund  placed  in  his 
custody,  and  more  especially  when, 
as  in  the  case  before  us,  it  is  in 
danger  through  his  own  error  of 
being  unfairly  distributed." 

Receiver  of  an  insolvent  corpo- 
ration has  the  right  to  question  a 
transaction  whereby  insolvent  bor- 
rowed money,  paying  an  alleged 
usurious  rate  of  interest.  James 
Bradford  Co.  v.  United  Leather 
Co.,   (Del.  Ch.)   95  Atl.  308. 


196  LAW   OF   RECEIVERS. 

A  second  source  of  power  of  ordinary  receivers  is  to 
be  found  in  the  course  and  practice  of  the  courts  relative 
to  receiverships.  The  courts  exercising  chancery  juris- 
diction have  established  by  long  usage  and  experience 
certain  well  defined  rules  relating  to  the  powers  of  receiv- 
ers, and  it  is  to  these  rules  so  established  that  we  must 
usually  go  to  determine  the  scope  of  authority  of  the 
ordinary  receiver.^ 

Statutory  receivers,  or  those  appointed  pursuant  to 
the  requirements  of  statute,  as  will  be  seen  elsewhere, 
derive  their  general  powers  wholly  from  the  statute 
under  which  they  are  appointed,  and  have  no  powers 
except  those  conferred  by  it,  either  by  express  terms  or 
such  as  can  be  fairly  implied  from  the  general  scope  of 
the  statute,  or  as  an  incident  to  an  express  power  given.^ 
The  power  thus  conferred  is  deemed  delegated  and  re- 
quires careful  consideration  by  the  court  in  its  exercise.^ 

A  receiver  by  virtue  of  his  office  is  possessed  of  limited 
powers  and  all  persons  dealing  with  him  must  take  notice 
of  such  limitations,  and  contract  with  him  with  such 

4  Hooper  v.  Winston,  24  111.  353 ;  ate  the  property  in  accordance 
Republic  L.  Ins.  Co.  v.  Swigert,  with  the  state  where  the  property 
135  111.  150,  12  L.  R.  A.  328,  25  is  situated.  Act  of  Congress, 
N.  E.  680;  Chautauque  County  March  3,  1887,  §2.  The  power 
Bank  v.  White,  6  Barb.  (N.  Y.)  conferred  on  statutory  receivers 
589;  Verplanck  v.  Mercantile  Ins.  may  not  always  be  express  but 
Co.,  2  Paige  (N.  Y.)  438;  Booth  may  be  inferred  from  the  general 
V.  Clark,  58  U.  S.  (17  How.)  322,  scope  of  the  statute,  as  where  au- 
15  L.  Ed.  164.  thority  is  given  to  hear  and  deter- 

5  Attorney-General  v.  Life  &  F.  mine  the  validity  of  claims,  this 
Ins.  Co.,  4  Paige  (N.  Y.)  224.  See  embraces  implied  power  to  admln- 
Knott  v.  Morris  Canal  &  Bkg.  Co.,  ister  oaths  to  witnesses.  Runyon 
4  N.  J.  Eq.  423;  Verplanck  v.  Mer-  v.  Farmers  &  M.  Bank,  4  N.  J.  Eq. 
cantile  Ins.  Co.,   2   Paige    (X.  Y.)  480. 

438,   452;   Attorney-General  v.  At-  6  Davis   v.    United    States    Elec. 

lantic  Mut.  L.  Ins.   Co.,  77   N.  Y.  P.  &  L..  Co.,  77  Md.  35,  25  Atl.  982; 

336.  Oakley  v.  Paterson  Hank,  2  N.  J. 

A  receiver  appointed  by   a  fed-  Eq.    173;    Bangs    v.    Mcintosh,    23 

eral  court  must  manage  and  oper-  Barb.   (N.  Y.)  591. 


EFFECT   OF   APPOINTMENT   AND    DUTIES.  197 

knowledge."  This  principle  is  not  peculiar  to  the  law  of 
receivership  but  applies  to  judicial  sales  made  by  minis- 
terial officers  generally.  As  in  dealing  with  a  special 
agent  every  one  must  know  that  the  scope  of  the  receiv- 
er's powers  is  limited  and  special,  and  his  acts  at  all  times 
subject  to  modification  or  annulment. 

Unless  sooner  discharged,  his  powers  remain  during 
the  continuance  of  the  litigation,  and,  as  a  rule,  are  not 
suspended  during  appeal,^  though  there  are  exceptions 
as  will  be  seen  in  the  sections  in  which  the  appellate  pro- 
cedure will  be  discussed. 

The  appointment  of  a  receiver  regularly  and  legally 
made  at  final  judgment  or  decree  vests  in  him  all  the 
powers  and  duties  usually  pertaining  to  his  office,  though 
a  previous  irregular  and  illegal  appointment  has  been 
made,  during  the  pendency  of  the  action.^  The  final 
action  of  the  court  becomes  retrospective  so  far  as  his 
acts  as  receiver  are  concerned. 

§  43.    General  Duties  and  Care  Required  of  a  Receiver. 

The  broad  general  duties  of  a  receiver  are  to  take 
charge  of  and  safely  keep  and  account  for  all  of  the  assets 
of  the  estate  and  to  obey  all  orders  of  the  court  having 

7  Tripp    V.    Boardman,    49    Iowa  9  Lutt   v.   Grimont,    17   111.   App. 

410-    Barron   v.    Mullin,    21    Minn.      308;    Richards    v.    People,    81    111. 

374-    Lehigh   Coal   &   Nav.   Co.   v.      551;   Cook  v.  Citizens'  Nat.  Bank, 

r.     '.     1  Tj    r>^    Q^  M    T   TTn   42fi  "^^    Ind.    256;    American    Bank    v. 

Central  R.  Co.,  35  N.  J.  Eq.  426.  ^^^^^^^^   ^^  ^^    ^^^_    ^^.^^^^^^   ^.^^ 

8  Re  Real  Estate  Associates,  58  ^^^^  ^  Schermerhorn,  9  Paige 
Cal.  356;  Swing  v.  Townsend,  24  ^^  y.)  372,  38  Am.  Dec.  551;  Peo- 
Ohio  St.  1.  Although  the  appeal  ^^^  ^,  Stur'tevant,  9  N.  Y.  263,  59 
may  suspend  or  vacate  the  final  ^^  pec.  536;  Re  Stonebridge,  59 
decree.  Merrill  v.  Elam,  2  Tenn.  Hun  626,  13  N.  Y.  Supp.  770,  37 
Ch.  513;  Brien  v.  Paul,  3  Tenn.  N.  Y.  St.  Rep.  617  (affirmed  wlth- 
Ch  357  Stafford  v.  Union  Bank,  out  opinion  in  Stonebridge  v.  Al 
57  U.  S.  (16  How.)  135,  140,  14  den,  128  N.  Y.  618,  28  N.  E.  253); 
L.  Ed.  876,  878;  Schenck  ^^.  Peay,  Russell  v.  East  Anglian  R.  Co., 
1 "  Dill.  267,  270,  Fed.  Cas.  No.  3  MacN.  &  G.  1 04  Ames  v.  Birken- 
-,^2451.            '  head  Docks  Trustees,  20  Beav.  332. 


198 


LAW   OF   RECEIVERS. 


control  of  the  receivership.^  Persons  dealing  with  a 
receiver  are  chargeable  with  notice  of  the  fact  that  his 
powers  are  limited  and  subject  to  the  control  of  the  court 
appointing  him.-  In  other  words,  a  receiver  has  no  prin- 
cipal behind  him,  in  the  sense  of  an  ordinary  agent,  for 
whom  he  can  promise,  and  hence,  unless  authorizes!  so  to 
do  by  the  court  which  appointed  him,  his  promises  and 
contracts  will  bind  him  individually.^ 

It  is  the  duty  of  a  receiver  to  make  and  file  wdth  the 
court,  when  he  is  appointed,  a  list  of  the  property  which 
passes  into  his  hands  so  that  creditors  and  all  persons 


1  Demain  v.  Cassidy,  55  Miss. 
320;  Southwestern  Surety  Ins.  Co. 
V.  Pacific  Coast  Casualty  Co.,  92 
Wash.  654,  159  Pac.  788. 

2  Knickerbocker  Trust  Co.  v. 
Green  Bay  Phosphate  Co.,  62  Fla. 
519,  56  So.  699;  Brunner,  Mond  & 
Co.  V.  Central  Glass  Co.,  18  Ind. 
App.  174,  63  Am.  St.  Rep.  339,  47 
N.  E.  686;  Stone  v.  St.  Louis  Union 
Trust  Co.,  183  Mo.  App.  261,  166 
S.  W.  1091. 

One  who  was  appointed  receiver 
of  a  fund  in  litigation,  to  hold  it 
until  further  order,  though  agreed 
upon  by  the  parties,  was  bound 
to  take  notice  that  the  whole  fund 
was  involved,  and  an  assignment 
to  him  of  an  interest  in  the  fund 
pending  his  receivership  was  void 
as  against  plaintiff,  who  recovered 
an  interest  therein.  Cascaden  v. 
Dunbar,  3  Alaska  671. 

The  purchaser  of  notes  of  the 
receiver  of  a  corporation,  signed 
"Z.,  Receiver,"  and  indorsed  by 
him  personally,  took  them  with 
constructive  notice  of  the  re- 
ceiver's want  of  authority  to  issue 
them,  so  that  the  corporation  was 


not  liable  thereon.  Zielian  v.  Bal- 
timore Plant  Ice  Co.,  115  Md.  658, 
81  Atl.  22. 

3  Acts  of  a  receiver  outside  of 
the  scope  of  the  authority  given 
him  by  the  court  do  not  bind  the 
court.  Farmers'  Loan  etc.  Co.  v. 
Chicago  etc.  Ry.  Co.,  42  Fed.  6. 

A  receiver  has  no  principal  be- 
hind him  for  whom  he  can  prom- 
ise, and  he  alone  is  individually 
liable  on  notes  executed  by  him  as 
receiver  without  express  authority, 
nor  can  such  notes  be  reformed  so 
as  to  speak  the  true  intent  of  the 
parties  to  the  effect  that  he  was 
to  be  bound  in  his  capacity  as 
receiver,  and  not  individually. 
Peoria  Steam  Marble  Works  v. 
Hickey,  110  Iowa  276,  80  Am.  St. 
Rep.  296,  81  N.  W    473. 

W^here  letters  which  would  make 
receivers  liable,  individually,  if 
signed  as  individuals,  were  signed 
"receivers"  and  not  "as  receivers, ' 
it  was  held  that  the  receivers  were 
individually  liable,  since  the  word 
"receivers"  was  merely  descrip- 
tive of  the  persons.  Guimarin  v. 
Southern  Life  &  Trust  Co.,  (S.  C.) 
90  3.  E.  319. 


EFFECT   OF   APPOINTMENT   AND    DUTIES.  199 

interested  may  know  what  property  belongs  to  the  parties 
in  the  case  wherein  the  receiver  has  been  appointed.* 

All  books,  documents,  and  papers  in  the  hands  of  a 
receiver  are  quasi-public  in  character,  and  are  open  to 
examination,  not  only  by  the  court,  but  by  persons  inter- 
ested in  the  estate.^ 

A  receiver  occupies  a  fiduciary  relation  and  is  natu- 
rally, governed  by  the  general  rules  applicable  to  trustees. 
He  is  bound  to  exercise  the  same  character  of  prudence 
and  sldll  in  handling  the  receivership  property  as  he 
would  exercise  in  dealing  with  his  o\Am  property.*'    He 
should  exercise  the  same  degree  of  care  and  diligence  in 
the  administration  of  the  receivership  which  is  exercised 
by  a  man  of  ordinary  prudence  with  reference  to  his  own 
business  affairs.    When  he  uses  ordinary  care  and  pru- 
dence, that  is,  the  care  and  diligence  which  an  ordinarily 
prudent  man  uses  in  handling  his  own  estate,  he  has  ful- 
filled the   measure  of  his  official  duty  and  is  not  answer- 
able for  losses  which  occur  to  the  property  and  assets 
in  his  charge ;  but  when  he  fails  to  exercise  this  degree 
of  care  and  diligence  he  becomes  answerable  for  the  con- 
sequences of  his  neglect  or  dereliction.     He  is  not  an 
insurer  of  the  safety  of  the  property,  since  ordinary  care 
is  the  test  of  his  responsibility.     The  measure  of  his 
responsibility,  therefore,  is  analogous  to  that  of  an  ad- 
ministrator or  guardian.'^ 

4  Heffron   v.    Rice,    149    111.    216,  be     presumed     that     the     referee 

41  Am.  St.  Rep.  271,  36  N.  E.  562;  transcended   his   authority.    Whit- 

In  re  New  Iberia  Cotton  Mill  Co.,  ney  v.  Buckman,  26  Cal.  447,  448. 

109  La.  875,  33  So.  903.  •>  Decker   Bros.  v.   Berners    Bay 

A    court    may    refuse    to    have  Min.  &  Mill.  Co.,  2  Alaska  504. 

issues  framed  and  submitted  to  a  6  Schwartz  v.  Keystone  Oil  Co., 

jury    to    ascertain    the    value    of  153  Pa.  St.  283,  25  Atl.  1018. 

property    put    into    the    hands    of  7  Johnston  v.  Keener,  23  111.  App. 

a    receiver,     and     the     ownership  220,     Eskridge    v.    Rushworth,    3 

thereof;  since  it  will  be  presumed  Colo.  App.  562,  34  Pac.  482;   State 

that    the    judge   informed    himself  v  Germania  Bank  of  St.  Paul  (La- 

as  to  what  he  placed  in  the  hands  german  v.  Willius),  106  Minn.  164, 

of   the    receiver;  and    it    will    not  130  Am.  St.   Rep.  599;    118  N.  W. 


200 


LAW   OF   RECEIVERS. 


The  duties  of  a  receiver  being  fiduciary  in  character, 
lie  can  not  delegate  the  performance  of  his  trust  to  others. 
He  is  an  officer  of  the  court  for  the  purpose  of  executing 
its  orders  and  directions.  If  he  employs  agents  to  per- 
form his  o^\Ti  duties,  he  will  be  held  liable  for  their  acts.^ 
If  a  receiver  places  funds  belonging  to  the  receivership 
out  of  his  control  and  in  the  hands  of  others  for  handling, 
he  wdll  be  held  to  guarantee  their  solvency  and  become 
answerable  for  any  losses  through  them.® 


683;  State  v,  Germania  Bank  of 
St.  Paul  (Lagerman  v.  Willius), 
106  Minn.  539,  118  N.  W.  686; 
Pangbum  v.  American  Vault  etc. 
Co.,  205  Pa.  93,  54  Atl.  508;  Groes- 
beck  Cotton  Oil  etc.  Co.  v.  Oliver, 
44  Tex.  Civ.  303,  97  S.  W.  1092; 
Chandler  v.  Cushing-Young  Shingle 
Co.,  13  Wash.  89,  42  Pac.  548; 
United  States  Blowpipe  Co.  v. 
Spencer,  61  W.  Va.  191,  56  S.  E. 
845;  Harrigan  v.  Gilchrist,  121  Wis. 
127,  99  N.  W.  909;  Gutterson  etc. 
V.  Lebanon  Iron  etc.  Co.,  151  Fed. 
72. 

It  is  the  duty  of  a  receiver  of 
an  insolvent  institution  to  faith- 
fully collect,  and  enhance  the 
assets  of  the  institution,  and  ad- 
minister its  affairs  to  the  end  that 
its  creditors  may  receive  what  is 
justly  due  them,  and  that  its  stock- 
holders, if  any  there  be,  may 
receive  the  residue.  State  v.  State 
Bank  &  Trust  Co.,  36  Nev.  526, 
137  Pac.  400. 

A  receiver  in  renting  and  col- 
lecting rents  must  exercise  such 
care  as  may  reasonably  be  ex- 
pected of  an  ordinarily  prudent 
person  under  the  circumstances, 
and  if  through  negligence  he  fails 
to  collect  rents,  he  is  liable  there- 
for. Higgins  v  Shields,  151  Ky. 
227,  151  S.  W.  391. 


Where  the  receiver  acts  for  the 
best  interests  of  the  receivership 
according  to  his  judgment,  he  will 
not  ordinarily  be  held  liable  for 
a  loss.  Filkins  v.  Adams,  60  111. 
App.  410. 

A  receiver  is  not  responsible  for 
loss  of  cattle  simply  because  he 
permitted  them  to  remain  on  the 
range,  nor  for  property  destroyed 
by  fire  merely  because  he  did  not 
insure  it.  Hamm  v.  J.  Stone  & 
Sons  Livestock  Co.,  13  Tex.  Civ. 
414,   35   S.  W.  427. 

8  A  receiver  is  a  trustee  for  all 
persons  in  interest,  and  can  not 
delegate  his  trust  to  another. 
Broussard  v.  Mason,  187  Mo.  App, 
281,  173  S.  W.  698. 

A  receiver  of  a  corporation  can 
not  make  an  agreement  with  its 
former  manager  by  which  the  lat- 
ter shall  control  certain  of  the  cor- 
porate business  and  collect  its 
credits,  so  as  to  render  payments 
made  to  the  manager  valid,  and 
prevent  a  second  collection  of  the 
claims  by  the  receiver.  Buchanan 
V.  Hicks,  98  Ark.  370,  34  L.  R.  A. 
(N.  S.)   1200,  136  S.  W.  177. 

9  Salway  v.  Salway,  2  Russ.  & 
M.  215  (affirmed  by  House  of  Lords 
under  the  name  of  White  v.  Baugh, 
9  Bligh  (N.  S.)  181,  3  Clark  & 
F.  44). 


EFFECT    OF    APPOINTMENT   AND    DUTIES. 


201 


§  44.    Liability  of  Receiver  for  Funds  on  Deposit  in  Bank. 

A  receiver  may  deposit  the  funds  of  an  estate  coming 
into  liis  hands  in  a  bank  of  good  standing  and  repute; 
and  in  determining  the  character  of  the  bank  that  degree 
of  care  and  prudence  is  exacted  which  ordinarily  is  exer- 
cised by  reasonably  cautious  men  in  transacting  their 
business  of  like  character  and  importance.  If  he  uses 
this  degree  of  care  and  prudence  he  is  not  responsible 
for  any  loss,  due  to  a  failure  of  the  bank.  The  same  is 
true  in  respect  to  continuing  the  deposit.^ 


1  state  V.  Corning  State  Sav. 
Bank,  128  Iowa  597,  105  N.  W.  159; 
Ficener  v.  Bott,  20  Ky.  Law  Rep. 
632,  47  S.  W.  251;  Groesbeck  Cot- 
ton Oil  etc.  Co.  V.  Oliver,  44  Tex. 
Civ.  303,  97  S.  W.  1092;  Hamm  v. 
J.  Stone  &  Sons  Livestock  Co., 
13  Tex.  Civ.  414,  35  S.  W.  427. 

Where  a  receiver  who  was 
ordered  to  collect  certain  money 
and  pay  it  in  court  at  the  next 
term  of  court,  but  the  Civil  War 
intervened  before  the  next  term 
of  court  and  he  deposited  it  in  a 
bank  which  became  defunct  be- 
cause of  the  war,  it  was  held  that 
he  was  liable  for  the  loss  of  the 
funds.  Barton's  Exr.  v.  Ridge- 
way's  Admr.,  92  Va.  162,  23  S.  E. 
226. 

Under  Rev.  St.  1895,  art.  1462, 
which  provides  that  whenever,  dur- 
ing the  progress  of  any  cause,  any 
money  shall  be  deposited  with  the 
court  to  await  the  result  of  any 
legal  proceeding,  the  officer  having 
custody  thereof  shall  seal  up  the 
identical  money  and  deposit  it  in 
a  safe  or  bank  vault,  accessi- 
ble to  the  court,  and  a  statute, 
in  relation  to  receivers,  which  pro- 
vides that  a  receiver  shall  have 
power  to  take  charge  and  keep 
possession  of  the  property,  and  the 


condition  of  his  bond,  as  pre- 
scribed by  statute,  is  that  he  will 
faithfully  discharge  all  the  duties 
of  receiver  and  obey  the  orders 
of  the  court,  it  was  held,  that  the 
statute  has  no  application  to  funds 
coming  into  the  hands  of  a  re- 
ceiver, and,  in  the  absence  of  any 
order  of  court,  a  receiver  fulfilled 
the  measure  of  his  duty  when  he 
deposited  funds  coming  into  his 
hands  in  banks  of  such  standing 
and  under  such  circumstances  as 
to  characterize  his  conduct  as  that 
of  an  ordinarily  prudent  person  in 
the  discharge  of  his  own  affairs. 
Groesbeck  Cotton  Oil  &  Compress 
Co.  v.  Oliver,  44  Tex.  Civ.  303, 
97  S.  W.  1092. 

But  it  has  been  held  that  when 
money  is  in  the  hands  of  a  re- 
ceiver at  the  place  of  final  custody, 
and  he  has  no  further  duty  in  re- 
spect to  it  except  to  preserve  it, 
it  is  already  in  court,  and  he  can 
not  part  with  his  custody  of  it  by 
depositing  it  in  bank,  save  at  his 
own  risk,  without  some  order, 
leave,  or  direction  authorizing  him 
so  to  do.  Ricks  v.  Broyles,  78  Ga. 
610,  6  Am.  St.  Rep,  280,  3  S.  E.  772. 
And  see  State  v.  Gooch,  97  N.  C. 
186,  2  Am.  St.  Rep.  284,  1  S.  E.  653. 
to  the  same  effect  where  the  funds 


202  LAW   OF   RECEIVERS. 

Receiversliip  funds  should  be  kept  by  the  receiver  sepa- 
rate and  distinct  from  his  own  funds.  And  if  deposited 
in  a  bank  should  be  deposited  in  a  separate  account  in 
his  name  as  receiver  so  that  the  different  items  can  be  . 
traced  and  shown  not  to  have  become  mingled  with  his 
separate  funds.  If  by  mingling  such  funds  with  his  own 
he  derives  a  benefit,  he  is  chargeable  with  interest.^  If 
the  court  by  an  order  designates  a  particular  party  as 
the  depositary  of  the  court's  funds  and  such  party  ac- 
cepts funds  with  such  knowledge,  he  thereby  becomes  an 
officer  of  the  court  and  may  be  proceeded  against  by  con- 
tempt proceedings  in  order  to  enforce  repayment  of  the 
funds. ^ 
§45.    Right  of  Receiver  to  Borrow  Money. 

A  receiver  should  not  make  any  disposition  of  the 
funds  in  his  possession  which  will  tend  to  impair  them 
without  an  order  of  court.^ 

Where  the  order  of  the  court  gives  to  the  receiver 
authority  to  continue  in  the  possession  and  management 
of  the  property,  he  may  in  good  faith  borrow  the  neces- 
sary money  for  the  successful  and  proper  management 
of  such  property,  and  the  claim  of  the  lender  will  be 
superior  to  that  of  bondholders.^   An  order  authorizing 

were  deposited  in  a  bank  in   an-  terest   upon    the   balances   to    his 

other    state    without   authority    of  credit  and  a  loss  occurs,  he  will  be 

the  court.  held  liable.     Drever  v.  Mandesley, 

2  Hooper  v.  Winston,  24  III.  353;  13  L.  J.  (N.  S.)  433,  8  Jur.  547. 

Cool  V.  Jackman,  13  111.  App.  560;  3  In  re  Western  Marine  etc.  Ins. 

Hodge  V.  Quiry,  9  Ky.  Law  Rep.  Co.,  38  111.  289. 

650;    Utica  Ins.   Co.   v.  -Lynch,   11  i  Hooper  v.  Winston,  24  111.  353. 

Paige  (N.  Y.)  520;  Matter  of  Com-  2  Ex  parte  Carolina  Nat.   Bank, 

monwealth  Fire  Ins.  Co.,  32   Hun  18   S.  C.   289;    Re  Fifty-four  First 

(N.  Y.)  78;  Schwartz  v.  Keystone  Mortgage  Bonds,  15  S.  C.  304.   Ex 

Oil   Co.,    153    Pa.   St.    283,   25   Atl.  parte  Benson,  18  S.  C.  38,  44  Am. 

1018;    Hinckley  v.  Oilman  etc.  R.  Rep.  564;    Barton  v.  Barbour,  104 

Co.,  100  U.  S.  153,  157,  25   L.   Ed.  U.  S.  126,  26  L.  Ed.  672;   Cowdrey 

591,  593;  Wren  v.  Kirton,  11  Ves.  v.   Galveston,   H.    &   H.   R.    Co.,    1 

Jr.  377.  Woods  331,  Fed.  Cas.  No.  3293.    In 

Where    the   bank    pays    him    in-  this  case  the  court  says:  "All  out- 


EFFECT  OF   APPOINTMENT    AND   DUTIES. 


203 


lays  made  by  the  receivers  in  good 
faith  in  the  ordinary  course  with 
a  view  to  advance  and  promote  the 
business  >f  the  road  and  to  render 
it  profitable  and  successful  are 
fairly  within  the  line  of  discretion 
which  is  necessarily  allowed  to  a 
receiver  entrusted  with  the  man- 
agement of  a  railroad  in  his 
hands." 

Greenwood  v.  Algesiras  R.  Co. 
[1894],  2  Ch.  205,  63  L.  J.  Ch  fi70. 
This  case  is  based  upon  the  fact 
that  there  must  be  an  emergency, 
and  that  the  borrowing  of  the 
money  is  essential  to  the  preserva- 
tion of  the  property.  In  Baniv  of 
Montreal  v.  Chicago,  C  &  W.  R. 
Co.,  48  Iowa  518,  a  receiver  was  au- 
thorized to  issue  certificates  "for 
money  borrowed,  materials  fur- 
nished, labor  performed,  or  on  ac- 
count of  contracts  made  by  him 
for  the  construction  or  completion 
of  said  road  or  any  part  thereof," 
and  such  certificates  so  issued 
were  made  a  first  lien  on  the  road. 
It  was  held  that  certificates  issued 
prior  to  the  furnishing  of  the  ma- 
terial or  performance  of  the  labor 
were  void.  The  furnishing  of  the 
material  and  the  performance  of 
the  work  were  prerequisites  to  the 
issuing  of  certificates. 

This  power  should  be  exercised 
with  the  acquiescence  of  all  par- 
lies concerned,  if  possible,  Wal- 
lace V.  Loomis,  97  U.  S.  146,  162, 
24  L.  Ed.  895,  901,  and  with  cau- 
tion. For  a  full  discussion  of  the 
rower  in  its  many  phases,  see, 
Credit  Co.  v.  Arkansas  C.  R.  Co., 
15  Fed.  46,  5  McCrary  23;  Taylor 
V.  Philadelphia  &  R.  R.  Co.,  7  Fed. 
377;.J;fennedy  v.  St.  Paul  &  P.  R. 
Co.,  2  Dill.  448,  Fed.  Cas.  No.  7706; 
Fnion  Trust  Co.  v.  Illinois  Midland 
R.  Co.,  117  U.  S.  434,  29  L.  Ed.  963, 


6  Sup.  Ct.  809;  Miltenberger  v.  Lo- 
gansport,  C.  &  S.  W.  R.  Co.,  106 
U.  S.  286,  27  L.  Ed.  117,  1  Sup.  Ct. 
140;  Jerome  v.  McCarter,  94  U.  S. 
734,  24  L.  Ed.  136;  Cowdrey  v. 
Galveston,  H.  &  H.  R.  Co.,  1 
Woods  331,  Fed.  Cas.  No.  3293; 
Stanton  v.  Alabama  &  C.  R.  Co.,  2 
Woods  506,  Fed.  Cas.  No.  13296; 
Meyer  v.  Johnston,  53  Ala.  237; 
Vermont  &  C.  R.  Co.  v.  Vermont 
C.  R.  Co.,  46  Vt.  792,  50  Vt.  500; 
Hoover  v.  Montclair  &  G.  L.  R. 
Co.,  29  N.  J.  Eq.  4;  Bank  of  Mon- 
treal V.  Chicago,  C.  &  W.  R.  Co., 
48  Iowa  518. 

As  to  power  to  mortgage,  see 
Burroughs  v.  Gaither,  66  Md.  171, 

7  Atl.  243. 

And  power  to  invest,  see  Utica 
Ins.  Co.  V.  Lynch,  11  Paige 
(N.  Y.)  520;  but  see  Attorney  Gen- 
eral V.  North  American  L.  Ins.  Co., 
89  N.  Y.  94. 

In  the  case  of  Meyer  v.  John- 
ston, 53  Ala.  237,  the  power  of  the 
receiver  to  borrow  money  is  elab- 
orately discussed  after  an  exhaus- 
tive argument  by  counsel,  and  the 
reasons  both  for  and  against  the 
exercise  of  this  power  are  clearly 
stated  (p.  346). 

Where  a  receiver  borrowed 
money  and  used  the  same  to  dis- 
charge a  valid  lien  on  the  prop- 
erty in  his  care  and  custody  and 
acted  in  good  faith,  it  was  held 
proper  to  allow  him  credit  there- 
for. Heffron  v.  Rice,  149  111.  216, 
41  Am.  St.  Rep.  271,  36  N.  E.  562. 

The  power  to  incur  expense  does 
not  extend  beyond  what  is  abso- 
lutely essential  to  the  preservation 
and  use  of  the  property.  Cowdrey 
v.  Galveston,  H.  &  H.  R.  Co.,  93 
U.  S.  352,  23  L.  Ed.  950. 

Where  a  receiver  authorized  to 
complete    certain    contracts    was 


204  LAW   OF   RECEIVERS. 

a  receiver  to  borrow  money  for  certain  purposes  does  not 
authorize  liim  to  purchase  goods  on  credit.^ 

Although  a  receiver  may  have  no  right  to  borrow 
money,  yet  if  he  uses  money  borrowed  by  him  to  discharge 
a  valid  lien  on  the  property  committed  to  his  charge,  and 
acts  in  good  faith  in  making  the  payment,  he  is  entitled 
to  credit  therefor  as  against  the  insolvent  debtors  who 
have  received  the  benefit  of  the  payment.* 

j  Where  the  receiver  is  properly  authorized  to  borrow 
money  to  carry  on  the  business  of  the  receivership,  he 
will  not  be  held  personally  liable  for  the  sums  borrowed 
where  he  has  not  exceeded  his  authority.^  And  where  a 
receiver,  authorized  to  borrow  money,  did  not  have  suffi- 
cient funds  to  take  up  the  original  notes  when  due,  their 
renew^al  according  to  the  custom  of  banks  does  not  work 
a  change  in  the  original  loan.^ 

The  source  of  this  power  is  to  be  found  in  the  inherent 
right  of  the  court  to  preserve  the  receivership  property 
from  waste,  damage,  or  loss.  And  in  case  of  public 
corporations  the  public  have  interests  that  are  to  be  pro- 
tected.   The  power  to  borrow  money  in  all  cases  presup- 

authorized  to  borrow  from  time  to  The  implied  authority  of  a  re- 
time $5000,  and  to  execute  notes  ceiver  in  bankruptcy  who  is  con- 
in  his  official  capacity  which  ducting  the  business  to  purchase 
would  constitute  a  first  lien  on  the  ^^  ^.^edit  and  borrow  money  exists 
estate,  and  thereafter  was  author-  ^^j^  .^  ^^^  ^^^^^^^  ^^  ^^  ^^^^^.^^^ 
ized  to  borrow  $1000  to  purchase 


power  to  borrow  conferred  by  the 
court.  Re  C.  M.  Burkhalter  &  Co., 
182  Fed.  353. 


certain    appliances,    and    again    to 

borrow   $5000  more,   and  to   issue 

receiver's      certificates      therefor, 

such  orders   should   be   construed  3  Haines  v.  Buckeye  Wheel  Co., 

together,  and  created  a  preference  224  Fed.  289,  139  C.  C.  A.  525. 

for  such  loans  to  the  amount  of  4  Heffron   v.   Rice,    149    111.    216. 

$11,000,  but  did  not  establish  for  ^^  ^^    gt.  Rep.  271,  36  N.  E.  562. 

the   receiver  a  continuing   credit,  ,^  .              „     ,          ,          ^ 

.,          4.1,      ,.     1,  •           1,       .   o  ^  Hames  v.  Buckeye  Wheel  Co., 
the  authority  being  exhausted  on 

a  loan  to  the  amount  specified  be-  ^24  Fed.  289.  139  C.  C.  A.  525. 

ing  negotiated.  People's  Sav.  Bank  ^  People's   Sav.   Bank    &    Trust 

&   Trust  Co.   V.  Rogers,   177   Fed.  Co.   v.   Rogers,   177   Fed.   386,    100 

386.   100  C.  C.  A.  618.  C.  C.  A.  618. 


EFFECT   OF   APPOINTMENT    AND    DUTIES.  205 

poses  authority  from  the  court  given  for  that  purpose, 
based  on  specific  application  either  by  the  receiver  or 
plaintiff;  and  the  exercise  of  the  power  is  with  great 
caution. 

The  power  to  mortgage  is,  in  principle,  the  same  as  the 
power  to  issue  receiver 's  certificates  and  make  them  a 
first  lien  upon  the  property.  There  must  be  the  gravest 
necessity  to  justify  an  order  of  this  kind,  and  more 
especially  so  where  the  property  is  not  charged  with  a 
public  trust. ^ 

The  subject  will  necessarily  be  further  considered  in 
the  discussion  of  receiver's  certificates  issued  on  the 
procurance  of  loans  for  the  maintenance  of  the  receiver- 
ship property. 

§  46.   Right  of  Receiver  to  Loan  Receivership  Funds. 

Where  the  loaning  of  money  is  not  the  business  of  a 
receivership  which  is  being  conducted  as  a  going  business 
by  a  receiver,  he  naturally  has  no  authority  to  loan  funds 
belonging  to  the  receivership  without  specific  authority 
of  the  court,  since  to  do  so  would  not  be  in  accord  with 
the  purposes  of  his  appointment,  which  is  to  preserve  the 
estate  and  distribute  it  in  accordance  with  the  directions 
of  the  court.^  Of  course,  he  may  make  such  loans  where 
authorized  so  to  do  by  the  court.-  Where  the  receiver  is 

7  Burroughs   v.   Gaither,   66   Md.  poration  formed  a  partnership  to 

171,  7  Atl.  243.  perform  certain  work  for  the  cor- 

1  Ryan   v.    Morrill,    83   Ky.    352;  poration  from  which  they  derived 

Darby  v.   Gilligan,  37   W.  Va.   59,  a  profit,  and  one  of  the  partners 

16  S.  E.  507.  was    appointed    receiver    for    the 

Receivers  have  no  right  to  loan  corporation   and   paid   the   firm   a 

funds   coming   to  their   hands   as  certain   sum   and   made   no   effort 

receivers.  If  they  loan  such  money  to   recover  profits  realized   by  it, 

and  lose  it  they  must  stand  the  the  court  properly  surcharged  the 

loss,  except  under  special  circum-  receiver    for   his    actions.      Tenth 

stances.     Heffron  v.  Rice,  149  111.  Nat.  Bank  of  Philadelphia  v.  Smith 

216,  41  Am.  St.   Rep.  271,  36  N.  E.  Const.  Co.,  242  Pa.  269,  89  Atl.  76. 

562.  -  Where    money   has    been    paid 

Where   three   officers   of  a  cor-  into   the  hands   of  a  general   re- 


206 


LAW    OF    RECEIVERS. 


authorized  to  loan  receivership  funds,  he  must  use  the 
utmost  good  faith  in  doing  so.  He  should  not  loan  the 
funds  to  himself  or  to  a  firm  of  which  he  is  a  member 
or  be  indirectly  concerned  in  the  loan.^  But  when  the 
receiver's  funds  have  been  loaned  without  authority,  and 
a  note  taken  therefor,  such  want  of  authority  in  the 
receiver  is  no  defense  to  an  action  on  the  note.^  And 
where  a  receiver  loans  receivership  funds  without  an 
order  of  court  but  in  good  faith  and  the  receivership  was 
in  fact  benefited  by  the  loan  he  will  not  be  chargeable 
with  interest.^ 


§  47.    Liability  of  Receiver  for  Interest  on  Funds. 

A  fund  which  is  in  the  custody  of  the  court  and  can  not 
be  paid  out  without  an  order  of  court  does  not  ordinarily 
bear  interest,^  but  where  a  receiver  obtains  interest  on 


ceiver  to  the  credit  of  a  particular 
suit,  and  by  him,  under  an  order 
of  court,  loaned  out,  no  order 
should  be  entered  requiring  him 
to  pay  out  and  disburse  the  fund 
until  he  has  first  been  ordered  to 
collect  it,  and  it  is  in  his  hands, 
or  unless  his  failure  to  collect  it  is 
attributable  to  his  fault,  negli- 
gence, misappropriation,  or  mis- 
management of  the  fund.  United 
States  Blowpipe  Co.  v.  Spencer,  61 
W.  Va.  191,  56  S.  E.  345. 

3  If  one  holding  money  as  re- 
ceiver lends  it  to  the  firm  of  which 
he  is  a  member,  he  is  guilty  of  a 
breach  of  trust,  but  this  does  not 
create  any  lien  against  the  prop- 
erty of  the  firm  in  favor  of  the 
persons  entitled  to  the  moneys  so 
misappropriated  by  the  receiver. 
Goldthwaite  v.  Janney,  102  Ala. 
431,  48  Am.  St.  Rep.  56,  28  L.  R.  A. 
161,   15   So.   560. 

W^here  a  receiver  loans  money 
to  a  firm  of  which  he  is  a  partner 


instead  of  depositing  it  in  a  cer- 
tain bank  as  directed  by  the  court, 
the  firm  will  be  liable  for  its  loss, 
even  if  they  have  repaid  it  to  the 
receiver  who  had  misappropriated  • 
it.     Ryan  v.  Morrill,  83  Ky.  352. 

4Coibin  v.  De  La  Vergne,  44 
N.  J.  L.  70. 

5  Attorney  General  v.  North 
American  etc.  Ins.  Co.,  89  N.  Y. 
94;  Utica  Ins.  Co.  v.  Lynch,  11 
Paige  (N.  Y.)   520. 

1  Bowman  v.  Wilson,  12  Fed.  864, 
2  McCrary  394;  How  v.  Jones,  60 
Iowa  70,  14  N.  W.  193;  Crawford 
V.  Fickey,  41  W.  Va.  544,  23  S.  E. 
662. 

A  receiver  having  on  hand  a 
fund  which  is  subject  to  distribu- 
tion at  any  time  is  not  chargeable 
with  interest  on  it.  First  Nat. 
Bank  v.  Wood,  30  Misc.  Rep.  278, 
63  N.  Y.   Supp.  324. 

A  trust  company  acting  as  re- 
ceiver held  not  chargeable  with 
interest  on  receivership  funds  de- 


EFFECT    OF    APPOINTMENT    AND    DUTIES. 


207 


the  funds  in  his  charge  he  must  account  for  the  sums  so 
received  by  him.-  He  will  be  chargeable  with  interest  on 
funds  of  the  receivership  withheld  beyond  the  time  di- 
rected by  the  court  to  be  distributed  or  placed  at  the 
disposal  of  the  court.^  And  where  a  receiver  mingled  the 
receivership  funds  with  those  of  his  own  and  from  time 
to  time  drew  out  such  sums  that  made  it  apparent  that 
he  had  drawn  out  the  receivership  funds  for  his  personal 
use,  he  will  be  charged  with  interest  on  the  funds. ^ 

A  receiver  is  not  liable  for  interest  on  monev  withheld 


posited  in  its  own  bank  subject  to 
check.  Haddock  v.  Plymouth  Coal 
Co.,  237  Pa.  37,  85  Atl.  23. 

2  Hooper  v.  Winston,  24  111.  353; 
Lonsdale  v.  Church,  3  Bro.  C.  C. 
41. 

3  Johnson  v.  Moon,  82  Ga.  247, 
252,  10  S.  E.  193;  Commonwealth 
V.  Eagle  F.  Ins.  Co.,  14  Allen 
(96  Mass.)  344;  In  re  Carter,  3 
Paige  (N.  Y.)  146;  In  re  Seaman, 
2  Paige  (N.  Y.)  409;  Fetnam  v. 
Kriby,  4  Ir.  Eq.  320;  Hicks  v. 
Hicks,  3  Atk.  274;  Blank  v.  Jol- 
land,  8  Ves.  72. 

Failure  of  a  receiver  to  obey  an 
order  directing  him  to  loan  funds 
in  his  hands,  in  the  absence  of  ex- 
cuse, justifies  a  charge  against 
him  in  his  settlement  of  an  ac- 
count equal  to  the  interest  he 
would  have  received.  Cecil  v. 
Clark,  69  W.  Va.  641,  72  S.  E.  737. 

Under  Code,  1887,  3409  (Va. 
Code  1904,  p.  1811),  which  makes 
a  receiver  liable  for  moneys  com- 
ing into  his  hands,  and  for  inter- 
est thereon  on  his  failing  to  invest 
the  same,  a  receiver  of  funds  aris- 
ing out  of  the  sale  of  real  estate 
of  a  debtor  who  was  required,  by 
the  court  appointing  him,  to  invest 


the  funds,  but  did  not  do  so  and 
on  the  contrary  kept  them  in  his 
hands  to  the  time  of  the  applica- 
tion for  the  settlement  of  his  ac- 
counts, is  chargeable  only  with 
simple  interest  on  the  funds,  not- 
withstanding section  3413  (Va. 
Code  1904,  p.  1812)  declaring  that 
the  interest  on  all  loans  to  indi- 
viduals under  an  order  of  the 
court  shall  become  payable  on  the 
1st  day  of  January  next  after  the 
making  of  the  loan,  and  annually 
on  the  1st  day  of  January  of  each 
succeeding  year,  until  the  princi- 
pal is  paid,  and  unless  the  prin- 
cipal be  paid  when  due,  compound 
interest  shall  be  charged  thereon. 
Roller  V.  Paul,  106  Va.  214,  55  S.  E. 
558. 

4  Utica  Ins.  Co.  v.  Lynch,  11 
Paige  (N.  Y.)  520;  Hinckley  v.  Gil- 
man  etc.  R.  Co.,  100  U.  S.  153,  25 
L.  Ed.  591. 

But  the  mere  fact  that  a 
receiver  deposited  receivership 
funds  in  his  private  account,  it  not 
appearing  that  he  used  them,  will 
not  subject  him  to  be  charged 
with  interest.  Radford  v.  Folsom, 
55  Iowa  276.  7  N.  W.  604;  How  v. 
Jones,  60  Iowa  70,  14  N.  W.  193. 


208 


LAW   OF    RECEIVERS. 


by  him  until  he  could  be  advised  as  to  his  duty  in  the    , 
premises. ° 

§  48.    Liability  of  Receiver  for  Violations  of  His  Trust. 

While  receivers  are  necessarily  clothed  with  a  consid- 
erable discretion  in  the  management  of  the  trust  prop- 
erty, that  fact  does  not  excuse  them  for  dealing  with  it 
carelessly  or  extravagantly.^ 

The  liability  of  receivers  for  their  acts  in  the  manage- 
ment of  property  placed  in  their  custody  is  official,  and 
not  personal,  except  in  instances  of  their  personal  mis- 
conduct, so  that  a  judgment  against  them  is  in  effect  a 
judgment  against  the  property  in  their  custody.^ 

A  receiver  owes  duties  of  a  fiduciary  nature  tow^ard  all 
of  the  parties  to  the  litigation,  although  not  their  agent.^ 
He  is  responsible  to  the  court  for  his  personal  miscon- 
duct in  respect  to  the  receivership.^   As  a  general  rule, 


5  Guignon  v.  First  Nat.  Bank,  22 
Mont.  140,  55  Pac.  1051,  1097;  Mal- 
comson  v.  Wappoo  Mills,  99  Fed. 
633. 

1  Hitner  v.  Diamond  State  Steel 
Co.,  207  Fed.  616. 

A  receiver  acting  as  the  man- 
ager of  a  hotel  business  must  nec- 
essarily exercise  his  discretion  in 
many  cases.  If  he  acts  in  good 
faith,  and  conducts  the  business 
as  a  prudent  person  would  man- 
age his  own  business,  he  is  not 
liable  for  the  loss  of  a  small 
amount  by  reason  of  cashing  a 
draft  for  a  guest.  Heffron  v.  Rice, 
149  m.  216,  41  Am.  St.  Rep.  271, 
36  N.  E.  562. 

Where  an  order  has  been  en- 
tered directing  the  receiver  to 
collect  certain  funds,  and  he  fails 
to  do  so,  and  it  appears  that  such 
failure  is  attributable  to  his  mis- 


conduct or  mismanagement  in  re- 
lation to  the  trust,  a  decree  may 
be  entered  after  giving  him  an 
opportunity  to  be  heard  charging 
him  personally,  or  permission  may 
be  given  to  sue  him  and  his  sure- 
ties on  his  official  bond.  United 
States  Blowpipe  Co.  v.  Spencer,  61 
W.  Va.  191,  56  S.  E.  345. 

2  Hanlon  v.  Smith,  175  Fed.  192. 

3  A  receiver  appointed  by  the 
court  in  the  progress  of  litigation 
acts  as  receiver  for  all  the  parties 
interested;  but  he  is  not  the  agent 
for  the  parties  in  the  sense  that 
each  one  of  the  parties  interested 
in  the  litigation  is  personally 
severally  responsible  for  his 
wrongful  or  negligent  acts.  City 
Savings  Bank  v.  Carlon,  87  Neb. 
266,  127  N.  W.  161. 

4  General  Share  Co.  v.  Wetley 
Brick  Co.,  20  Ch.  D.  260,  267;  30 
W.  R.  445,  per  Jessel,  M.  R. 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


209 


lie  is  protected  when  he  acts  in  good  faith  in  the  manage- 
ment of  the  estate,  but  where  he  acts  in  the  capacity  of 
a  guardian  of  the  estate,  he  will  be  held  to  the  same 
accountability  as  an  ordinary  guardian.^  He  can  not  use 
knowledge  acquired  by  him  in  his  capacity  as  a  receiver 
for  the  purpose  of  acquiring  a  paramount  title  to  prop- 
erty involved  in  a  litigation  which  he  is  conducting  for 
the  receivership.^  He  must  use  his  best  eiforts  to  collect 
the  assets  of  the  receivership,'^  but  it  has  been  held  that 
a  receiver  is  not  guilty  of  such  negligence  as  to  make  him 
responsible  for  losses  resulting  from  the  failure  of  his 
attorney,  acting  upon  a  mistake  of  law,  to  bring  suits 
against  certain  stockholders  before  the  expiration  of  the 
statute  of  limitations, **  althougli  he  has  been  held  liable 
for  the  acts  of  a  clerk  employed  by  him.® 

But  a  receiver  who  has  managed  a  business  can  not  be 
prevented  after  the  close  of  the  receivership  from  doing 
Dusiness  with  former  customers  of  the  business^"  con- 
ducted by  the  receivership. 


5  state  V.  Gooch,  97  N.  C.  186, 
2  Am.  St.  Rep.  284,  IS.  E.  653. 

6  Halman  v.  Burlen,  198  Mass. 
494,  85  N.  E.  167. 

7  Where  two  receivers  are  ap- 
pointed to  wind  up  the  affairs  of  a 
corporation  and  one  of  them 
illegally  appropriates  the  receiver- 
ship funds  and  the  other  negli- 
gently allows  him  to  do  so,  they 
will  both  be  liable.  Commonwealth 
V.  Eagle  etc.  Ins.  Co.,  14  Allen 
(96  Mass.)  344. 

A  receiver  is  chargeable  with 
money  which,  though  collectible, 
he  has  made  no  attempt  to  collect. 
Tenth  Nat.  Bank  of  Philadelphia 
v.  Smith  Const.  Co.,  242  Pa.  269, 
89  Atl.  76. 

A  receiver  who  fails  to  sell  the 
good  will  of  partnership  over 
which  he  has  been  receiver  will 
I  Rec. — 14 


be  held  liable  for  its  value.  Me- 
chanics Nat.  Bank  v.  Landauer,  68 
W^is.  44,  31  N.  W.  160. 

8  State  V.  Germania  Bank  (La- 
german  v.  Willius),  106  Minn. 
164,  130  Am.  St.  Rep.  599,  118 
N.  W.  683. 

Where  the  failure  to  enforce  the 
liability  of  stockholders  of  an  in- 
solvent bank  was  occasioned  by 
the  neglect  of  an  attorney  forced 
on  the  receiver,  who  unsuccess- 
fully sought  the  appointment  of 
another  attorney,  the  receiver  was 
held  not  liable  for  the  loss  sus- 
tained. People  V.  Bank  of  Staten 
Island,  146  App.  Div.  378,  131 
N.  Y.  Supp.  53,  modifying  order 
127  N.  Y.  Supp.  906. 

9  Gunn  V.  Ewan,  93  Fed.  80,  35 
C.  C.  A.  213. 

10  In  re  Irish,  40  Ch.  D.  49. 


210 


LAW   OF   RECEIVERS. 


§  49.   Duty  of  Receiver  Not  to  Profit  from  Receivership  Trans- 
actions. 

From  what  has  been  said  in  the  preceding  sections  it 
is  apparent  that,  in  accordance  mth  the  well-established 
principles  of  equity  jurisprudence,  a  receiver  is  prohib- 
ited from  taking  advantage  of  his  position  of  receiver  and 
thereby  deal  with  receivership  property  or  funds  to  his 
own  profit.  The  cases  illustrating  this  rule  naturally 
occur  quite  frequently  in  connection  with  a  receiver  pur- 
chasing receivership  property  and  thereby  placing  him- 
self in  a  position  whereby  his  individual  interests  are 
brought  into  conflict  with  his  duty.^  The  general  rule  in 
this  respect  is  that  a  receiver  will  not  be  permitted  to 
buy-  or  be  interested  directly  or  indirectly  in  the  purchase 
of  receivership  property.^   ''The  rule  has  its  foundation 


1  Hooper  v.  Winston,  24  111.  353; 
In  re  Dugdamonia  Shingle  etc.  Co., 
118  La.  242,  42  So.  789;  Shadewald 
V.  White,  74  Minn.  208,  77  N.  W. 
42;  Adair  County  v.  Ownby,  75 
Mo.  282;  Whitesides  v.  Lafferty, 
3  Humph.  (Tenn.)  150;  Jones  v. 
Gardner,  (Tex.  Civ.)  112  S.  W. 
826;  Reynolds  Ex'r  v.  Pettyjohn, 
79  Va.  327;  Roller  v.  Paul,  106  Va. 
214,  55  S.  E.  558;  Bowman  v.  Lis- 
key,  108  Va.  678,  62  S.  E.  942. 

2  McDonald  v.  Trojan  etc.  Co., 
56  Hun  648,  10  N.  Y.  Supp.  91; 
New  Britain  Mach.  Co.  v.  Watt, 
(Tex.  Civ.)  180  S.  W.  624;  Ander- 
son V.  Anderson,  9  Ir.  Eq.  23. 

A  receiver  appointed  by  the 
court  can  not  purchase  the  prop- 
erty of  which  he  is  receiver  with- 
out leave  of  the  court,  even  where 
the  sale  is  made  not  in  the  action 
in  which  he  was  appointed,  but  by 
a  mortgagee  selling  with  leave 
outside  the  action.  Nugent  v.  Nu- 
gent, 1  B.  R.  Co.  405,  (1908)  1  Ch. 
546.     Also,   reported   in   77    L.   J. 


Ch.  N.  S.  271,  98  L.  T.  N.  S.  354, 
24  Times  L.  R.  296,  52  Sol.  Jo.  262. 

3  A  receiver  is  not  allowed  to 
purchase  receivership  property 
through  an  agent  or  trustee.  Alven 
V.  Bond,  Flan.  &  Kel.  196,  3  Ir.  Eq. 
365. 

Where  receivership  property  was 
sold  at  more  than  its  appraised 
value,  the  fact  that  it  was  sold  to 
sons  of  the  receiver  is  no  ground 
for  avoiding  it.  Yetzer  v.  Apple- 
gate,  85  Iowa  121,  52  N.  W.  118. 

A  sale  of  property  by  a  receiver 
to  himself,  to  his  wife,  or  to  a  cor- 
poration in  which  he  is  a  stock- 
holder and  director,  is  contrary 
to  public  policy,  and  voidable  at 
the  election  of  any  one  having  a 
beneficial  interest  in  the  property. 
South  Georgia  Bldg.  &  Inv.  Co.  v. 
Mathews,  7  Ga.  App.  452,  67  S.  E. 
127. 

A  contract  made  by  a  receiver 
with  the  purchaser  at  a  sale  by 
him,  under  which  a  purchaser  was 
to  be  liable  for  the  receivers  com- 


EFFECT   OF   APPOIN-TMENT    AND    DUTIES. 


211 


in  grounds  of  public  policy,  and  in  the  peculiar  relations 
sustained  by  the  receiver  to  the  fund,  or  estate,  in  his 
hands.  It  denies  to  the  receiver  the  privilege  of  becoming 
a  purchaser  of  property  pertaining  to  his  trust,  entirely 
independent  of  the  question  of  whether  any  fraud  inter- 
vened."* 

Such  a  purchase  by  the  receiver  is  not  void  and  can  not 
be  attacked  collaterally,  althougli  voidable.^  It  may  be 
avoided  at  the  instance  of  any  one  interested  in  the 
estate,®  or  on  the  other  hand  it  may  be  ratified.^ 


pensation  at  a  stated  amount  or  at 
an  amount  thereafter  to  be  deter- 
mined, is  contrary  to  public  policy 
and  void  in  a  case  where  the 
agreement  was  not  authorized  or 
approved  by  the  court  in  cliarge 
of  the  receivership.  Hall  v.  Stulb, 
126  Ga.  521,  55  S.  E.  172. 

In  re  Dugdamonia  Shingle  etc. 
Co.,  118  La.  242,  42  So.  789,  the 
receiver  of  a  lumber  company  sold 
nearly  the  entire  output  of  the 
company  to  a  partnership  of  which 
he  was  a  member.  Upon  the  hear- 
ing of  objections  to  the  receiver's 
account,  the  court  held  that  the 
relation  between  the  buyer  and 
the  seller  demanded  the  produc- 
tion of  clear  and  positive  proof 
that  the  full  market  price  for  the 
lumber  had  been  paid  by  the  com- 
pany, and  that  the  receiver  should 
be  required  to  support  his  bare 
assertion  that  his  firm  made  no 
profit  out  of  the  transactions,  by 
convincing  corroborative  evidence 
of  the  sales  made  by  or  through 
the  firm. 

4  Herrick  v.  Miller,  123  Ind.  304, 
308,  24  N.  E.  111. 

5  Groeltz  v.  Cole,  128  Iowa  340, 
103  N.  W.  977. 

c  People  V.  Merchants  Bank,  33 


Hun  (N.  Y.)  97;  Herrick  v.  Miller. 
123  Ind.  304,  24  N.  E.  Ill;  Carr  v. 
Houser,  46  Ga.  477,  479;  Jewett  v. 
Miller,  10  N.  Y.  402,  65  Am.  Dec. 
751;  Eyre  v.  McDonnell,  15  Ir.  Ch. 
N.  S.  534. 

T  Chandler  v.  Cushing-Young  etc. 
Co.,  13  Wash.  89,  42  Pac.  548. 

Although  a  receiver,  by  reason 
of  public  policy,  is  ordinarily  pro- 
hibited from  purchasing  any  por- 
tion of  the  receivership  property, 
it  does  not  necessarily  follow  that 
all  sales  in  which  a  receiver  is 
interested  as  a  purchaser  should 
be  vacated,  that  even  though  such 
a  sale  is  presumptively  irregular, 
the  presumption  is  not  conclusive 
and  the  sale  is  not  in  itself  void, 
but  is  simply  voidable  at  the  elec- 
tion of  the  beneficiaries,  and  that 
the  conduct  of  the  beneficiaries 
may  preclude  them  from  asserting 
its  invalidity.  Hence,  where  the 
purchase  of  the  assets  of  an  insol- 
vent bank  by  a  bank  in  which  the 
receiver  is  interested  has  been 
permitted  by  the  stockholders  of 
the  insolvent  bank,  or  if  they  have 
not  been  injured  thereby,  the  sale 
will  not  be  vacated.  .Jackson  v. 
Clark  First  State  Bank,  21  S.  D. 
484,  113  N.  W.  873. 


212  LAW   OP   RECEIVERS. 

Where  a  receiver  purchases  receivership  property  he 
may  be  held  to  hold  it  in  trust  for  the  receivership^  and 
be  made  to  account  for  the  profits  derived  by  him  from 
the  transaction,®  although  this  duty  to  account  has  been 
denied  in  the  absence  of  bad  faith  on  his  part.^'' 

The  same  general  rules  naturally  prohibit  the  buying 
up  of  claims  against  the  receivership  by  the  receiver  or 
persons  with  whom  he  has  some  arrangements  to  partici- 
pate in  the  profits  derived  from  such  transactions.  Hence 
where  the  receiver  buys  claims  against  the  receivership 
at  a  discount,  he  will  be  held  to  hold  them  in  trust  for  the 
receivership  and  he  will  not  be  allowed  to  profit  from 
such  transactions.^^ 

So,  also,  where  a  receiver  purchases  an  outstanding 
title  to  property  for  his  wife,  she  will  be  held  to  hold  it  in 
trust  for  the  receivership  subject  to  being  reimbursed 
for  the  amount  expended  by  her  with  interest.     Such  a 

8  Gilbert  v.  Hewetson,  79  Minn.  lo  Wagner  v.  Swift's  Iron  etc. 
326.  333,  79  Am.  St.  Rep.  486,  82  V/orks,  16  Ky.  Law  Rep.  273,  26 
N.  W.  655;   Hammond  v.  Atlee,  15      S.  W.  720. 

Tex.  Civ.  267,  272,  39  S.  W.  600.  ii  Titherington's       A  d  m  r.       v. 

9  He    may    be    required    to    ac      ^odge,  81  Ky.  286. 

count  for  the  difference  between  Where  a  receiver  of  funds  aris- 
the  price  at  which  he  purchased  it  ing  out  of  the  sale  of  real  estate  of 
and  its  real  value.    Penzel  Grocer      a  debtor  against  whom  a  general 


Co.    V.    Williams,    53    Ark.    81,    13 
S.  W.   736;    Donahue  v.   Quacken- 


creditor's   suit  has   been   brought 

buys   up    the    claims    against   the 

debtor,   he   can    not   require   pay- 
bush,  75  Minn.  43,  77  N.  W.  430;       ^^^^    ^^^   ^^^    ^^^^   ^^^^^    ^^   ^^^ 

French  v.   Pittsburg  Vehicle  etc.  ^^1^8,  but  can  only  recover  such 

Co.     184   Pa.    St.   101,   39  Atl.   63;  g^^  ^s  he  paid  for  them.     Roller 

Pangbum  v.  American  Vault  etc.  y_  Paul,  106  Va.  214,  55  S.  E.  558. 

Co.,  205  Pa.  St.  93,  54  Atl.  508.  Receiver  can  not  be  held  liable 

If  a  receiver  purchases  at  a  sale  because  his  brother  has  bought  up 

ordered  by  the  court,  he  may  be  claims  against  the  estate  where  it 

held  liable  for  the  appraised  value  is  not  shown  that  the  receiver  was 

of  the  property.  In  re  Sheets  Lum-  interested      in      such      purchases, 

ber  Co.,  52  La.  Ann.  1337,  27  So.  Luderbach    Plumbing    Co.    v.    Its 

809.  Creditors    121  La.  371,  46  So.  359. 


EFFECT   OF   APPOINTMENT    AND   DUTIES. 


213 


purcliase  is,  however,  merely  voidable  and  the  right  to 
enforce  the  trust  may  be  waived.^- 

A  receiver  can  not  use  the  receivership  property  for 
himself  or  use  his  position  as  receiver  as  a  basis  for 
exacting  some  benefits  for  himself  which  he  otherwise 
could  not  obtain. ^^ 

But  it  is  not  improper  for  a  receiver,  as  an  individual, 
to  sell  property  to  the  receivership  where  he  does  so 
at  a  price  less  than  the  ordinary  price  at  which  tlie 
property  could  be  purchased. ^^ 

(3f  course,  if  a  receiver  wrongfully  converts  property 
of  the  receivership  to  his  own  use,  he  will  be  held  liable 
personally,  since  he  is  liable  personally  for  trespass  or 
torts  committed  by  him.^^ 


12  Cook  V.  Martin,  75  Ark.  40, 
5  Ann.  Cas.  204,  87  S.  W.  625,  1024. 

13  In  Halman  v.  Burlen,  198 
Mass.  494,  85  N.  E.  167,  it  was  held 
that  a  receiver  can  not  use  the 
knowledge  which  he  has  obtained 
as  receiver  to  buy  a  paramount 
title  which  at  the  termination  of 
the  litigation  he  might  set  up 
against  the  person  who  proves  to 
be  the  true  owner. 

A  contract  between  a  receiver 
and  his  surety,  whereby  he  agreed 
to  deposit  the  receivership  funds 
with  the  surety  and  to  waive  pay- 
ment of  interest,  is  void.  Stone  v. 
St.  Louis  Union  Trust  Co.,  183  Mo. 
App.  261,  166  S.  W.  1091. 

Likewise,  where  the  receiver 
makes  an  agreement  by  which  he 
is  to  receive  one-half  of  the  fees 
to  be  awarded  to  his  attorney,  it 
will  be  held  to  inure  to  the  benefit 
of  the  receivership.  Hammond  v. 
Atlee,  15  Tex.  Civ.  267,  39  S.  W. 
600. 

Thus,  where  a  receiver  who  was 
in  possession  of  slaves  instead  of 


hiring  them  out  used  their  labor 
on  his  own  account,  he  was  held 
accountable  to  the  estate.  Bat- 
taile  V.  Fisher,  36  Miss.  321. 

A  receiver  of  a  brewing  com- 
pany, who  was  also  in  the  whole- 
sale liquor  business  and  distrib- 
uted the  company's  product,  is 
not  entitled  to  pay  his  own  license 
from  the  funds  of  the  company, 
notwithstanding  that  was  the  prac- 
tice in  the  vicinity.  Appeal  of 
Pramuk,  250  Pa.  45,  95  Atl.  326. 

Where  one  who  is  a  committee 
of  property  is  also  mortgagee,  he 
can  not  foreclose  his  mortgage 
except  under  the  authority  of  the 
court.  Matter  of  Carter,  3  Paige 
(N.  Y.)    146. 

A  receiver  should  not  become 
a  mortgagee  of  the  receivership 
property.  Thompson  v.  Holladay, 
15  Ore.  34,  55,  14  Pac.  725. 

14  Patterson  v.  Ward,  6  N.  D. 
609,  72  N.  W.  1013. 

15  Kirk  V.  Kane,  87  Mo.  App.  274. 
The  court,  in  the  case  just  cited, 
said:      "He     obtains     no     immu- 


214  LAW    OF   RECEIVERS. 

§  50.    Duty  of  Employees  and  Others  in  Intimate  Control. 

This  same  rule  of  duty  not  to  profit  from  the  receiver- 
ship also  applies  to  confidential  employees  of  the  receiver. 
Thus  where  a  trusted  clerk  of  the  receiver,  through  his 
intimate  knowledge  of  its  affairs,  buys  claims  against  the 
receivership  and  makes  a  profit  out  of  the  transactions 
and  invests  such  profits  in  real  estate  the  receiver  may 
establish  a  constructive  trust  in  such  property  to  the 
extent  of  such  profits.^ 

Likewise  where  an  officer  of  a  corporation  w^hich  is  in 
receivership  purchases  receivership  property  at  a  depre- 
ciated price  at  a  sale  in  the  proceedings  which  he  con- 
trolled, he  will  be  held  to  hold  such  property  in  trust 
for  the  benefit  of  all  persons  interested  in  it.^ 

§  51.  Liability  of  Person  Improperly  Assuming  to  Act  as 
Receiver. 
Where  after  the  death  of  a  receiver,  a  solicitor  took 
upon  himself  to  act  as  receiver  without  being  appointed 
as  such  and  his  conduct  of  the  former  receivership  was 
such  as  to  make  parties  dealing  with  him  believe  that  he 
was  the  successor  of  the  former  receiver,  he  will  be  held 
liable  for  losses  for  rents  and  the  like  caused  by  his  neg- 
lect of  the  duties  of  a  properly  appointed  receiver.^ 

§  52.    Order  of  Appointment  as  Protection  to  Receiver. 

Acts  of  a  receiver  in  the  course  of  the  receivership  done 
according  to  the  directions  of  the  court  and  under  the 
court's  orders  will  not  subject  him  to  a  personal  liability.^ 

nity   from   liability  in   such   cases  sonally,  whether  liable  officially  or 

by  reason  of  his  office.     He  may  not." 

frequently,    under   color   of   office,  i  Gilbert  v.  Hewetson,  79  Minn. 

get  possession  of  property  which  326,  79  Am.  St.  Rep.  486,  82  N.  W. 

does  not  belong  to  or  is  not  a  part  655. 

of  the   receivership   property   and  2  Broussard   v.    Mason,    187    Mo. 

his  official  character  ought  not  to  App.  281,  173  S.  W.  698. 

be  a  defense  to  his  tortious  acts  i  AVood  v.  Wood,  4  Russ.  558. 

or  deprive  parties  of  their  rights.  i  Eskridge  v.  Rushworth,  3  Colo. 

As  a  wrongdoer  he  is  liable  per-  App.    562,   34   Pac.   482;    W^alsh  v. 


EFFECT   OF   APPOINTMENT   AND    DUTIES. 


215 


Raymond,  58  Conn.  251,  18  Am.  St. 
Rep.  264,  20  Atl.  464;  Johnston  v. 
Keener,   23   111.   App.   220;      Heise 
V.  Starr,  44  111.  App.  406;   How  v. 
Jones,  60  Iowa  70,  14  N.  W.  193; 
Remington   Paper  Co.  v.  Watson, 
49     La.    Ann.     1296,     22    So.    355; 
Schmidt  v.  Gayner,  59  Minn.  303, 
61  N.  W.  333,  62  N.  W.  265;  Willis 
V.  Sharp,  124  N.  Y.  406,  26  N.  E. 
974;    Piatt  v.   New  York  etc.  Ry. 
Co.,  170  N.  Y.  451,  63  N.  E.  532; 
State  V.  Port  Royal  etc.  Ry.  Co.,  45 
S.  C.  464,  23  S.  E.  380;    Reardon 
V.  White,  38  Tex.  Civ.  636,  87  S.  W. 
365;     Chandler  v.    Cushing-Young 
Shingle  Co.,  13  Wash.  89,  42  Pac. 
548;-  Davis  v.  Duncan,  19  Fed.  477; 
American  Bonding  etc.  Co.  v.  Bal- 
timore etc.  R.   Co.,   124   Fed.   866, 
60  C.  C.  A.  52;  Pusey  etc.  v.  Penn- 
sylvania Paper  Mills,  173  Fed.  629. 
The  fact  that  a  receiver  did  not 
follow  the  exact  terms  of  the  or- 
ders of  court  under  the  advice  of 
counsel  may  relieve  him  from  be- 
ing  charged   with   bad    faith,    but 
will  not  relieve  him  from  liability. 
McCay  v.  Black,  14  Phila.  635. 

In  Ft.  Wayne,  M.  &  C.  R.  Co.  v. 
Mellett,  92  Ind.  535,  it  was  held 
that  where  a  receiver  was  in  pos- 
session of  land  under  decree  of 
the  Circuit  Court  of  the  United 
States  no  action  could  be  main- 
tained in  the  state  courts  to  re- 
cover possession  thereof.  In  such 
case  the  court  which  holds  by  its 
receiver  is  the  only  court  to  try 
the  question  of  title. 

An  order  of  appointment  even 
though  irregular,  where  nothing 
has  been  done  to  set  it  aside,  will 
protect  the  receiver  acting  under 
it  in  good  faith.  Corey  v.  Long, 
12  Abb.  Pr.   (N.  S.)    (N.  Y.)   427. 

A  receiver  is  liable  personally 
as    for    a   trespass    or    conversion 


where  he  takes  possession  of  prop- 
erty not  included  in  the  trust,  not- 
withstanding he  takes  possession 
under  an  order  of  court.  His 
official  character  is  no  defense. 
Gutsch  V.  Mcllhargey,  69  Mich. 
377,  37  N.  W.  303;  Kenney  v.  Ran- 
ney,  96  Mich.  617,  55  N.  W.  982; 
Kirk  V.  Kane,  87  Mo.  App.  274; 
Curran  v.  Craig,  22  Fed.  101;  Har- 
tell  V.  Tilghman,  99  U.  S.  547,  25 
L.  Ed.  357;  Barton  v.  Barbour,  104 
U.  S.  126,  26  L.  Ed.  672;  note  to 
Malott  V.  Shriner,  74  Am.  St.  Rep. 
289. 

Where  a  receiver  who  was  oper 
ating  a  business  under  the  order 
of  the  court  purchased  supplies 
for  that  purpose  with  the  knowl- 
edge of  the  seller,  and  the  goods 
were  billed  to  him  in  his  official 
capacity,  he  will  not  be  personally 
liable  for  them,  but  merely  in  his 
official  capacity.  Olpherts  v.  Smith, 
54  App.  Div.  514,  66  N.  Y.  Supp. 
976. 

Where  a  receiver  appointed  in 
Virginia  was  ordered  to  sell  cattle 
belonging  to  the  receivership  and 
pursuant  to  such  order  sells  them 
to  a  resident  of  the  District  of 
Columbia  and  delivers  them  to 
such  purchaser,  the  courts  of  the 
latter  place  will,  as  a  matter  of 
comity,  protect  the  possession  of 
the  receiver,  since  the  possessory 
title  of  the  receiver  will  follow  him 
into  another  jurisdiction.  Jenkins 
V.  Purcell,  29  App.  Cas.  (D.  C.) 
209,  9  L.  R.  A.  (N.  S.)   1074. 

Where  the  proper  administration 
of  an  estate  makes  it  necessary 
for  the  receiver  to  take  legal  ad- 
vice, and  competent  counsel  is 
employed  whose  advice  is  fol- 
lowed, the  receiver  is  not  liable 
for  consequent  losses.  State  v. 
Germania  Bank   of  St.   Paul    (La. 


216 


LAW   OP   RECEIVERS. 


If,  however,  the  receiver  goes  beyond  the  order  of  the 
court,  he  will  not  be  protected  in  respect  to  such  acts.^ 


german  v.  Willius),  106  Minn.  164, 
118  N.  W.  683;  State  v.  Germania 
Bank  of  St.  Paul  (Lagerman  v. 
Willius),  106  Minn.  539,  118  N.  W. 
686. 

In  re  Home  Provident  etc.  Assn., 
129  N.  Y.  288,  29  N.  E.  323,  the 
court  protected  the  receiver  as  to 
certain  funds  paid  out  by  him  in 
good  faith  under  the  order  of  court 
but  required  attorneys  to  whom  a 
portion  of  the  moneys  had  been 
paid  to  return  the  same. 

Though  money  or  property  in  the 
custody  of  a  receiver  may  be  ap- 
plicable to  the  payment  of  a  judg- 
ment against  him  as  receiver,  he 
is  protected  by  the  court's  order 
for  expenditures  made  in  reliance 
of  such  order  while  it  was  in  force, 
though  it  may  be  afterward  re- 
versed. Coe  V.  Patterson,  106 
N.  Y.  Supp.  659,  122  App.  Div.  76, 
rehearing  denied,  (1908)  108  N.  Y. 
Supp.  1127,  123  App.  Div.  914. 

Receiver  can  not  be  treated  as 
trespasser  for  selling  property  in 
his  possession  pursuant  to  the  or- 
der of  the  court  by  which  he  was 
appointed.  Neither  can  the  plain- 
tiff who  procured  the  appointment 
of  such  receiver  become  a  tres- 
passer by  advising  and  aiding  him 
to  execute  such  order.  Walling  v. 
Miller,  108  N.  Y.  173,  2  Am.  St. 
Rep.  400,  15  N.  E.  65. 

An  application  by  receiver  for 
general  creditors  to  require  the  re- 
ceiver of  mortgaged  property  to 
turn  over  rents  was  properly  de- 
nied, where  the  money  had  been 
spent  and  accounted  for  under  the 
court's  directions.  Ball  v.  Im- 
proved Property  Holding  Co.  of 
New  York,  220  Fed.  637. 


2  Chicago  Fire  etc.  Co.  v.  United 
States  Book  Co.,  58  111.  App.  293; 
Piatt  V.  New  York  etc.  Ry.  Co.,  170 
N.  Y.  451,  63  N.  E.  532. 

In  Staples  v.  May,  87  Cal.  178, 
25  Pac.  346,  it  was  held  that  if  the 
receiver  appointed  in  a  mortgage 
foreclosure  works  ores  in  lands  of 
the  mortgagor,  which  are  not  in- 
cluded in  the  mortgage  foreclosed, 
he  becomes  liable  as  a  trespasser 
for  the  net  proceeds  of  the  ore  ex- 
tracted and  the  general  creditors 
of  the  mortgagor  may  avail  them- 
selves of  such  liability  by  proceed- 
ings supplemental  to  execution. 

In  Kenney  v.  Ranney,  96  Mich. 
617,  55  N.  W.  982,  it  is  held  that 
a  receiver  should  see  to  it  that  he 
sells  none  but  the  property  covered 
by  the  mortgage  under  the  order 
of  court,  for  its  sale,  and  an  action 
of  trover  will  lie  against  him  for 
the  value  of  other  property  held 
by  the  mortgagor  as  bailee  and 
delivered  by  him  to  the  receiver 
without  demand  and  without  order 
of  court.  Cf.  Gibbons  v.  Farwell, 
63  Mich.  344,  6  Am.  St.  Rep.  301, 
29  N.  W.  855;  Pingree  v.  Detroit, 
L.  &  N.  R.  Co.,  66  Mich.  148,  11  Am. 
St.  Rep.  479,  33  N.  W.  298;  Allen 
V.  Kinyon,  41  Mich.  281,  1  N.  W. 
863;  Scudder  v.  Anderson,  54  Mich. 
122,  19  N.  W.  775;  Hake  v.  Buell, 
50  Mich.  89,  14  N.  W.  710;  Daggett 
V.  Davis,  53  Mich.  35,  51  Am.  Rep. 
91,  18  N.  W.  548;  Gutsch  v.  Mc- 
Ilhargey,  69  Mich.  377,  37  N.  W. 
303. 

Where  a  receiver  takes  posses- 
sion of  property  not  belonging  to 
the  defendant,  he  is  in  much  the 
same  position  as  a  sheriff  taking 
property  not  belonging  to  the  judg- 


EFFECT   OF   APPOINTMENT   AND   DUTIES. 


217 


If  however,  a  receiver  in  asking  for  an  order  of  court 
to  pay  certain  claims  or  make  certain  expenditures  makes 
false  representations  to  the  court  as  to  the  condition  of 
the  receivership  and  the  order  is  made  because  of  such 
misleading  reports,  the  receiver  will  be  held  personally 
liable  for  his  disbursements  or  acts  under  the  order.^ 

§  53.  Rights  of  Claimants  to  Property  in  the  Possession  of 
Receiver. 
Where  the  receiver  holds  property,  his  possession  is 
the  possession  of  the  court,  and  any  equitable  rights 
therein  claimed  by  third  parties  must  be  asserted  by 
petition  and  determined  by  the  court  appointing  the 
receiver.  It  is  also  an  equally  well  recognized  rule  that 
where  it  is  alleged  and  good  cause  is  shown  that  prop- 
erty should  not  pass  to  a  receiver,  the  court  may,  on  peti- 
tion, release  the  same.^ 


ment  debtor  under  color  of  an 
execution.  Kirk  v.  Kane,  87  Mo. 
App.  274. 

A  receiver  ordinarily  can  not 
pay  out  money  in  his  hands  by 
virtue  of  his  office  without  an  or- 
der of  court,  general  or  special. 
Sullivan  Timber  Co.  v.  Black,  159 
Ala.  570,  48  So.  870;  Buffalo  Forge 
Co.  V.  Columbus  &  Hocking  Clay 
Const.  Co.,  112  N.  Y.  Supp.  460. 

If,  with  or  without  order  of 
court,  a  receiver  takes  property  to 
which  he  is  not  entitled,  he  be- 
comes a  trespasser;  and  neither 
the  order  of  appointment  nor  any 
order  under  which  he  acts  will  pro- 
tect him,  and  he  may  not  only  be 
sued  without  leave  of  court,  but 
the  court  which  appointed  him  can 
not  lawfully  enjoin  such  suit.  Het- 
zel  V.  Fadner,  162  111.  App.  639. 

Where  a  receiver  under  color  of 
his  position  as  receiver  obtains 
possession  of  property  not  belong- 


ing to  the  receivership,  his  official 
position  is  not  a  defense  to  his 
tortious  actions.  As  a  wrongdoer 
he  is  liable  personally  whether 
liable  officially  or  not.  Gutsch  v. 
Mcllhargey,  69  Mich.  377,  37  N.  W. 
303;  Kenney  v.  Ranney,  96  Mich. 
617,  55  N.  W.  982. 

But  a  receiver  is  not  liable  to  a 
claimant  where  the  possession  of 
property  was  voluntarily  delivered 
to  the  receiver.  Tapscott  v.  Lyon, 
103  Cal.  297,  37  Pac.  225. 

3  Gutterson  v.  Lebanon  Iron  etc. 
Co.,  151  Fed.  72. 

1  If  one  claims  property  in  the 
possession  of  a  receiver  he  should 
apply  to  the  court  for  relief.  Wood- 
burn  v.  Smith,  96  Ga.  241,  22  S.  E. 
964;  Riggs  v.  Whitney,  15  Abb.  Pr. 
(N.  Y.)   388. 

In  Thompson  v.  McCleary,  159 
Pa.  189,  28  Atl.  254,  it  is  held  that 
a  creditor  having  execution  under 
a  judgment   should   apply   to   the 


218 


LAW   OF   RECEIVERS. 


court  which  appointed  the  receiver 
and  ask  for  a  discharge  of  the 
property  out  of  its  custody  so  that 
he  may  proceed  against  it.  The 
same  doctrine  is  recognized  in 
Smith  V.  Earl  of  Effingham,  2 
Beav.  232. 

In  re  Christian  Jensen  Co.,  128 
N.  Y.  550,  28  N.  E.  665,  it  was  held 
that  when  property  had  passed  to 
the  actual  possession  of  the  re- 
ceiver it  could  not,  without  leave 
of  the  court  first  obtained,  have 
been  replevied  from  him  in  an 
action  against  him.  The  only  rem- 
edy would  have  been  by  an  action 
commenced  with  the  leave  of 
court,  or  by  petition  to  the  court 
appointing  the  receiv-er.  Citing 
Noe  V.  Gibson,  7  Paige  (N.  Y.) 
513;  Riggs  v.  Whitney,  15  Abb.  Pr. 
(N.  Y.)  388;  Chautauqua  County 
Bank  v.  Risley,  19  N.  Y.  369,  75 
Am.  Dec.  347;  Barton  v.  Barbour, 
104  U.  S.  126,  26  L.  Ed.  672;  Evelyn 
v.  Lewis,  3  Hare  472;  Ex  parte 
Cochrane.  L.  R.  20  Eq.  Cas.  282. 

In  Robinson  v.  Atlantic  &  G.  W. 
R.  Co.,  66  Pa.  160,  it  was  held  that 
whether  certain  land  belonging  to 
a  mortgagor  should  pass  into  the 
hands  of  a  receiver  could  be  deter- 
mined only  by  the  court  appointing 
the  receiver.  The  court  saying: 
"If  a  creditor  believes  that  the 
property  was  not  legally  mort- 
gaged, or  for  any  good  reason 
should  not  pass  into  the  hands  of 
the  receiver,  his  duty  is  to  apply 
to  the  court  having  appointed  the 
receiver  to  ask  its  discharge  out 
of  custody,  in  order  that  he  may 
proceed  against  it."  See,  also,  Re 
Day,  34  Wis.  638.  In  this  case 
shingles  were  lawfully  in  the  pos- 
session of  the  receiver,  and  the 
court  held  if  there  had  been  a 
mistake  in  the  delivery  and  they 


belonged  in  fact  to  another  part? 
than  the  debtor,  the  remedy  of 
the  claimant  was  by  application  to 
the  court  for  redress  or  for  leava 
to   sue. 

In  Wiswall  v.  Sampson,  55  U.  S. 
(14  How.)  52,  14  L.  Ed.  322,  it  was 
held  that  where  real  estate  was 
in  custody  of  the  receiver  ap- 
pointed by  a  court  of  chancery,  the 
sale  thereof  was  improper  under 
an  execution  issued  in  a  judgment 
at  law.  It  is  held  that  when  a 
party  is  prejudiced  by  having  a 
receiver  put  in  his  way,  the  prac- 
tice has  been  either  to  give  him 
leave  to  bring  ejectment  or  permit 
him  to  be  examined  pro  interesse 
suo.  If  persons  claim  to  have  prior 
legal  or  equitable  interests  to  the 
property  in  the  hands  of  the  re- 
ceiver, and  they  desire  to  avail 
themselves  of  such  rights,  they 
must  apply  to  the  court  for  pro- 
tection, even  though  their  right  to 
the  possession  is  clear;  and  the 
same  practice  applies  where  the 
property  claimed  consists  of  goods 
and  chattels,  or  other  personality, 
as  to  real  estate.  The  court  say: 
"The  settled  rule,  also,  appears  to 
be  that  where  the  subject-matter 
of  the  suit  in  equity  is  real  estate, 
and  which  is  taken  into  the  pos- 
session of  the  court,  pending  the 
litigation,  by  the  appointment  of 
a  receiver,  or  by  sequestration,  the 
title  is  bound  from  the  filing  of 
the  bill;  and  any  purchaser,  pen- 
dente lite,  even  for  a  valuable  con- 
sideration, comes  in  at  his  peril." 

In  this  case  the  court  examined 
extensively  the  English  and  Amer- 
ican doctrine  in  regard  to  the  pos- 
session of  the  receiver  and  the 
interference  therewith  and  the 
remedies  of  claimants  thereto. 

In    Russell   v.    East    Anglian   R. 


EFFECT    OF    APPOINTMENT    AND   DUTIES. 


219 


Co.,  3  Macn.  &  G.  104,  property  in 
the  possession  of  the  receiver  was 
seized  under  execution  on  judg- 
ments against  the  debtor.  It  was 
held  that  the  established  rule  was 
that  no  party  could  question  any 
order  or  process  of  court  by  dis- 
obedience; that  it  was  not  com- 
petent for  any  one  to  interfere 
with  the  possession  of  the  receiver 
or  disobey  any  order  of  court,  on 
the  ground  that  the  orders  were 
improperly  made.  The  proper 
course  to  question  their  validity 
was  open  to  all,  and  this  course 
must  be  pursued.  "It  was  per- 
fectly open  to  the  plaintiffs  to  have 
applied  to  the  court  to  be  heard 
pro  interesse  suo,  or  to  have  been 
heard  on  a  summary  application 
for  leave  to  levy  their  execution, 
notwithstanding  the  possession  of 
the  receiver." 

In  Porter  v.  Kingman,  128  Mass. 
141,  it  is  held  that  a  person  who 
has  purchased  property  subject  to 
a  mortgage  given  by  the  owner  to 
a  bank,  can  not  maintain  a  bill  in 
equity  against  the  receivers  of  the 
bank  for  a  cancellation  of  the 
mortgage,  alleging  as  a  ground 
false  and  fraudulent  representa- 
tions of  the  bank,  but  if  he  has 
any  remedy  at  all  he  must  proceed 
by  petition  in  the  court  in  which 
the  receiver  was  appointed.  Equi- 
table rights  which  are  contended 
as  superior  to  the  title  made  by 
order  of  court  cannot  be  passed 
upon  except  in  the  cause  in  which 
that  title  is  created,  and  cannot 
be  set  up  in  an  independent  suit. 

Cf.  Atlas  Bank  v.  Nahant  Bank, 
23  Pick.  (40  Mass.)  480;  Colum- 
bian Book  Co.  V.  De  Golyer,  115 
Mass.  67;  Wiswall  v.  Sampson,  55 
U.  S.  (14  How.)  52,  14  L.  Ed.  322; 
Noe   V.    Gibson,    7    Paige    (N.    Y.) 


513;  Robinson  v.  Atlantic  &  G.  W. 
R.  Co.,  66  Pa.  160;  Russell  v.  East 
Anglian  R.  Co.,  3  Macn.  &  G.  104; 
Hills  V.  Parker,  111  Mass.  508,  15 
Am.  Rep.  63. 

In  Columbian  Book  Co.  v.  De 
Golyer,  115  Mass.  67,  it  was  held 
that  before  property  of  a  corpora- 
tion in  the  hands  of  a  receiver 
could  be  taken  from  such  receiver 
and  applied  to  the  payment  of 
creditors,  a  petition  in  equity  in 
the  cause  in  which  the  receivers 
were  appointed  was  necessary. 

In  Hills  v.  Parker,  111  Mass.  508, 
15  Am.  Rep.  63,  an  action  of  re- 
plevin was  maintained  against  an 
agent  of  the  railroad  company, 
whose  property  was  in  the  hands 
of  receivers,  without  obtaining 
leave  of  court,  where  it  appeared 
that  the  corporation  had  no  inter- 
est in  the  property  replevied, 
although  it  was  in  use  by  the  re- 
ceiver. It  was  held  that  leave  to 
bring  an  action  would  be  granted 
by  a  court  of  chancery  as  of 
course,  unless  it  was  clear  that 
there  was  no  foundation  for  the 
claim.  The  appointment  of  re- 
ceivers entitles  them  to  the  pro- 
tection of  the  court  as  to  the 
property  they  were  directed  to 
take  possession  of,  but  does  not 
extend  to  property  not  embraced 
in  the  decree  and  of  which  the 
debtor  never  had  any  title.  Parker 
v.  Browning,  8  Paige  (N.  Y.)  388, 
35  Am.  Dec.  717;  Paige  v.  Smith, 
99  Mass.  395;  Leighton  v.  Har- 
wood.  111  Mass.  67,  15  Am.  Rep.  4. 

In  Atlas  Bank  v.  Nahant  Bank, 
23  Pick.  (40  Mass.)  480,  it  ap- 
peared that  attachment  suits  were 
brought  against  an  insolvent  bank, 
and  the  receivers  filed  a  petition 
l^raying  that  the  attachment  might 
be  dissolved  and  the  respondents 


220 


LAW    OF   RECEIVERS, 


The  broad  rules  which  prevail  in  such  circumstances 
were  shown  by  the  Colorado  Court  of  Appeals  in  a  case^ 
wherein  the  court  said : 

''While  it  is  true  that  the  appointment  of  a  receiver 
frequently  leads  to  a  conflict  of  rights  as  to  the  posses- 
sion of  property,  and  while  it  is  true  that  the  court  having 
jurisdiction  of  the  estate  will  not  permit  third  parties 
to  interfere  with  the  receivers'  possession  without  its 
consent,  still  the  courts  never  unnecessarily  interfere 
with  the  rights  of  third  persons  to  repossess  themselves 


be  restrained  from  other  attach- 
ments; that  the  petition  was  a  dis- 
tinct proceeding,  unconnected  with 
the  original  suit  against  the  bank, 
and  was  held  to  be  irregular,  but 
that  the  receivers  were  entitled  to 
proceed  in  a  summary  mode,  by  a 
petition  filed  in  the  original  suit, 
to  obtain  a  decision  of  the  court 
upon  the  rights  of  attaching  cred- 
itors, and  that  a  supplemental  bill 
was  not  necessary. 

If  a  receiver  has  property  in  his 
possession  which  is  claimed  by  a 
person  not  a  party  to  the  suit,  and 
the  receiver  refuses  to  turn  it  over 
to  him,  the  proper  procedure  is  to 
intervene  by  petition  setting  up 
his  claim,  and  if  the  claim  is 
proved,  the  court  will  restore  it  to 
the  owner.  Kirkpatrick  v.  Eastern 
Milling  etc.  Co.,  135  Fed.  146,  137 
Fed.  387,  69  C.  C.  A.  579. 

The  remedy  of  a  stranger  to  a 
suit  who  claims  property  in  the 
possession  of  the  receiver  or  some 
interest  or  lien  in  it  is  to  petition 
to  intervene  in  the  receivership 
proceeding.  Wheeler  v.  Walton 
etc.  Co.,  64  Fed.  664;  Winchester 
v.  Davis  Pyrites  Co.,  67  Fed.  45, 
14  C.  C.  A.  300. 


Where  a  note  payable  to  a  cor- 
poration is  in  fact  owned  by  an- 
other person  and  such  corporation 
becomes  insolvent,  its  effects  pass- 
ing to  a  receiver,  such  receiver 
may  indorse  such  note  to  the  real 
owner,  and  thereby  invest  him 
with  the  legal  title.  Gibson  v. 
Gutru,  83  Neb.  718,  120  N.  W.  201. 
Where  a  person  claims  title  to 
the  property  in  the  possession  of 
the  receiver  under  an  attachment 
sale,  but  is  not  interfering  with 
the  possession,  the  receiver  ought 
to  seek  the  setting  aside  of  the 
sale  in  an  independent  proceeding. 
Cherry  v.  Western  Wash.  etc.  Co., 
11  Wash.  586,  40  Pac.  136. 

Where  a  receiver  wrongfully 
obtained  a  warrant  for  a  claim 
against  a  city  assigned  to  a  third 
person  prior  to  the  receivership, 
it  was  proper  for  the  assignee 
after  the  appointment  to  appear 
in  the  action  in  which  the  receiver 
was  appointed,  and  ask  an  order 
requiring  the  payment  of  the  pro- 
ceeds of  such  warrant  to  it.  Mc- 
Gill  V.  Brown,  72  Wash.  514,  130 
Pac.  1142. 

2  Central  Locomotive  etc.  Works 
V.  Smith,  27  Colo.  App.  449,  150 
Pac.  241. 


EFFECT   OF   APPOINTMENT   AND    DUTIES.  221 

of  their  own  property.  Indeed,  unless  it  is  made  affirma- 
tively and  clearly  to  appear  that  for  some  reason  recog- 
nized by  the  rules  of  equity,  the  rights  of  third  persons 
ought  to  be  postponed,  it  is  the  duty  of  the  court  having 
jurisdiction  of  the  estate  to  facilitate  their  efforts  to 
enforce  such  rights.  (Tliis  is  the  plain  duty  of  the  court 
even  where  the  rule  is  not  changed  or  affected  by 
statute. ) " 

Where  two  parties  claim  the  same  property  or  fund  in 
the  hands  of  a  receiver,  it  is  proper  for  the  receiver  to 
file  a  bill  of  interpleader  and  compel  them  to  determine 
as  to  each  other  which  has  a  superior  right.^ 

In  accordance  mth  the  general  rule  that  the  court 
which  first  obtains  jurisdiction  of  the  subject-matter  will 
retain  control  to  the  end  of  the  controversy,  it  is  proper 
that  the  receivership  court  take  charge  of  controversies 
over  the  title  to  property  which  arise  subsequent  to  the 
appointment  of  the  receiver,  or  at  least  be  petitioned  for 
leave  to  commence  the  appropriate  proceeding  to  deter- 
mine the  rights  of  the  claimants."' 

3  In  Winfield  v.  Bacon,  24  Barb,  divorce  proceeding  between  them, 
(N.  Y.)  154,  the  receiver  had  a  the  court  should  require  the  rents 
fund  in  his  hands  realized  from  the  and  profits  which  will  go  to  the 
sale  of  land  to  which  there  were  successful  party  to  be  placed  in 
two  claimants,  each  of  whom  had  court  to  await  the  final  outcome 
commenced  a  separate  action  of  the  divorce  suit.  Vincent  v. 
against  him  regarding  the  fund,  Parker,  7  Paige  (N.  Y.)  65. 
and  had  obtained  an  injunction  to  4  In  Lanyon  v.  Braden,  (Okla.) 
prevent  him  from  paying  it  over.  150  Pac.  677,  the  court  in  its  offl- 
In  such  case  it  was  held  that  a  cial  syllabus  said: 
bill  of  interpleader  by  the  receiver  "It  is  now  the  established  doc- 
might  be  maintained  against  the  trine  of  both  the  state  and  federal 
rival  claimants  to  compel  them  to  courts,  that  that  court,  whether 
interplead  and  settle  the  rights  state  or  federal,  which  first  ac- 
between  themselves.  quires  jurisdiction  of  the  subject- 
Where  there  is  a  dispute  be-  matter,  or  of  the  res,  and  which 
tween  a  husband  and  wife  as  to  a  is  first  put  in  motion,  will  re- 
portion  of  property  in  the  hands  tain  its  control  to  the  end  of  the 
of  a  receiver  and  such  contro-  controversy,  and  the  possession  of 
vcrsy  is  about  to  be  settled  in  a  its  receiver  will  not  be  disturbed 


222 


LAW   OF   RECEIVERS. 


A  claimant  of  real  estate  in  tlie  possession  of  a  receiver 
will  not  be  permitted  to  bring  an  action  of  ejectment 
against  the  receiver  without  leave  of  conrt,^   and  the 


by  the  subsequent  appointment  of 
a  receiver  by  the  other  court.  Nor 
is  it  necessary,  in  the  application 
of  the  general  doctrine  here  stated, 
that  the  court  asserting  its  exclu- 
sive control  by  reason  of  having 
been  first  to  take  cognizance  of 
the  subject-matter  should  be  the 
first  to  take  actual  possession  of 
the  property  by  its  "receiver." 

It  followed  the  case  of  Farmers' 
Loan  &  T.  Co.  v.  Lake  St.  B.  R. 
Co.,  177  U.  S.  51,  20  Sup.  Ct.  564, 
44  L.  Ed.  667. 

The  appointment,  if  made  in  a 
court  of  competent  jurisdiction, 
and  in  an  action  where  the  power 
to  appoint  exists,  can  not  be  col- 
laterally attacked.  Comer  v.  Bray, 
83  Ala.  217,  3  So.  554;  Andrews  v. 
Steele  City  Bank,  57  Neb.  173,  77 
N.  W.  342,  9  ^m.  Eng.  Corp.  Cas. 
(N.  S.)  452;  Roby  v.  Title  Guar- 
antee &  T.  Co.,  166  111.  336,  46 
N.  E.  1110;  Carroll  v.  Pacific  Nat. 
Bank,  19  Wash.  639,  54  Pac.  32. 
In  this  connection,  see,  also,  §  40. 
But  the  court  will  not  draw  to 
itself  by  means  of  the  receivership 
jurisdiction  to  try  disputed  titles 
to  property  unless  the  circum- 
stances are  such  as  to  render  the 
common  law  remedies  inadequate 
or  for  some  reason  are  unfit  for 
the  purposes  of  the  particular  case. 
Merchants  &  M.  Nat.  Bank  v. 
Kent,  Cir.  Judge,  43  Mich.  292,  5 
N.  W.  627. 

A  receiver  should  ordinarily  be 
directed  to  hold,  care  for,  and  pre- 
serve the  property  until  the  issues 
are  finally  determined.  Boothe  v. 
Summit  Coal  Mining  Co.,  63  Wash. 
C^O,   116   Pac.   2C9. 


Property  in  the  possession  of  a 
receiver,  appointed  by  a  federal 
court,  is  in  possession  of  such 
court,  and  can  not  be  taken  there- 
from by  subsequent  process  from 
a  state  court.  Ohio  &  M.  R.  Co. 
V.  Fitch,  20  Ind.  498. 

The  appointment  of  receiver 
pendente  lite  does  not  determine 
the  rights  of  litigants  to  property 
in  controversy;  such  rights  being 
preserved  as  they  existed  when 
the  receiver  was  appointed.  Strebel 
V.  Bligh,  183  Ind.  537,  109  N.  E.  45. 
The  receiver  may  intervene  in 
an  attachment  suit  instituted  prior 
to  his  appointment.  Andrews  v. 
Steele  City  Bank,  57  Neb.  173,  77 
N.  W.  342. 

The  prosecution  of  an  action  in 
replevin  is  not  abated  by  the  ap- 
pointment of  a  receiver  for  the 
defendant  in  such  action.  Stearns 
V.  Early,  49  Misc.  614,  96  N.  Y. 
Supp.  837. 

The  proper  practice  is  for  the 
court  to  grant  leave  to  bring  an 
action  or  permit  the  claimant  to 
be  examined  pro  interesse  suo. 
Brien  v.  Paul,  3  Tenn.  Ch.  357; 
Strain  v.  Palmer,  159  Fed.  628,  86 
C.  C.  A.  618. 

A  person  claiming  title  to  prop- 
erty in  the  possession  of  a  re- 
ceiver should  not  attempt  to  ob- 
tain possession  of  it  by  an  act  of 
trespass  but  seek  leave  of  court 
to  sue  the  receiver.  In  re  Day,  34 
WMs.  638 ;  Ex  parte  Cochrane,  L.  R. 
20  Eq.  282. 

5  St.  Louis  etc.  R.  Co.  v.  Hamil- 
ton, 158  111.  366,  41  N.  E.  777;  Fort 
W'ayne  M.  &  C.  R.  Co.  v.  Mellett, 
92  Ind.  535;   Potter  v.  Spa  Spring 


EFFECT   OF    APPOINTMENT   AND   DUTIES. 


223 


court  mil  not  as  a  rule  allow  sucli  an  action  to  be  brought 
in  a  court  other  than  that  of  the  receivership.^ 

§  54.    Rights  of  Receiver  Respecting  Property  in  Possession  of 
Claimants. 

The  general  powers  and  functions  of  a  receiver  are 
measured  by  the  order  of  his  appointment  or  subsequent 
orders  of  the  court,  and  the  powers  conferred  in  such 
orders  are  in  some  cases  limited  by  statutory  provisions.^ 

A  receiver,  even  though  the  order  of  his  appointment 
specifically  describes  tlie  property  over  which  he  is  ap- 
pointed receiver,  has  no  right  to  take  the  property  from 
the  possession  of  a  stranger  to  the  action  witliout  giving 
such  party  his  day  in  court,  where  such  stranger  claims 
title  to  it.^  The  receiver  is  not  required  to  take  property 
forcibly  out  of  the  possession  of  a  stranger,  or  even  of 


Brick  Co.,  47  N.  J.  Eq.  442,  20  Atl. 
852. 

6  Fort  Wayne  etc.  R.  Co.  v.  Mel- 
lett,  92  Ind.  535. 

1  Dennery  v.  Superior  Court,  84 
Cal.  7,  24  Pac.  147;  Moore's  Estate, 
88  Cal.  1,  25  Pac.  915;  Wheat  v. 
Bank  of  California,  119  Cal.  4,  50 
Pac.  842,  51  Pac.  47. 

Receivers  pendente  lite  are  mere 
temporary  officers  of  the  court  and 
do  not  possess  the  powers  of  a 
permanent  receiver  unless  spe- 
cially conferred  on  them  by  the 
court.  Decker  v.  Gardner,  124 
N.  Y.  334,  11  L.  R.  A.  480,  26  N.  E. 
814. 

2  Havemeyer  v.  Superior  Court, 
84  Cal.  327,  18  Am.  St.  Rep.  192, 
10  L.  R.  A.  627,  24  Pac.  121. 

The  receiver  must,  however,  be 
indifferent  as  between  these  dif- 
ferent claimants  to  the  funds  in 
his  hands,  and  not  pay  the  claims 
of    one    claimant    without    giving 


others  an  opportunity  to  be  heard 
in  respect  to  their  claims.  People 
V.  Family  Fund  Soc,  31  App.  Div. 
166,  52  N.  Y.  Supp.  867. 

Money  need  not  be  paid  a  re- 
ceiver whose  right  thereto  is  not 
established,  notwithstanding  the 
party  ordered  to  pay  the  same 
may  not  himself  have  any  right 
thereto.  Burnham  v.  Barrett,  137 
111.  App.  119. 

It  has,  however,  been  said  that 
a  person  is  not  deprived  of  his 
property  without  due  process  of 
law  by  being  compelled  to  deliver 
it  to  a  receiver,  since  a  receiver 
merely  holds  it  subject  to  the  ulti- 
mate determination  of  the  receiv- 
ership court  as  to  its  ownership. 
In  re  Cohen,  5  Cal.  494;  Miles  v. 
New  South  Bldg.  etc.  Assn.,  95 
Fed.  919. 

The  above  decisions  must  be 
considered,  however,  with  a  view 
to  the  purposes  of  the  receiver- 
ship. 


224 


LAW   OF   RECEIVERS. 


the  defendant,  without  the  express  directions  of  the 
courtj^*  but  the  court  may  order  property  which  belongs 
to  a  third  party  to  be  delivered  to  him  by  the  receiver.* 
The  court  should  direct  its  receiver  to  demand  the  deliv- 
ery of  property  claimed  as  part  of  the  receivership  prop- 
erty, and  on  refusal  of  such  demand  initiate  proceedings 


3  Re  Day,  34  Wis.  638;  Attorney- 
General  V.  St.  Cross  Hospital,  18 
Beav.  601;  Ex  parte  Cochrane, 
L.  R.  20  Eq.  282. 

In  Parker  v.  Browning,  8  Paige 
(N.  Y.)   388,  35  Am.   Dec.  717,  the 
court,  speaking  through  Chancellor 
Walworth,  said:    "And  if  the  prop- 
erty is  in  the  possession  of  a  third 
person    who    claims    the    right    to 
retain  it,  the  receiver  must  either 
proceed   by   suit,  in   the   ordinary 
way,  to  try  his  right  to  it,  or  the 
complainant     should     make     such 
third  person  a  party  to  the  suit, 
and   apply   to   have   the   receiver- 
ship extended  to  the  property  in 
his    hands,    so   that   an   order   for 
the  delivery  of  the  property  may 
be    made    which    will    be    binding 
upon  him,  and  which  may  be  en- 
forced by  process  of  contempt,  if 
it  is  not  obeyed.    Where  the  prop- 
erty is  legally  and  properly  in  the 
possession  of  the  receiver,  it  is  the 
duty  of  the  court  to  protect  that 
possession,  not  only  against  acts 
of  violence  but  also  against  suits 
at    law;    so    that    a    third    person 
claiming   the   same  may  be   com- 
pelled to  come  in  and  ask  to  be 
examined  pro  interesse  suo,  if  he 
wishes  to  test  the  justice  of  such 
claim.     But  where  the  property  is 
in  the  possession  of  a  third   per- 
son,   under   a    claim   of   title,    the 
court  will   not  protect  the   officer 
who  attempts   by  violence   to   ob- 
tain possession,  any  further  than 


the  law  will  protect  him;  his  right 
to  take  possession  of  property  of 
which  he  has  been  appointed  re- 
ceiver being  unquestioned." 

A  receiver  can  not  ordinarily 
take  possession  of  property  found 
in  the  possession  of  a  stranger  to 
the  record,  who  claims  title.  State 
V.  McClure,  17  N.  M.  694,  Ann.  Cas, 
1915B,  1110,  47  L.  R.  A.  (N.  S.) 
744,   133   Pac.   1063. 

And  where  property  belonging 
to  the  receivership  is  in  the  pos- 
session of  officers  of  the  corpora- 
tion which  is  defendant,  its  deliv- 
ery to  the  receiver  may  be  sought 
in  the  receivership  proceeding. 
Brandt  v.  Allen,  76  Iowa  50,  1 
L.  R.  A.  653,  40  N.  W.  82. 

An  order  for  the  delivery  of  the 
possession  of  property  belonging 
to  the  receivership  may  be  also 
directed  against  the  employees 
and  agents  of  the  defendant,  al- 
though they  are  not  parties  to  the 
record.    In  re  Cohen,  5  Cal.  494. 

The  same  has  been  applied  to 
the  attorney  for  the  defendant. 
Geisse  v.  Beall,  5  Wis.  224. 

4  A  receiver  is  in  the  lawful 
possession  of  property  wher6  it 
was  voluntarily  delivered  to  him 
by  the  owner,  but  he  has  no  au- 
thority to  forcibly  take  possession 
of  property  in  the  hands  of  a  per- 
son not  a  party  to  the  suit,  and 
if  he  does  so,  he  acts  on  his  per- 
sonal responsibility.  Tapscott  v. 
Lyon,  103  Cal.  297,  37  Pac.  225. 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


225 


for  its  recovery."  Courts,  however,  are  always  reluctaiit 
in  respect  to  interfering  with  the  possession  of  third  per- 
sons claiming  the  legal  title  to  property  in  their  pos- 
session which  is  claimed  by  the  receiver,^  and  this  is 
especially  true  where  such  parties  make  a  showing  of 
good  faith  in  their  claims.'    This  reluctance  does  not, 


5  If  a  receiver  representing  cred- 
itors brings  suit  to  set  aside  a 
transfer  of  the  debtor's  property 
as  in  fraud  of  his  creditors,  and 
such  suit  is  terminated  by  a  de- 
cree against  the  receiver,  the  cred- 
itors are  bound  thereby,  and  one 
of  them  can  not  subsequently 
maintain  proceedings  against  the 
debtor  on  the  ground  that  the 
sum  transferred  was  in  fraud  of 
his  rights.  Dohs  v.  Holbert,  103 
Minn.  283,  123  Am.  St.  Rep.  329, 
114  N.  W.  961. 

Where  a  receiver  was  appointed 
for  a  corporation  in  one  county, 
and  four  days  later  an  ancillary 
receiver  was  appointed  by  the 
court  of  another  county  in  an  un- 
authorized proceeding,  and  a  bank 
in  the  county  where  the  ancillary 
receiver  was  appointed  refuses  to 
pay  over  to  the  original  receiver 
assets  in  his  hands,  the  court 
should  order  its  receiver  to  de- 
mand payment,  and,  on  refusal, 
should  order  the  receiver  to  sue 
to  recover  the  amount  held  by 
such  bank.  Tenth  Nat.  Bank  v. 
Smith  Const.  Co.,  227  Pa.  354,  136 
Am.  St.  Rep.  884,  76  Atl.  67. 

Order  requiring  delivery  of  se- 
cret formulae  to  a  corporation's 
receiver  held  improper,  on  the 
ground,  however,  that  there  was 
no  issue  involved  in  respect  to  the 
ownership  of  them.  Brewster  v. 
F.  G.  Brewster  Co.,  14K  App.  Div. 
812,  130  N.  Y.  Supp.  654. 
I  Rec. — 15 


6  McCombs  V.  Merryhew,  40 
Ivlich.  721;  Cassiiear  etc.  v.  Si- 
mons, 8  Paige  (N.  Y.)   273. 

7  Levi  V.  Karrick,  13  Iowa  344; 
Andrews  v.  Paschen,  67  Wis.  413, 
30  N.  W.  712. 

Where  the  party  in  possession 
of  the  property  claims  the  legal 
title  under  a  decree  in  a  mortgage 
foreclosure,  the  receivership  court 
upon  such  a  showing  ought  not  to 
decide  the  validity  of  his  title 
upon  a  mere  motion  in  the  receiv- 
ership proceeding  supported  by 
affidavits,  but  ought  to  require  the 
parties  to  determine  the  question 
in  a  form  of  action  which  will 
allow  all  of  the  facts  to  be  looked 
into  in  a  more  thorough  manner. 
Gelpeke  v.  Milwaukee  etc.  R.  Co., 
11  Wis.  454. 

Where  the  third  person  is  claim- 
ing under  a  color  of  title,  the 
proper  practice  is  for  the  receiver 
to  commence  an  independent 
action  for  the  recovery  of  the 
property.  Stuparich  Mfg.  Co.  v. 
Superior  Court,  123  Cal.  290,  55 
Pac.  985. 

The  court  will  not  on  a  sum- 
mary motion  determine  the  rights 
of  a  person  claiming  title  to  prop- 
erty under  an  assignment  for  the 
benelit  of  creditors.  Coleman  v. 
Salisbury,  52  Ga.  470. 

Nor  will  the  rights  of  a  pur- 
chaser at  an  execution  sale  be 
determined  by  the  receivership 
court   in   a   summary    proceeding, 


226 


LAW    OF    RECEIVERS. 


however,  obtain  where  it  is  quite  apparent  that  the  pos- 
session of  such  third  party  is  under  a  merely  colorable 
or  fraudulent  transfer,  and  in  such  circumstances  tJie 
receivership  court  may  compel  the  delivery  of  the  prop- 
erty by  proceedings  had  in  the  receivership  rather  than 
by  an  independent  suit.^ 

Under  the  practice  employed  by  the  English  Court  of 
Chancery,  an  order  was  obtained  from  the  court  requir- 
ing the  defendant  to  deliver  possession  and  a  writ  of 
assistance  or  execution  w^as  then  served  upon  the  defend- 
ant,'' but  under  our  practice  it  has  been  customary  to 
require  in  the  order  appointing  the  receiver  that  the 
defendant  deliver  the  property  described  therein  to  the 
receiver  and  then  permit  the  receiver  to  take  such  steps 
as  are  necessary  for  him  to  obtain  the  possession.^" 


but  will  require  him  to  be  made 
a  party  to  the  litigation  in  order 
to  determine  his  rights.  Robeson 
V.  Ford,  3  Edw.  Ch.   (N.  Y.)    441. 

A  writ  of  assistance  will  not 
be  awarded  to  a  receiver  to  com- 
pel third  persons  claiming  prop- 
erty in  good  faith  to  deliver  it  to 
the  receiver.  Musgrove  v.  Gray, 
123  Ala.  376,  82  Am.  St.  Rep.  124, 
2G  So.  o43. 

The  court  can  not  summarily 
order  a  delivery  to  the  receiver 
of  a  railway  company  of  the  books 
of  such  company  which  have  been 
sold  to  and  are  in  the  possession 
of  a  successor  corporation,  and 
this,  notwithstanding  the  fact  that 
the  officers  of  the  two  companies 
are  identical.  Olmsted  v.  Roches- 
ter etc.  R.  Co.,  46  Hun  (N.  Y.) 
552. 

A  party  is  not  obliged  to  turn 
over  money  to  a  receiver  pending 
the  determination  of  the  question 
of  his   right  to   retain   such   fund 


as  his  own.     Struckmeyer  v.  Peo- 
ple, 133  111.  App.  336. 

But  a  court  will  not  direct  its 
receiver  to  dismiss  an  ejectment 
suit  brought  by  him  to  recover 
property  alleged  to  have  been  pur- 
chased with  money  of  the  estate, 
on  petition  of  the  defendant 
therein  who  holds  the  legal  title, 
except  on  clear  proof  that  the 
property  was  not  so  purchased. 
Pakradooni  v.  Storey  Cotton  Co., 
151  Fed.  607. 

8  United  States  v.  Church  of 
Jesus  Christ  etc.,  5  Utah  361,  15 
Pac.    473. 

9  Green  v.  Green,  2  Sim.  430. 

10  Iddings  v.  Bruen,  4  Sandf.  Ch. 
(N.   Y.)    417. 

Where  a  receiver  is  in  charge 
of  the  assets  of  a  partnership,  the 
court  may  make  such  orders  and 
adopt  such  measures  as  are  nec- 
essary to  place  its  property  in  the 
hands  of  the  receiver.  Ex  parte 
Dickens,  162  Ala.  272,  50  So.  218. 


EFFECT   OF    APPOINTMENT   AND    DUTIES. 


227 


In  the  federal  courts,  and  also  some  state  courts,  a 
distinction  is  made  in  the  practice  of  procedure  based 
upon  the  point  whether  the  possession  and  claim  of  the 
third  person  arose  prior  or  subsequent  to  the  appoint- 
ment of  the  receiver.  In  tlie  former  circumstances  the 
receiver  will  be  required  to  obtain  possession  by  a  plenary 
suit,  while  in  the  latter  circumstances  he  will  be  allowed 
to  proceed  summarily  by  petition  for  a  rule  to  siiow 
cause  in  the  receivership  proceeding.^ ^ 

Where  two  receivers  were  appointed  of  the  same  bank, 
under  distinct  and  independent  proceedings,  and  by  tlie 
terms  of  their  respective  appointments  each  had  entire 
control  of  all  the  assets  of  the  bank,  they  can  not  with 


11  Horn    V.    Pere    Marquette    R. 
Co.,  151   Fed.   626. 

In  Bien  v.  Robinson,  208  U.  S. 
423,  28  Sup.  Ct.  379,  52  L.  Ed.  556, 
after  receivers  had  been  appointed 
by  the  federal  court  and  an  order 
made  enjoining  all  persons  from 
paying  over  or  transferring  any 
money  or  assets  of  the  company 
to  any  person  other  than  the  re- 
ceivers, an  officer  of  the  company 
gave  a  person  a  check  on  a  bank 
in  which  it  had  a  deposit.  The 
payee  of  the  check,  learning  of  the 
appointment,  had  the  check  certi- 
fied, indorsed  it  and  collected  it 
through  a  third  person.  There- 
upon the  receivers  obtained  a  rule 
to  show  cause  why  the  payee  of 
the  check  should  not  be  required 
to  pay  to  the  receiver  the  money 
collected  on  the  check.  The  court 
required  it  to  be  done.  It  was 
contended  in  the  Supreme  Court 
that  the  right  of  the  receiver  to 
the  fund  could  not  be  determined 
in  a  summary  proceeding,  but 
could  only  be  adjudged  in  an 
action  at  law  to  recover  the  pro- 


ceeds of  the  check,  but  that  court 
said:  "We  think  the  contention 
and  the  assignments  of  error 
based  thereon  are  so  manifestly 
frivolous  as  to  be  utterly  insuffi- 
cient to  serve  as  the  foundation 
for  a  writ  of  error." 

In  Receiver  of  State  Bank  v. 
First  Nat.  Bank,  34  N.  J.  Eq.  450, 
the  court  under  its  practice  held 
that  the  proper  procedure  in  such 
or  similar  circumstances  was  not 
a  rule  to  show  cause,  but  an  action 
at  law  by  the  receiver  to  collect 
the  debt. 

In  view  of  Act  Gen.  Assem. 
May  19,  1913  (27  Del.  Laws, 
ch.  194),  held,  that  receiver's  rule, 
requiring  assignee  of  company  in 
receivership  to  show  cause  why  it 
should  not  pay  over  money  in  its 
possession  to  him,  was  a  proper 
proceeding.  Price  v.  Horrigan 
Contracting  Co.,  (Del.  Ch.)  95  Atl. 
345. 

An  order  for  the  delivery  of 
property  to  a  receiver  may  be  en- 
forced by  attachment  process. 
Miller  v.  Jones,  39  111.  54. 


228  LAW    OF    RECEIVERS. 

propriety  botli  act:  tlie  title  of  the  one  is  necessarily 
exclusive  of  that  of  the  other,  and  the  question  of  priority 
in  such  circumstances  must  be  determined  as  a  legal 
right.  ^^ 

It  has  been  held  that  where  a  receiver  has  claimed  title 
to  property  w^rongfully  but  in  good  faith,  the  OA\Tier  of 
the  property  can  not  recover  damages  caused  by  the 
property  having  been  in  storage  pending  the  settlement 
of  the  title  question. ^^ 

A  person  holding  property  belonging  to  a  receivership, 
it  has  been  held,  is  not  bound  to  deliver  it  to  any  one 
except  the  receiver  in  person.^"' 

Wliere  the  same  receiver  is  appointed  by  several  courts, 
the  distribution  of  the  fund  belongs  to  the  one  who  was 
first  appointed.^^ 

§  55.    Necessity  for  Order  of  Court  to  Pay  Money. 

In  order  for  a  receiver  to  be  certain  that  his  disburse- 
ment of  the  funds  of  the  receivership  will  meet  with  the 
approval  of  the  court,  it  is,  of  course,  essential  that  he 
obtain  an  order  of  court  authorizing  the  payment.^  And 
where  he  has  in  good  faith  paid  money  under  an  order  of 
court  he  will  be  protected  in  respect  to  such  payment, 
even  though  the  order  authorizing  it  be  subsequently^ 
reversed.-  A  receiver  who  is  also  a  creditor  of  the  receiv- 

12  People  V.  Central  City  Bank,  14  Panton  v.  Zebley,  19  How.  Pr. 
53  Barb.   (N.  Y.)   412.  (N.  Y.)   394. 

13  The    receiver    of   a   seller    of  isBurrell     v.    Leslie,     6     Paige 

certain     automobiles    in     storage,  ^-^     y.)    445;     People    v.    Central 

having    wrongfully    claimed    title  ^j^.^  g^^^^  53  g^^^    (^^   y.)  412. 

thereto  as  against  the  buyer,  but  ^     x     ,     ^  t,     , 

,      .  ...  ^    f„^^u     „,„c  1  State    Central    Sav.    Bank    v. 

havmg  acted   in   good   faith,   was 

not  liable   for  damages  sustained  Fanning  Bali-Bearing  etc.  Co.,  118 

by  the  buyer,   and   due  to  depre-  Iowa  698,  92  N.  W.  712;    Johnson 

ciation,   etc.,   during  the   time   re-  v.  Gunter,  6  Bush  (69  Ky.)  534. 

quired     to     settle     the     receiver's  2  In     re    Home     Provident     etc. 

claim.     Huxley  v.  Hayes,  201  Fed.  Fund  Assn.,  129  N.  Y.  288,  29  N.  E. 

899,    120    C.    C.   A.    413    (affirming  323. 
judgment,  (C.  C.)  191  Fed.  943). 


EFFECT    OF    APPOINTMENT   AND    DUTIES. 


229 


ership  should  not  pay  his  own  claim  without  an  express 
order  of  the  court  made  under  a  full  disclosure  of  the 
facts  and  conditions  of  the  receivership  property.^ 

§  58.    Power  of  Receiver  to  Make  Settlements  and  Compromises. 

The  court  in  the  interest  of  the  estate  may  authorize 
and  empower  the  receiver  to  compromise  disputed  and 
doubtful  claims,  by  receiving  less  than  the  amount  due 
if  it  shall  appear  expedient  so  to  do  and  to  the  best  inter- 
est of  creditors,  stockholders,  or  those  interested.^   And 


3  In  re  Sheets  Lumber  Co.,  52 
La.  Ann.  1337,  27  So.  809;  Gridley 
V.  Conner,  2  La.  Ann.  87. 

1  State  V.  Bank  of  Rushville,  57 
Neb.  608,  78  N.  W.  281. 

But  a  receiver  with  no  other 
authority  than  that  of  being  "duly 
appointed,"  is  not  authorized  to 
compromise  a  claim  of  the  insol- 
vent. Buffalo  Forge  Co.  v.  Colum- 
bus &  Hocking  Clay  Const.  Co., 
112  N.  Y.  Supp.  460;  Guardian  Sav. 
Inst.  V.  Bowling  Green  Sav.  Bank, 
65  Barb.  (N.  Y.)  275;  Insurance 
Commissioner  v.  Commercial  Mu- 
tual Ins.  Co.,  20  R.  L  7,  36  Atl.  930. 

An  order  authorizing  the  re- 
ceivers of  an  insolvent  company  to 
compromise  claims  of  the  com- 
pany is  one  entered  in  the  exer- 
cise of  the  court's  discretionary 
power,  and  can  not  be  set  aside 
unless  it  appears  so  unreasonable 
as  to  amount  to  a  clear  abuse  of 
judicial  discretion.  MacDonald  v. 
^tna  Indemnity  Co.,  88  Conn.  571, 
92  Atl.  154. 

In  a  buyer's  action  to  recover 
the  difference  between  the  .value 
of  logs  delivered  and  the  payment 
made  on  the  purchase  price  of  logs 
measured,  but  not  delivered,  the 
court  properly  ordered  a  receiver 
to    sell    the    logs    delivered    and 


which  the  buyer  was  not  required 
to  receive,  and  to  apply  the  pro- 
ceeds to  the  seller's  indebtedness. 
Stamper  v.  Foreman-Earle  Co.,  158 
Ky.  324,  164   S.  W.  937. 

In  Monitor  Furnace  Co.  v. 
Peters,  40  Ohio  St.  57C,  a  receiver 
of  a  corporation  was  appointed  to 
administer  the  estate  for  the  bene- 
fit of  creditors  and  stockholders. 
Before  the  receiver's  appointment 
the  company  made  sale  of  its  real 
estate  and  other  property  for  the 
alleged  purpose  of  defrauding 
creditors.  Two  years  after  the 
appointment  a  judgment  creditor 
filed  a  bill  for  the  purpose  of  de- 
claring the  sale  void  in  the  same 
court  that  appointed  the  receiver, 
in  which  the  stockholders,  re- 
ceivers, and  creditors  were  made 
defendants,  and  the  bill  was  sus- 
tained on  the  ground  that  it  was 
substantially  an  application  to  the 
court  to  direct  the  receiver  to  do 
his  duty  in  the  case  stated.  In 
this  case  the  court  can  make  the 
proper  order  as  effectively  and 
justly  as  if  instituted  by  the  re- 
ceiver. 

In  re  Croton  Ins.  Co.,  3  Barb. 
Ch.  642,  a  receiver  of  an  insolvent 
corporation,  on  application,  was 
authorized     to     compromise     dis- 


230 


LAW   OF   RECEIVERS. 


it  is  proper  for  tlie  court  to  give  tlie  receiver  general 
power  to  compromise  w^ith  debtors  to  the  estate  w^here  it 
appears  to  him  that  debtors  are  unable  to  pay  in  full.^ 

But  the  power  to  compromise  a  statutory  liability  is 
extremely  doubtful,  and  wliere  it  appears  that  the  debtor 
has  fraudulently  transferred  his  property  to  avoid  his 
legal  obligations,  or  to  shield  himself  from  injury  and 
exposure  to  litigation,  the  power  to  compromise  should 
•      be  withheld  from  the  receiver."^    And  a  receiver  has  no 


puted  and  doubtful  claims  by  the 
allowance  of  so  much  of  said 
claims  as  to  him  should  seem  just 
and  equitable  and  to  compromise 
with  debtors  who  are  unable  to 
pay  in  full  upon  receipts  any  part 
of  their  debts,  if  it  should  seem 
reasonable  and  for  the  best  inter- 
est of  creditors. 

This  power  will  not  be  granted 
if  the  debtor  has  fraudulently  con- 
veyed his  property  to  avoid  liabil- 
ity. In  re  Certain  Stockholders  of 
California  Nat.  Bank,  53  Fed.  38; 
Suydam  v.  Bank  of  New  Bruns- 
wick, 3  N.  J.  Eq.  276.  See,  also, 
Re  Piatt,  1  Ben.  534,  Fed.  Cas.  No. 
11211;  Kennedy  v.  Gibson,  75  U.  S. 
(8  Wall.)  498,  19  L.  Ed.  476;  Hen- 
derson V.  Meyers,  11  Phila.  616; 
Wilkinson  v.  Dodd,  40  N.  J.  Eq. 
124,  3  Atl.  360.  A  receiver  of  a 
national  bank  may  compromise. 
See  U.  S.  Rev.  Stat.,  §  5234. 

Receivers  appointed  for  an  in- 
solvent corporation  in  the  first 
instance  represent  the  company 
and  all  creditors,  and  a  stipulation 
made  by  them  with  particular 
creditors  binds  all,  in  the  absence 
of  seasonable  and  proper  objec- 
tion. Robinson  v.  Mutual  Reserve 
Life  Ins.  Co.,  182  Fed.  850. 


An  agreement  executed  in  good 
faith  by  the  receiver  of  a  trust 
company  and  an  individual  claim- 
ing an  interest  in  corporate  stock 
in  possession  of  the  company, 
whereby  the  individual  surren- 
dered his  interest  in  the  stock  in 
consideration  of  his  receiving  a 
dividend  on  a  certain  claim,  is  for 
the  benefit  of  the  receivership  es- 
tate because  it  enables  him  to 
more  readily  dispose  of  securities 
forming  the  assets  of  the  com- 
pany, and  is  properly  approved  by 
the  court.  Alexander  v.  Maryland 
Trust  Co.,  106  Md.  170,  66  Atl.  838. 

2  In  re  Croton  Ins.  Co.,  3  Barb. 
Ch.  (N.  Y.)  642.  This  power  being 
subject  to  great  abuse  is  exercised 
with  caution.  And  see  Kimball 
V.  Lee,  40  N.  J.  Eq.  403,  2  Atl.  820; 
Wilkinson  v.  Dodd  (1886),  40  N.  J. 
Eq.  123,  3  Atl.  360;  Dodd  v.  Wil- 
kinson, 41  N.  J.  Eq.  566,  7  Atl.  337. 

3  In  re  Certain  Stockholders  of 
California  Nat.  Bank,  53  Fed.  38. 

In  the  above  case,  Judge  Ross 
characterized  the  compromise 
with  a  stockholder  of  a  bank  who 
has  fraudulently  disposed  of  his 
property  to  avoid  a  legal  liability 
as  "a  premium  on  fraud,"  and  con- 
trary to  fair  dealing  and  good 
faith. 


EFFECT   OF    APPOINTMENT   AND    DUTIES.  231 

autliority  to  commute  a  debt.*  So,  also,  the  receiver  will 
not  be  given  greater  powers  than  the  defendant  would 
have  had  in  respect  to  the  receivership  property.^ 

In  determining  whether  to  authorize  a  receiver  to  make 
compromise,  the  court  decides  a  question  of  prudence, 
and  should  consider  the  probable  validity  of  the  re- 
ceiver's claim,  the  difficulties  in  enforcing  it,  the  delay 
and  expense  likely  to  be  thereby  occasioned,  and  the  rela- 
tive amounts  of  both  the  assured  recovery  and  the  amount 
surrendered  by  the  compromise. 

In  determining  upon  the  advisability  of  making  such  a 
compromise  the  court  does  not  determine  as  a  matter  of 
law  whether  the  claims  are  valid,  but  merely  the  proba- 
bility or  possibility  of  the  outcome  of  the  litigation  nec- 
essary to  enforce  them.*^  An  unsuccessful  attempt  by  a 
receiver  to  effectuate  a  compromise  will  not,  of  course, 
interfere  with  a  subsequent  action  by  the  receiver  on  the 
claim.'^ 

4Paxton  V.   Steele,  86  Va.   311.      Such   a   compromise   would   be   a 
.  g    J,    ^  surrender  of  the  rights  of  the  bank 

■     ■     ■  to  a  large  and  unjustifiable  extent. 

5  Where    the     statute    provides      ^^  ^^  ^.^^^  ^^^    ^^^^  ^^  ^^    ^j. 

that  the  receiver  "upon  the  order  ^^^^^  ^^  ^^^  ^20. 
of  a  court  of  record  of  competent  ^^^  ^^^^^.^  ^  partner  in  the  ab- 
jurisdiction  may  sell  or  compound  g^^ce  of  special  authority,  or  a 
all  bad  or  doubtful  debts,"  and  special  course  of  dealing,  has  no 
where  it  is  shown  by  the  evidence  power  to  accept  shares  in  a  com- 
that  the  claims  uncollected  seem  pany  even  though  fully  paid  up  in 
to  be  valid  and  enforceable  to  a  satisfaction  of  a  debt  due  the  firm, 
far  greater  amount  than  those  the  court  has  no  jurisdiction  in 
against  the  bank,  the  court  will  winding  up  the  partnership  to  con- 
not  authorize  the  receiver  to  com-  fer  on  a  receiver  greater  power 
promise  all  claims  for  and  against  than  a  partner  would  have  had  in 
the  bank  by  surrendering  all  its  this  respect.  Niemann  v.  Nie- 
remaining  assets  in  consideration  mann,  L.  R.  43  Ch.  Div.  198. 
of  sufficient  money  to  make  a  cer-  6  MacDonald  v.  ^tna  Indemnity 
tain  dividend,  and  particularly  Co.,  88  Conn.  571,  92  Atl.  154. 
where  the  cash  on  hand  is  suffi-  "^  Stewart  v.  Larabee,  185  Fed. 
cient  to  make  the  same  dividend.  471,  109  C.  C.  A.  351. 


232  LAW   OF   RECEIVERS. 

The  action  of  the  court  in  authorizing  a  receiver  to 
compromise  a  claim  or  suit  will  not  be  reviewed  on  appeal 
in  the  absence  of  an  abnse  of  discretion.^ 

§  57.    Appointment   of   Receiver   as    Constituting   an   Act  of 
Bankruptcy. 

The  National  Act  of  Bankrnptcy  is  intended  to  supply 
the  remedy  for  creditors  in  cases  of  insolvency  of  their 
debtor  and,  of  course,  the  Bankruptcy  Court  has  exclu- 
sive jurisdiction  of  cases  coming  within  the  purview  of 
the  act.  Although  at  first  sight  there  would  appear  to 
be  some  confusion  amongst  the  decisions  in  respect  to 
the  appointment  of  a  receiver  constituting  at  times  an 
act  of  bankruptcy,  none  does  in  fact  exist  when  the  de- 
cisions are  considered  in  connection  with  the  condition 
of  the  act  of  bankruptcy  as  it  existed  at  the  time  of  the 
particular  decision  or  when  the  particular  facts  of  the 
case  are  carefully  considered.  There  is  naturally  a  differ- 
ence between  the  decisions  in  respect  to  the  act  of  1898 
and  those  in  respect  to  that  act  as  it  stood  after  the 
amendment  of  1903. 

^The  amendment  of  190.3  to  the  Act  of  Bankruptcy  of 
1898  was  as  follows:  "Being  insolvent,  applied  for  a  re- 
ceiver or  trustee  for  his  property,  or,  because  of  insol- 
vency, a  receiver  or  trustee  has  been  put  in  charge  of  his 
property  under  the  laws  of  a  state,  of  a  territory,  or  of 
the  United  States."  Under  this  amendment  insolvency 
must  be  the  ground  for  the  appointment  of  the  receiver, 
while  under  the  original  act  the  appointment  of  a  receiver 
did  not  constitute  an  act  of  insolvency  unless  it  operated 
as  a  preference  of  creditors  by  reason  of  the  provisions 
of  the  state  laws  or  was  applied  for  fraudulently  with 
the  purpose  of  delaying  or  defeating  creditors.^ 

8  state  V.  Bank  of  Rushville,  57  Fed.  Cas.  No.  1420,  3  Fed.  Cas.  at 
Neb.  608,  78  N.  W.  281.  page  417,  it  is  said: 

1  In  re  Bininger,  7  Blatchf.  262,  "The  design  and  purpose  of  the 


EFFECT   OF   APPOINTMENT   AND    DUTIES. 


233 


A  reading  of  the  amendment  will  show  that  it  prohibits 
an  insolvent  applying  for  a  receiver  and  prohibits  others 
from  seeking  the  appointment  of  a  receiver  where  the 


bankruptcy  law  is  that  the  prop- 
erty of  an  insolvent  shall  be  se- 
cured to  their  creditors  in  the 
very  mode  pointed  out  thereby, 
with  all  the  facilities  for  its  ap- 
propriation, all  the  security  for  its 
administration,  all  the  safeguards 
against  fraud,  all  the  protection 
against  devices  to  establish  false 
claims,  fictitious  debts,  and  illegal 
or  inequitable  preferences,  which 
that  act  provides,  and  in  the  sum- 
mary manner  in  which  the  pro- 
ceedings may  be  conducted.  It  is 
not,  therefore,  for  the  debtors  or 
for  the  debtors  and  some  of  the 
creditors  to  say,  we  can  devise  a 
better  or  safer  or  more  economical 
mode  for  reaching  the  same  final 
result.  If  it  were  true,  it  would 
be  only  saying,  we  will  resort  to 
an  expedient  to  defeat  the  bank- 
ruptcy law,  and  our  reason  there- 
for is  that  we  think  our  plan  is 
wiser  and  better  than  that  which 
Congress  has  seen  fit  to  prescribe. 
But  the  administration  of  the 
property  under  a  receiver  in  such 
a  suit  does  not  necessarily  accom- 
plish the  same  result." 

The  court  further  says: 

"It  seems  hardly  necessary  to 
add  that  the  taking  of  the  prop- 
erty by  a  receiver  for  administra- 
tion delays  the  operation  of  the 
act.  ...  A  proceeding  which  must 
pass  through  all  the  ordinary 
forms  of  litigation,  and  which  is 
susceptible  of  almost  indefinite 
protraction,  through  orders,  ap- 
peals, rehearings,  etc.,  is  substi- 
tuted for  the  summary  proceed- 
ings which  the  act  of  Congress 
provides." 


This  case  was  decided  under  the 
federal  act  of  1867  (ch.  176,  14 
Stat.  517). 

If  the  appointment  of  a  receiver 
secures  a  preference  to  some  cred- 
itors by  reason  of  state  laws,  it 
was  held  an  act  of  bankruptcy 
under  the  act  of  1898.  In  re  Gil- 
bert, 112  Fed.  951;  In  re  Kersten, 
110  Fed.  929;  In  re  Empire  etc. 
Co.,  98  Fed.  981,  39  C.  C.  A.  372. 

In  Mather  v.  Coe,  92  Fed.  333, 
two  members  of  a  partnership  ap- 
plied to  a  state  court  for  the  ap- 
pointment of  a  receiver  for  the 
partnership  property,  alleging  in- 
ability to  pay  debts,  the  other 
members  of  the  partnership  did 
not  oppose  the  proceedings.  The 
application  was  held  to  be  an  act 
of  bankruptcy  under  the  act  of 
1898  in  that  the  partnership  had 
suffered  its  property  to  be  trans- 
ferred by  an  order  of  court  to  be 
administered  under  the  insolvent 
laws  of  a  state  whereby  certain 
preferences  would  be  allowed  to 
certain  creditors  for  labor  and  ser- 
vices. 

An  application  by  the  adminis- 
trator of  a  deceased  partner  for  a 
receiver  of  the  partnership  prop- 
erty is  not  a  concealment  or  re- 
moval of  property  for  th«  purpose 
of  hindering  and  defrauding  cred- 
itors or  a  general  assignment. 
Vaccaro  v.  Security  Bank,  103  Fed. 
436,  43  C.  C.  A.  279. 

In  re  Empire  Metallic  Bedstead 
Co.,  95  Fed.  957  (affirmed  in  98 
Fed.  981,  39  C.  C.  A.  372),  it  was 
held  that  an  application  by  a  cor- 
poration under  the  state  laws  for 
dissolution  was  not  a  general  as- 


234  LAW    OF    RECEIVERS. 

basis  for  such  appointment  is  the  insolvency  of  che  debtor 
for  whom  a  receiver  is  sought.  Hence  it  is  apparent  that 
the  appointment  of  a  receiver  based  on  grounds  other 
than  insolvency  or  by  other  petitioners  than  the  debtor  on 
grounds  other  than  insolvency  even  if  the  debtor  be  in 
fact  insolvent,  will  not  constitute  an  act  of  bankruptcy 
under  the  Bankruptcy  Act.  Consequently,  the  question 
to  be  determined"  is  whether  a  particular  application  for 
a  receiver  in  the  state  courts  was  based  on  the  ground 
of  insolvency,  and  particularly  so  in  cases  where  the 
pk^adings  do  not  use  the  term  ''insolvency"  with  a  nice 
regard  as  to  its  technical  meaning  under  either  the  Bank- 
ruptcy Act  or  state  laws.  The  court  will  in  such  circum- 
stances look  to  the  record  in  the  state  court  to  deter- 
mine whether  the  receiver  was  in  fact  appointed 
''because  of  insolvency"  or  whether  the  term  was  merely 
loosely  used  in  the  pleadings  and  in  fact  evidence  out- 
side of  the  record  may  be  adduced  in  respect  to  the  ques- 
tion.^ In  most  cases  in  which  the  debtor  is  not  insolvent 

signment  for  the  benefit  of  cred-  structive  one  on  this  question.    In 

itors.  that  case  the  court  said: 

The  failure  of  a  corporation  to  "Whether     or     not     respondent 

resist  an  application  for  a  receiver  committed  the  act  of  bankruptcy 

does  not  constitute  a  conveyance  alleged— that   is,    whether    or   net 

or  transfer  of  its  property  within  the    receiver    was    appointed    be- 

the  bankruptcy  act.    In  re  Baker-  cause    of    insolvency— is    left    by 

Ricketson  Co.,  97  Fed.  489.    In  this  petitioners    dependent     upon     the 

connection,  see  In  re  Henry  Zelt-  record  of  the  receivership  proceed- 

ner  Brewing  Co.,  117  Fed.  799;  In  ings  alone. 

re    Wilmington    Hosiery    Co.,    120  "The  complaint  therein  charged 

Fed.  180;  In  re  Doscher,  120  Fed.  that   respondent   was    engaged    in 

408;    In  re  Burrell,  123   Fed.  414,  developing   and    operating   copper 

59   C.   C.  A.   508;    Seaboard    Steel  mines  and  reduction  works  owned 

Casting  Co.  v.  Wm.  R.  Trigg  Co.,  by  it,   that  the  whole   was  in   an 

124  Fed.  75.  experimental  stage  and  the  actual 

2  In  re  Valentine  Bohl  Co.,   224  market  or  cash  value  thereof  un- 

Fed.  685,  140  C.  C.  A.  225;   In  re  known,  that  the   operations   were 

Butte  Duluth  Mining  Co.,  227  Fed.  at   a   loss,   that  respondent   owed 

334  debts     and    was    in    default,    that 

The  case  of  In  re  Butte  Duluth  suits     were     threatened     because 

Min.   Co.,   227  Fed.   334,  is  an   in-  thereof,    that   dissipation   and    un- 


EFFECT   OF   APPOINTMENT   AND    DUTIES. 


235 


but  language  is  used  in  the  pleadings  susceptible  of  such 
a  construction,  it  will  be  found  that  the  condition  of  af- 


equal  distribution  of  assets  and 
unfair  advantage  in  payments 
were  imminent,  and  that  respon- 
dent was  without  money  or  credit, 
and  'is  now  and  for  a  considerable 
time  last  past  has  been  wholly 
insolvent  and  unable  to  pay  its 
just  debts  and  obligations  as  they 
mature  and  fall  due  in  the  regu- 
lar course  of  business.'  The 
prayer  was  for  a  receiver  to  take 
charge  and  operate  the  property 
of  respondent,  to  sell  when  feas- 
ible, to  pay  debts,  and  to  dissolve 
and  wind  up  respondent  and  dis- 
tribute any  residue  to  its  stock- 
holders. Respondent's  answer  ad- 
mitted all  the  allegations  of  the 
complaint  and  'joins  in  the  prayer' 
thereof.  Thereupon  the  court 
made  an  order  reciting  that  upon 
the  pleadings  and  testimony  heard 
it  found  all  allegations  of  the  com- 
plaint true,  and  appointing  a 
receiver  to  take  charge  of  and 
operate  respondent's  plant,  subject 
to  future  orders. 

"The  bankruptcy  act,  by  the 
amendment  of  1903,  provides  that 
it  is  an  'act  of  bankruptcy'  by  any 
one  when  'because  of  insolvency 
a  receiver  or  trustee  has  been  put 
in  charge  of  his  property  under 
the  laws  of  a  state,  of  a  territory, 
or  of  the  United  States.'  It  is  to 
be  noted  that  not  every  receiver- 
ship, even  though  to  finally  ad- 
minister a  debtor's  assets,  or  that 
results  in  finally  administering  an 
insolvent  debtor's  assets,  is  an  act 
of  bankruptcy,  but  those  only  are 
such  acts  as  the  bankruptcy  act 
so  declares.  The  act  has  its  own 
definition  of  insolvency — the  popu- 
lar one — that: 


"  'A  person  shall  be  deemed  in- 
solvent within  the  provisions  of 
this  act  whenever  the  aggregate 
of  his  property  .  .  .  shall  not,  at 
a  fair  valuation,  be  sufficient  in 
amount  to  pay  his  debts.'  Comp. 
St.   1913,   §  9585. 

"This  definition  of  insolvency  in 
the  original  act,  by  familiar  rules 
of  construction,  applies  to  the  in- 
solvency mentioned  in  the  afore- 
said 'act  of  bankruptcy'  introduced 
into  the  original  act  by  amend- 
ment. 

"Nor  do  the  words  of  the  amend- 
ment, 'under  the  laws  of  a  state, 
of  a  territory,  or  of  the  United 
States,'  manifest  a  different  intent 
or  meaning  for  the  term  'insol- 
vency.' Rather  are  they  words  of 
limitation,  so  that  a  foreign  receiv- 
ership may  not  constitute  an  act 
of  bankruptcy.  The  act  contem- 
plates that  a  man  may  be  unable 
to  pay  his  debts  as  they  fall  due, 
and  yet  not  be  insolvent.  If  he 
has  property  that  at  a  fair  valu- 
ation in  amount  equals  his  debts, 
so  that,  though  not  immediately 
convertible  without  sacrifice  into 
money,  by  indulgence  he  may 
eventually  so  convert  it  and  pay 
his  debts,  he  is  not  insolvent,  and 
can  not  be  adjudicated  a  bankrupt 
against  his  will. 

"  'The  law  has  made  its  defini- 
tion of  insolvency,  whatever  the 
effect  may  be,  and  has  determined 
by  that  definition  consequences, 
not  only  to  the  debtor,  but  to  his 
creditors.'  Pirie  v.  Chicago  Title 
etc.  Co.,  182  U.  S.  438,  451,  21  Sup. 
Ct.   906,   911,   45   L.    Ed.  1171. 

"And  so  it  is  held,  and  by 
what  seems  the  better  authorities, 


236 


LAW   OF    RECEIVERS. 


fairs  was  such  that  the  debtor  was  in  imminent  danger  of 


that  a  receivership  is  not  an  act 
of  bankruptcy,  unless  created  'be- 
cause of  insolvency,'  as  insolvency 
is  defined  in  the  bankruptcy  act. 
See,  In  re  Valentine  Bohl  Co.,  224 
Fed.  685,  140  C.  C.  A.  225,  and 
cases  therein  cited.  Therein  is  no 
inconsistency  with  the  decision  in 
the  Exploration  Mercantile  Co.  v. 
Pacific  Hardware  etc.  Co.,  177  Fed. 
825,  101  C.  C.  A.  39,  though  there 
may  be  with  detached  dicta 
thereof. 

"The  record  of  the  receivership 
involved  in  the  instant  proceed- 
ings neither  directly  nor  by  im- 
plication makes  it  to  appear  that 
respondent  was  insolvent  within 
the  meaning  of  the  bankruptcy 
act— that  is,  that  the  aggregate  of 
its  property  at  a  fair  valuation 
was  not  sufficient  in  amount  to 
pay  its  debts — and  so  fails  to  show 
that  because  of  insolvency  as  so 
defined  a  receiver  was  put  in 
charge  of  respondent's  property, 
and  so  fails  to  prove  that  respon- 
dent committed  the  act  of  bank- 
ruptcy alleged. 

"It  is  true  that  complaint  in  the 
receivership  declares  that  respon- 
dent is  'wholly  insolvent';  but  the 
addition  to  this  conclusion  or  gen- 
eral statement  of  the  specific  and 
controlling  words,  'and  unable  to 
pay  its  debts  and  obligations  as 
they  mature  and  fall  due,'  and  the 
other  matter  of  said  complaint, 
indicate  the  way  to  allege  insol- 
vency in  this  state's  statutory 
sense  of  inability  to  meet  current 
obligations  and  not  all  in  the 
sense  of  the  bankruptcy  act. 

"If  the  evidence  before  the  court 
appointing  the  receiver  was  other- 
wise, if  therefrom  it  appeared  and 


the  court  found  that  respondent 
was  insolvent  in  the  sense  of  the 
bankruptcy  act,  and  because 
thereof  appointed  the  receiver,  it 
nowhere  appears  in  the  record, 
and  petitioners  have  not  under- 
taken to  prove  it  by  extrinsic  evi- 
dence consistent  with  the  record. 
The  power  of  the  state  court  to 
appoint  the  receiver  and  whether 
exercised  for  a  right  or  wrong  rea- 
son, is  not  material  here,  further 
than  to  determine  whether  or  not 
the  appointment  was  made  'be- 
cause of  insolvency,'  as  defined  in 
the  bankruptcy  act;  such  appoint- 
ment alone  giving  jurisdiction  to 
adjudicate  bankruptcy  because 
thereof." 

In  re  Valentine  Bohl  Co.,  224 
Fed.  685,  140  C.  C.  A.  225,  the  peti- 
tion for  a  receiver  in  the  state 
court  which  was  relied  on  as  an 
act  of  bankruptcy  was  filed  by  the 
president  of  the  corporation,  who 
was  also  owner  of  the  majority  of 
its  shares  of  stock.  The  allega- 
tions in  the  receivership  petition 
were   as   follows : 

"Said  corporation  has  now  no 
money  available  for  its  use,  and 
can  not  borrow  any  money,  and 
for  a  long  time  has  been,  and  still 
is,  embarrassed  by  the  lack  of 
money  to  carry  on  its  business, 
and  it  is  now  impossible  to  carry 
on  said  business  on  account  of  the 
lack  of  money.  Said  corporation 
owes  a  large  amount  of  debts, 
which  it  is  unable  to  pay,  and 
checks  have  been  issued  which  it 
can  not  meet,  and  certain  checks 
issued  by  it  have  been  protested, 
and  by  reason  of  said  unpaid  debts 
and  its  inability  to  carry  on  its 
business  its  assets  are  in  danger 


EFFECT   OF    APPOINTMENT    AND    DUTIES. 


237 


insolvency  if  a  receiver  were  not  appointed  to  conserve  j 


of  waste  through  attachment  and 
litigation.  There  is  no  prospect  of 
its  condition  improving,  and  said 
corporation  ought  to  be  dissolved." 

The  court  in  holding  that  the 
receiver  was  not  appointed  be- 
cause of  insolvency,  said: 

"We  think  there  is  no  evidence 
whatever  of  the  first  act  of  bank- 
ruptcy charged,  viz.,  concealing  or 
removing  property  with  intent  to 
hinder,  delay,  or  defraud  creditors. 
The  petition  in  the  state  court  was 
not  filed  by  the  Bohl  Company,  but 
by  an  individual  stockholder  act- 
ing on  his  own  behalf,  who  hap- 
pened to  be  the  president  and  a 
director  and  owner  of  a  majority 
of  the  capital  stock.  The  com- 
pany filed  no  answer.  It  was  per- 
haps intended  to  justify  this 
charge  by  the  form  in  which  the 
second  act  of  bankruptcy,  was 
charged,  viz.,  that  the  company 
suffered  and  permitted  the  re- 
ceiver to  be  appointed.  But  the 
statute  describes  no  such  act  of 
bankruptcy.  Its  language  is  the 
appointment  of  a  receiver  under 
the  laws  of  a  state  'because  of 
insolvency.'  In  re  Spalding,  139 
Fed.  244,  71  C.  C.  A.  370.  The 
language  of  the  petition,  though 
inartificial,  may  properly  be  held 
to  cover  such  an  act  of  bank- 
ruptcy. 

"We  think  'because  of  insol- 
vency' must  mean  insolvency  as 
defined  by  Bankruptcy  Act,  §  la 
(15).  In  re  Golden  Malt  Cream 
Co.,  164  Fed.  326,  90  C.  C.  A.  258; 
In  re  Wm.  S.  Butler  &  Co.,  207 
Fed.  705,  125  C.  C.  A.  223.  It  is 
impossible  to  say  that  the  state 
court  appointed  the  receiver  be- 
cause of  insolvency.     The  record 


.A 


of  the  court,  so  far  as  it  is  before 
us,  indicates  that,  if  appointed  for 
insolvency  at  all,  it  was  insolvency 
in  the  ordinary  sense  of  inability 
to  meet  current  obligations.  This 
is  sufficient  to  dispose  of  the  case. 
However,  we  may  add  that  the 
proofs  seem  to  us  to  show  that 
the  company  was  not  insolvent 
within  the  meaning  of  the  bank- 
ruptcy act." 

/"A  person  shall  be  deemed  in 
/solvent  within  the  provisions  of 
(this  act  whenever  the  aggregate 
'  of  his  property  .  .  ,  shall  not,  at 
a  fair  valuation,  be  sufficient  in 
amount  to  pay  his  debts."  U.  S. 
-Comp.  St.  1913,  §  9585. 

In  re  Muir,  212  Fed.  495,  the 
court  said: 

"The  decree  of  the  court  is 
silent  as  to  the  reason  the  receiver 
was  appointed,  and  in  such  case 
the  papers  in  the  case  may  be  con- 
sulted, or  evidence  aliunde  may  be 
produced.  Davis  v.  Brown,  94  U.  S. 
423,  429,  24  L.  Ed.  204;  Russell  v. 
Place,  94  U.  S.  606,  608,  24  L.  Ed. 
214;  Hooks  v.  Aldridge  (C.  C.  A. 
5th  Cir.),  16  Am.  Bankr.  Rep.  662, 
145  Fed.  865,  76  C.  C.  A.  409;  In 
re  Kennedy  Tailoring  Co.  (D.  C. 
Tenn.),  23  Am.  Bankr.  Rep.  656, 
175  Fed.  871. 

"It  certainly  can  not  be  the  law 
that  because  Muir,  both  plaintiff 
and  defendant,  drawing  both  the 
bill  and  answer,  had  so  skilfully 
drawn  the  papers  as  that  we  can 
not  point  to  the  'insolvency'  as 
apparent  from  the  fact  of  the  pro- 
ceedings, we  are  bound  thereby 
and  can  not  determine  the  ques- 
tion upon  evidence  aliunde.  Under 
the  second  clause  of  section  3a(4) 
of  the  bankruptcy  act,  the  charge 


23S 


LAW    OF    RECEIVERS. 


the  assets.'   Questions  also  arise  where  the  debtor,  who 
is  insolvent,  has  been  in  fact  the  mo\-Ing  party  in  the 


of  'insolvency'  is  an  issue  to  be 
determined  in  the  bankruptcy 
court." 

3  In   re   Commonwealth  Lumber 
Co.,  223  Fed.  667,  it  was  said: 

"The    petitioners    contend   that 
the  state  court  having  appointed 
a  receiver  'for  the  reason  that  said 
corporation    is     utterly    insolvent 
and  unable  to  meet  or  pay  its  obli- 
gations' is  a  finding  which  is  con- 
clusive, and  adjudication  must  now 
follow.     There  is  no  doubt  that  a 
receiver  may  be  appointed  in  the 
state    court    for    a   corporation   in 
financial    depression,    when    bank- 
ruptcy   proceedings    could    not  be 
entertained.    The  statute  of  Wash- 
ington authorizes  the  appointment 
of  a  receiver  when  a  corporation 
is    in    imminent   danger    of    insol- 
vency   (section   741,  Rem.   &  Bal. 
Washington  Code),  and  the  state 
court  holds  that  a  corporation  is 
insolvent    when    it    is    unable    to 
meet  its   obligations  as  they  ma- 
ture   in    the    ordinary    course  of 
business  (State  ex  rel.  v.  Superior 
Court,  21  Wash.  575,  59  Pac.  483; 
Nixon  V.  Joshua  Hendy  Machine 
Works,  51  Wash.  419,  99  Pac.  11) ; 
while  under  the   bankruptcy  act, 
when  the  assets  at  a  fair  valuation 
do  not  equal  the  liabilities,  a  cor- 
poration is   insolvent    (section   1, 
subd.  15,  Bankr.  Act).    Petitioners 
rely    on    In    re    Maplecroft    Mills 
(D.  C),  218  Fed.  659,  661,  in  which 
the  District  Court  of  the  Fourth 
District  held  the  appointment  of  a 
receiver  under  the  South  Carolina 
code  provision  that  a  receiver  may 
be   appointed   when   a   corporation 
is   'in    iniiniueiil   danger'    of   insol- 


vency, and  at  page  673,  the  court 
says: 

"  'Under    the    evidence    in    the 
case   now    before    the    court   it    is 
found  that  the  only  ground  upon 
which  the  state  court,  to  wit,  the 
Court  of  Common  Pleas  for  Pickens 
County,  could  possibly  have  made 
the  order  of  appointment  of  a  re- 
ceiver and  taken  possession  of,  to 
operate,   and   eventually   liquidate 
and    marshal    and    distribute,    the 
assets  of  the  Maplecroft  Mills,  un- 
der  the    allegations    of   the    com- 
plaint, was  because  of  insolvency. 
The  Supreme  Court  of  the  State 
of   South    Carolina  has   approved, 
for  the   state  courts  of  the  State 
of  South  Carolina,  the  same  defini- 
tion  of   insolvency   as   that  seven 
in     the     bankruptcy     act     (citing 
case).     Where  the  Court  of  Com- 
mon   Pleas    for    Pickens   County 
appointed   a   receiver   because    of 
insolvency,   it  must  be  presumed 
that  it   found   under  the  laws   of 
South  Carolina  it  was  such  an  in- 
solvency as  is  defined  to  be  insol- 
vency in  the  bankruptcy  act,  and 
that  it  adjudicated  that  question 
as  against  the  Maplecroft  Mills,  so 
as    to    determine    it   as    well    for 
these  proceedings  as  for  those  in 
the  state  court.' 

"The  Circuit  Court  of  Appeals  of 
the  First  Circuit  (In  re  Wm.  S. 
Butler  &  Co.,  207  Fed.  705.  125 
C.  C.  A.  223),  Judge  Putnam  dis- 
senting, held  that  the  appoint- 
ment of  a  receiver  to  assume  con- 
trol of  the  business  and  conduct 
the  affairs  of  a  corporation  until 
further  ordered,  on  a  complaint, 
answer,  and  decree,  for  the  reason 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


239 


receivership  proceeding  although  the  application  for  the 
receiver  has  been  prosecuted  in  the  name  of  others. 

In  such  circumstances  it  becomes  a  question  of  fact  as 


that  the  corporation  was  unable  to 
meet  its  obligations  as  they  ma- 
tured in  the  ordinary  course  of 
business,  in  the  absence  of  an  alle- 
gation that  the  corporation's  prop: 
erty,  at  a  fair  valuation,  was 
insufficient  to  pay  its  debts,  was 
not  a  finding  of  insolvency  within 
the  act  of  bankruptcy.  The  Su- 
preme Court  of  Washington  recog- 
nizes a  distinction  between  insol- 
vency under  the  bankruptcy  act 
and  state  statute.  State  ex  rel. 
v.  Superior  Court,  supra.  I  do  not 
think  that  the  finding  of  the  state 
court  upon  the  allegations  of  the 
complaint,  in  the  absence  of  tes- 
timony, is  conclusive  of  the  insol- 
vency of  the  corporation  in  issue, 
under  the  bankruptcy  act,  in  this 
proceeding." 

The  appointment  of  a  receiver 
for  a  corporation  by  a  state  court, 
under  a  statute  authorizing  such 
appointment  where  the  defendant 
"is  in  imminent  danger  of  in- 
solvency," on  a  petition  which 
showed  that,  while  the  corpora- 
tion, by  reason  of  general  busi- 
ness conditions,  was  unable  to 
meet  its  obligations,  Its  assets  at 
a  fair  valuation  were  worth  nearly 
double  the  amount  of  its  indebted- 
ness, does  not  constitute  an  act  of 
bankruptcy,  under  Bankr.  Act 
July  1,  1898,  ch.  541,  §  3a  (4),  as 
amended  by  act  Feb.  5.  1903,  ch. 
487,  §  2,  32  Stat.  797  (Comp.  St. 
1913,    §9587). 

Maplecroft  Mills  v.  Childs,  226 
Fed.  415,  141  C.  C.  A.  245,  the 
court  saying:    "The   complaint  in 


the  state  court,  on  its  face,  shows 
that  the  corporation  was  in  immi- 
nent danger  of  insolvency;  but  it 
does  not  show  actual  insolvency. 
It  appears  from  the  record  in  the 
state  court  that  there  were  no  lien 
creditors;  that  there  were  on  July 
1,  1913,  unsecured  debts  amount- 
ing in  the  aggregate  to  $176,184.23. 
It  further  appears  from  the  peti- 
tion that  the  alleged  bankrupt  had 
assets  amounting  in  the  aggregate 
to  $313,068.20,  consisting  of  prop- 
erty and  plant,  $253,489.80,  and 
other  assets  as  follows:  $54,096.53, 
$3790.91,  $504.94,  $483.68,  and 
$702.34,  these  amounting  in  the 
aggregate,  as  we  have  stated,  to 
$313,068.20.  Thus  it  will  be  seen 
that  it  appears  on  the  face  of  the 
petition  that  the  assets  exceeded 
the  liabilities  $140,000.  It  is  also 
alleged  in  the  complaint  filed  in 
the  receivership  suit  that  if  the 
property  (by  which  we  understand 
is  meant  the  real  estate  and  plant) 
were  sold  at  a  forced  sale  it  might 
not  bring  50  per  cent  of  its  actual 
value. 

"However,  assuming  that  this 
property  should  be  sold  at  a  forced 
sale  and  did  not  bring  more  than 
50  per  cent  of  its  true  value, 
nevertheless,  by  such  sale  there 
could  be  realized  the  sum  of  $126,- 
744.90.  If  we  add  to  this  the  actual 
value  of  the  quick  assets,  consist- 
ing of  cash,  cotton,  stock  in  pro- 
cess, goods,  insurance,  interest, 
etc.,  which  amounts  to  $59,578.40, 
a  sufficient  sum  would  b©  realized 
to  pay  the  indebtedness  and  leave 
a  balance  of  $10,000," 


240 


LAW    OF   RECEIVERS. 


to  whether  the  debtor  procured  the  appointment  of  the 
receiver.  If  he  did  so  procure  it,  then  the  appointment 
constitutes  a  violation  of  the  Bankruptcy  Act.^  Likewise 


4  The  case  of  James  Supply  etc. 
Co.  V.  Dayton  Coal  etc.  Co.,  223 
Fed.  991,  139  C.  C.  A.  367,  was  one 
which  was  held  to  come  within 
this  rule,  the  court  saying: 

"If  the  receivership  was  so  pro- 
cured by  actual  authority  of  the 
Dayton   Company,   and  on  its  be- 
half, it  was  as  effectively  an  act 
of  bankruptcy  as  if  the  suit  had 
been  directly  in  the  name  of  that 
company  as  complainant  (Explora- 
tion    Mercantile     Co.     v.     Pacific 
Hardware  etc.  Co.  [C.  C.  A.  9],  177 
Fed.  825,  839,  101  C.  C.  A.  39),  and 
the  district  court  so  held.  Wheeler 
V.  Denver,  229  U.  S.  342,  33  Sup. 
Ct.    842,   57   L.    Ed.   1219,   contains 
nothing  to  the  contrary.     What  is 
there     said     respecting     collusion 
relates     merely     to     jurisdiction. 
Similar  holdings  are  found  in  Re 
Reisenberg  (Metropolitan  Ry.  Re- 
ceivership), 208  U.   S.  90,   110,  28 
Sup.   Ct.    219,   52    L.    Ed.   403,   and 
American  Brake  etc.   Co.  v.  Pere 
Marquette  R.  R.  Co.   (C.  C.  A.  6), 
205  Fed.  14,  18,   123   C.   C.  A.  322. 
Here     the     question    of   intent    to 
evade  the  provisions  of  the  bank- 
ruptcy act  is  involved. 

"It  is  immaterial  that  the  re- 
ceivership was  not  ordered  be- 
cause of  insolvency.  If  the  cor- 
poration was  actually  insolvent  at 
the  time  receivership  was  applied 
for,  it  is  enough.  Hill  v.  Western 
Electric  Co.  (C.  C.  A.  6),  214  Fed. 
243,   130   C.   C.   A.   613. 

"We  are  not  impressed  by  the 
proposition  that  the  application 
for  a  receiver  by  this  corporation 
would  not  be  an  act  of  bankruptcy 


unless    shown    to    have    been    ex- 
pressly     authorized     by     formal    • 
action  of  its  board  of  directors  or 
stockholders;      and     the     district 
judge  did  not  so  decide.    Not  only 
is  there  nothing  in  the  record  to 
indicate  that  the  managing  direc- 
tor   of    this     British     corporation 
lacked    authority    to    direct    such 
acfion,  but  the  testimony  is  infer- 
entially    to    the    contrary,    and    is 
specifically  that  he  had  complete 
control   of  the   company's   affairs. 
If   Donaldson   individually   lacked 
full   control,  there  was   testimony 
that    Watson    &    Co.    represented 
the     stock     control     and,    inferen- 
tially  at  least,  had  whatever  con- 
trol  Donaldson   lacked;    and   it   is 
perhaps   of   some  interest  in   this 
connection  that  the  amended  bill 
in    the   insolvency   proceeding   by 
implication  treats  the  members  of 
Watson  &  Co.  as  Whitaker's  prin- 
cipals.    We  think  the  record  did 
not  impugn   the  existence  of  full 
authority  on    the    part  of  Donald- 
son and  Watson  &  Co.  to  direct 
the     receivership,    and    thus    the 
commission    of    an   act  of  bank- 
ruptcy. Exploration  Mercantile  Co. 
V.     Pacific     Hardware     etc.     Co. 
(C.    C.   A.    9),   177    Fed.    825,    839, 
101  C.  C.  A.  39;  In  re  Maplecroft 
Mills    (D.   C),   218  Fed.   659,   673; 
1   Remington  on  Bankruptcy     (2d 
ed.),     §152.     Moreover,    if    those 
placed  in  full  charge  of  the  com- 
pany's affairs  were  thus  clothed  in 
fact  with  sufficient  power  to  actu- 
ally accomplish  a  legally  effective 
receivership,  we  can  not  think  the 
application  therefor  was  any   the 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


241 


if  the  appointment  of  the  receiver  is  applied  for  by  the 
debtor  himself  with  intent  to  hinder,  delay,  and  defraud 
his  creditors,  the  appointment  of  the  receiver  will  be 
deemed  to  be  a  ''transfer"  of  the  debtor's  property 
within  the  meaning  of  the  Bankruptcy  Act.^    And  even 


less  an  act  of  bankruptcy  because 
those  responsible  therefor  had  no 
right,  as  against  the  stockholders, 
to  so  act.  A  somewhat  contrary- 
holding  was  had  in  Re  Wm.  S.  But- 
ler &  Co.  (C.  C.  A.  1),  207  Fed. 
705,  713,  125  C.  C.  A.  223.  How 
far  that  decision  may  have  been 
affected  by  the  law  under  which 
the  corporation  was  organized 
does  not  appear." 

The  court  in  Re  Muir,  212  Fed. 
495,  in  this  connection  said:  "If 
Muir  was  the  real  plaintiff  in  the 
equity  case,  lurking  in  the  shadow 
of  Burton,  Price  &  Co.,  the  nomi- 
nal plaintiff,  and  it  also  appears 
from  the  record  in  the  equity  case 
that  Muir  is  the  actual  defendant, 
there  was  no  real  cause  before  the 
court  in  the  equity  case  for  adjud- 
ication. A  party  can  not  be  both 
plaintiff  and  defendant,  yet  such 
is  the  effect  of  the  equity  proceed- 
ings, under  the  facts.  If  there  was 
no  real  cause  depending  before 
the  court  in  the  equity  suit,  there 
is  surely  nothing  in  the  way  of 
this  court  in  determining  'insol- 
vency.' 

"It  is  not  necessary,  and  the 
court  does  not  undertake,  to  de- 
cide whether  the  receiver  in 
equity  was  actually  appointed  on 
the  basis  of  'insolvency,'  upon  the 
face  of  the  pleadings  therein." 

5  Thus,  In  re  Muir,  212  Fed.  495, 
it  was  said: 

"Did  Muir,  by  procuring  the  ap- 
pointment of  the  receiver  in 
cqinty,  within  four  months  preced- 
I  Rec— 16 


ing  the  filing  of  the  involuntary 
petition,  while  insolvent,  make  a 
transfer  of  his  property  with  in- 
tent to  hinder,  delay,  and  defraud 
his  creditors?  This  question  the 
master  has  failed  to  answer.  It  has 
already  been  decided  that  Muir 
procured  the  appointment  of  the 
receiver  and  that  he  did  so  while 
insolvent. 

"It  remains,  therefore,  for  us 
to  consider  and  determine: 
(a)  Whether  there  was  a  transfer 
of  Muir's  property  accomplished 
by  the  receivership;  and  (b) 
whether  there  was  the  intent  to 
hinder,  delay,  and  defraud  cred- 
itors thereby. 

"It  is  not  necessary  since  the 
amendment  of  February  5,  1903, 
that  it  be  to  hinder,  delay,  and 
defraud.  It  is  sufficient  if  it  be 
with  either  intent. 

"Section  1  (25)  of  the  bank- 
ruptcy act  defines  the  word  'trans- 
fer' to  'include  the  sale  and  every 
other  and  different  mode  of  dis- 
posing of  or  parting  with  property 
or  the  possession  of  property,  ab- 
solutely or  conditionally.'  Said 
the  Supreme  Court  of  the  United 
States  in  Pirie  v.  Chicago  Title  & 
Trust  Co.,  182  U.  S.  438,  21  Sup. 
Ct.  906,  45  L.  Ed.  1171,  5  Am. 
Bankr.  Rep.  814: 

" '  "Transfer"  is  defined  to  be 
not  only  the  sale  of  property,  but 
"every  other  mode  of  disposing  or 
parting  with  property."  All  tech^ 
nicality  and  narrowness  of  mean- 
ing is  precluded.  The  word  is  used 


2-12 


LAW    OF   RECEIVERS. 


tliougli  the  purpose  of  a  debtor  was  not  to  liquidate  liis 
assets  and  distribute  them  among  his  creditors,  the  ap- 
pointment of  the  receiver  will  be  regarded  as  an  act  of 
bankruptcy  where  he  was  in  fact  insolvent  at  the  time 
of  the  application.*'    The  element  of  estoppel,  however, 


in  its  most  comprehensive  sense, 
and  is  intended  to  include  every 
means  and  manner  by  which  prop- 
erty can  pass  from  the  ownership 
and  possession  of  another,  and  by 
which  the  result  forbidden  by  the 
statute  may  be  accomplished.' 

"We  have  already  decided  that 
Muir  procured  the  receivership.  In 
general,  the  effect  of  the  appoint- 
ment of  a  receiver  is  to  remove 
the  parties  to  the  suit  from  the 
possession  of  the  property,  not- 
withstanding the  right  to  the  prop- 
erty is  in  no  way  affected,  and  he 
over  whose  property  a  receiver 
has  been  appointed  has  no  author- 
ity thereafter  to  subject  it  to  any 
legal  liability  in  the  hands  of  the 
receiver,  or  to  deal  with  it  in  any 
manner  which  operates  as  an  in- 
terference with  the  receiver's  pos- 
session. 34  Cyc.  183,  184.  The 
mere  order  appointing  a  receiver 
of  property  does  not  transfer  the 
ownership  of  or  legal  title  to  the 
property  over  which  he  is  ap- 
pointed, without  statutory  provi- 
sion to  that  effect,  or  where  the 
appointment  is  pursuant  to  the 
general  powers  of  the  court  and 
the  usual  practice  in  chancery  as 
distinguished  from  an  appoint- 
ment under  statutory  provisions 
conferring  special  powers  and 
rights.  34  Cyc.  184,  185,  and  cases 
cited.  Without  going  into  the 
question  of  where  the  title  is, 
upon  receivership,  at  law,  the  rule 
is  laid  down  that: 

"  'In  equity,  however,  it  is  held 


that  an  order  for  a  receiver,  when 
his  appointment  is  completed, 
vests  in  him  all  the  property  and 
effects  subject  to  the  order  with- 
out an  assignment,  although  as  to 
the  legal  title  to  real  estate  a 
transfer  has  been  held  indis- 
pensable.    34  Cyc.  186. 

"  'There  was  no  real  estate  af- 
fected by  this  receivership,  and 
we  are  of  the  opinion  that  title  to 
the  personalty  vested  in  the  re- 
ceiver. At  any  rate,  the  receiver 
acquired  thereby  the  possession 
thereof.  The  general  proposition 
is  well  established  that,  the  re- 
ceiver being  the  officer  or  agent 
of  the  court  from  which  he  de- 
rives his  appointment,  his  posses- 
sion is  exclusively  the  possession 
of  the  court;  the  property  being 
regarded  as  in  the  custody  of  the 
law,  in  gremio  legis  for  the  benefit 
of  whoever  may  be  ultimately  de- 
termined to  be  entitled  thereto. 
High  on  Receivers  (4th  ed.),  §  134, 
p.  153. 

"  'There  is  no  question  but  this 
comes  within  the  very  language 
of  section  1  (25)  of  the  bankruptcy 
act  above  quoted.  We  conclude, 
therefore,  that  the  receivership 
was  a  transfer.'  " 

6  Hill  V.  Western  Electric  Co., 
214  Fed.  243,  130  C.  C.  A.  613,  the 
court  saying:  "Despite  the  stipula- 
tion that  Rankin  would  testify 
that,  when  applying  for  a  receiver, 
it  was  not  his  purpose  to  liquidate 
his  assets  and  distribute  'them  to 
creditors,'   the    appointment    was 


EFFECT    OF   APPOINTMENT    AND    DUTIES. 


243 


applies  to  proceedings  in  bankruptcy  by  petitioners  who 
have  participated  in  the  receivership  proceedings  which 
are  complained  of  as  an  act  of  bankruptcy.  Hence  where 
creditors  have  selected  the  state  court  as  the  forum  in 
which  to  administer  the  estate  of  the  debtor  and  have 
induced  that  court  to  act  in  such  administration,  they  can 
not  subsequently  repudiate  the  proceedings  and  remove 
the  matter  to  the  bankruptcy  court.'^ 

§  58.    General   Liability   of   the    Receivership   for   Torts   and 
Negligence. 

Receivers  pendente  lite  are  mere  temporary  oflEicers  of 
the  court  and  do  not  possess  the  powers  of  a  permanent 
receiver  unless  specially  conferred  upon  them  by  the 
court.  They  possess  no  legal  powers,  and  their  functions 
are  limited  to  the  care  and  preservation  of  the  property 
or   fund    committed   to   their   charge.^     The   power   of 


certain  to  remove  the  possession 
and  control  of  his  property  to  the 
receiver  for  administration  accord- 
ing to  orders  of  the  court  appoint- 
ing him;  and,  in  view  of  the  con- 
ceded insolvency  of  the  debtor,  it 
can  not  for  a  moment  be  presumed 
that  the  court  would  have  de- 
clined to  enforce  the  rights  of  the 
college  and  the  creditors.  The 
case  does  not  differ,  then,  from 
what  it  would  have  been  if  Rankin 
had  admitted  insolvency  in  his 
petition  for  a  receiver;  and  hence 
every  reason  exists  for  testing  his 
acts  by  the  paramount  rule  of  the 
bankruptcy  law.  Exploration  Mer- 
cantile Co.  V.  Pacific  H.  &  S.  Co., 
177  Fed.  825,  840,  101  C.  C.  A.  39 
(C.  C.  A.  9th  Cir.).  See,  also, 
Blackstone  v.  Everybody's  Store, 
207  Fed.  752,  755,  125  C.  C.  A.  290 
(C.  C.  A.  1st  Cir.),  where  the  ap- 
plicable    rule     is     tersely     stated. 


though  the  •  fact  of  insolvency 
failed  of  proof.  And  see  reason- 
ing of  Judge  Wallace  in  Re  Spald- 
ing, 139  Fed.  244,  246,  71  C.  C.  A. 
370  (C.  C.  A.  2d  Cir.),  although 
the  case  itself  is  not  in  point;  1 
Loveland  on  Bankruptcy  (4th  ed.), 
§155,  p.  333;  Collier  on  Bank- 
ruptcy (8th  ed.),  1910,  p.  84." 

7  In  re  Commonwealth  Lumber 
Co.,  223  Fed.  667.  See,  also, 
Simonson  v.  Sinsheimer,  95  Fed. 
948,  37  C.  C.  A.  337;  Lowenstein 
v.  Henry  McShane  Mfg.  Co.,  130 
Fed.  1007,  sustaining  the  principle 
that  where  creditors  have  elected 
a  forum,  they  are  bound  by  such 
election. 

Cases  in  apparent  conflict  are 
distinguishable  on  the  facts.  Lei- 
digh  Carriage  Co.  v.  Stengel,  95 
Fed.  637,  37  C.  C.  A.  210;  In  re 
Salmon  &  Salmon,  143  Fed.  395. 

1  Herring  v.  New  York,  L.  E.  & 
W.  R.  Co.,   105  N.  Y.  340,  372,   12 


244  LAW    OF   RECEIVERS. 

appointment  of  a  receiver  of  this  character  is  an  incident 
to  the  jurisdiction  of  a  court  of  chancery,  and  is  unaf- 
fected by  the  character  of  the  parties  before  it,  whether 
an  individual  or  a  corporation,  or  by  the  nature  of  the 
prop'erty,^  and  is  usually  brought  into  exercise  in  mort- 
gage foreclosure  cases.  While  this  class  of  receivers  have 
many  duties  and  powers  peculiar  to  themselves  they  are 
such  only  as  flow  from  the  nature  and  character  of  the 
property  committed  to  their  charge.  Of  course,  in  case 
of  the  foreclosure  of  railway  mortgages,  the  powers  and 
duties  of  the  receiver  are  increased  'by  reason  of  the  pub- 
lic nature  of  the  property  and  the  franchises  involved, 
but  the  title  of  the  receiver  is  essentially  the  same  in  all 
cases. 

Except  in  a  few  exceptional  cases,  he  is  selected  not 
only  because  of  his  ability,  honesty,  and  integrity,  but 
because  of  his  not  being  interested  in  any  manner  in  the 
subject-matter  of  the  litigation.  Neither  will  he  be  per- 
mitted to  become  interested  in  the  property  in  his  charge 
as  receiver  during  the  progress  of  the  litigation,  nor  use 
such  property  or  funds  for  purposes  of  his  own  personal 
gain,  and  all  interest  and  profits  derived  from  the  funds 
or  property  must  be  strictly  accounted  for.^  He  must,  as 
we  have  shown  before,*  exercise  such  care  in  the  handling 
of  the  affairs  of  the  receivership  as  a  man  would  pru- 
dently exercise  in  handling  his  own  affairs.  Hence  a 
receiver,  occupying  the  peculiarly  responsible  position 
that  he  does,  both  in  his  attitude  to  the  court  and  the 
parties  before  the  court,  is  required  to  exercise  great 
care  and  circumspection  over  the  funds  or  property  en- 
trusted to  him,  or  whatever  other  interests  that  may  come 

N.  E.  763;    Keeney  v.   Home    [ns.  York,  W.  S.  &  B.  R.  Co.,  101  N.  Y. 

Co.,  71  N.  Y.  396,  27  Am.  Rep.  60.  478,  5  N.  E.  316. 

A  receiver  is  liable  for  waste.  3  Battaile    v.     Fisher,    36   Miss. 

Turner  v.    Peoria  etc.   R.   Co.,   95  321;  see,  §49,  supra. 

111.  134.  35  Am.  Rep.  144.  4  See,  §  43,  supra. 

2  United  States  Trust  Co.  v.  New 


EFFECT   OF    APPOINTMENT    AND    DUTIES. 


245 


to  him  as  receiver.^  And  he  will  be  liable  for  negligence 
in  the  management  of  the  receivership  property.*'  The 
liability  of  the  receiver  is  generally  merely  in  his  official 
capacity  unless  the  negligence  or  tort  is  the  personal  act 


5  state  V.  Gibson,  21  Ark.  140 
Walker    v.     Morris,    14    Ga.    323 
Kaiser    v.    Kellar,    21    Iowa    95 
Henry  v.   Kaufman,   24  Md.  1,  87 
Am.  Dec.  591;   Devendorf  v.  Dick- 
inson,  21   How.   Pr.    (N.   Y.)    275; 
Iddings    V.    Bruen,     4     Sandf.    Cli. 
(N.    Y.)    417;    Reynolds's    Exr.   v. 
Pettyjohn, .  79  Va.  327;    Salway  v. 
Salway.  2  Russ.  &  M.  215. 

Where  a  receiver  was  appointed 
in  a  case  in  which  a  large  number 
of  important  interests  were  held 
by  various  parties — held,  that  as 
he  became  vested  with  the  title 
of  all  the  property  involved  in  the 
suit,  by  virtue  of  the  decree  ap- 
pointing him,  he  was  entitled  to 
the  carriage  of  the  decree  into  the 
master's  office  to  compel  the  de- 
livery of  the  property  to  him  and 
that  he  was  responsible  for  the 
exercise  of  his  best  judgment  and 
good  faith  to  all  parties  interested 
and  was  not  to  be  controlled  by 
any  of  the  parties.  Iddings  v. 
Bruen,  4  Sandf.  Ch.  (N.  Y.)  417; 
Moore  v.  Duffy,  74  Hun  (N.  Y.)  78, 
26  N.  Y.  Supp.  340. 

6  He  is  responsible  for  the  value 
of  property  which  by  diligence 
would  have  come  to  his  posses- 
sion, but  has  become  lost  by  his 
omission  to  act.  Clapp  v.  Clapp, 
49  Hun  (N.  Y.)  195,  1  N.  Y.  Supp. 
919;  Thurman  v.  Cherokee  R.  Co., 
56  Ga.  376;  Henderson  v.  Walker, 
55  Ga.  481;  Sloan  v.  Central  Iowa 
Ry.  Co.,  62  Iowa  728,  16  N.  W.  331; 
Ohio  &  M.  R.  Co.  v.  Davis,  23  Ind. 
553,  85  Am.   Dec.  477;    Nichols  v. 


Smith,  115  Mass.  332;  Paige  v. 
Smith,  99  Mass.  395;  Fifield  v. 
Northern  R.  R.,  42  N.  H.  225; 
Klein  v.  Jewett,  26  N.  J.  Eq.  474; 
In  re  Union  Bank,  37  N.  J.  Eq.  420; 
Cardot  v.  Barney,  63  N.  Y.  281,  20 
Am.  Rep.  533;  Meara's  Admr.  v. 
Holbrook,  20  Ohio  St.  137,  5  Am. 
Rep.  633;  Potter  v.  Bunnell,  20 
Ohio  St.  150,  159;  Cleveland,  C.  & 
C.  R.  Co.  V.  Keary,  3  Ohio  St.  201; 
Ex  parte  Brown,  15  S.  C.  518;  Ex 
parte  Johnson,  19  S.  C.  492;  Erwin 
V.  Davenport,  9  Heisk.  (Tenn.)  44; 
Newman  v.  Davenport,  9  Baxt. 
(Tenn.)  538;  Lyman  v.  Central 
Vermont  R.  Co.,  59  Vt.  167,  10  Atl. 
346;  Bluraenthal  v.  Brainerd,  38 
Vt.  402,  91  Am.  Dec.  349;  Hornsby 
v.  Eddy,  56  Fed.  461,  5  C.  C.  A. 
560;  Winboum's  Case  (Missouri 
Pac.  R.  Co.  V.  Texas  P.  R.  Co.),  30 
Fed.  167;  Central  Trust  Co.  v. 
Wabash,  St.  L.  &  P.  Ry.  Co.,  26 
Fed.  12.  But  see  Central  Trust 
Co.  V.  Wabash,  St.  L.  &  P.  Ry.  Co., 
30  Fed.  344;  Brydon  v.  Stewart, 
2  Macq.  H.  L.  30. 

A  receiver  is  liable  for  money 
paid  as  a  dividend  to  a  person  not 
entitled  to  it  when  ordinary  care 
would  have  prevented  it.  Todd  v. 
Meding,  56  N.  J.  Eq.  83,  38  Atl. 
349. 

And  where  goods  are  committed 
to  him  for  sale,  and  through  negli- 
gence or  bad  faith  he  fails  to 
realize  the  full  value,  he  will  be 
liable  for  the  real  value  but  not 
the  speculative  value.  Demain  v. 
Cassidy,  55  Miss.  320. 


246 


LAW    OF   RECEIVERS. 


of  the  receiver  himself.     In  such  event  it  is  a  charge 
against  the  receivership  property.'^ 


7  In  those  cases  where  a  re- 
ceiver may  be  sued  without  leave 
of  the  court  which  appoints  him, 
it  is  doubtless  competent  for  a 
person  injured  by  his  negligence 
or  misconduct  to  pursue  him  at 
once  in  a  court  of  law  by  an  action 
for  damages.  Malott  v.  Shimer, 
153  Ind.  35,  74  Am,  St.  Rep.  278, 
54  N.  E.  101. 

Generally  a  receiver  is  respon- 
sible only  for  neglect,  but  if  he 
by  his  appointment  assumes  the 
duties  of  a  guardian  his  liability 
will  be  measured  by  that  of  a 
guardian.  State  v.  Gooch,  97  N.  C. 
186,  2  Am.  St,  Rep.  284,  1  S.  E. 
G53. 

Receiver  is  not  liable  for  per- 
conal  injuries  growing  out  of  the 
negligence  of  a  co-employee. 
Brown  v.  Comer,  97  Ga.  801,  25 
S.  E.  176. 

The  liability  of  a  receiver  for 
the  torts  of  his  employees  and 
agents,  when  he  himself  is  free 
from  fault,  is  in  his  official  capa- 
city. In  such  capacity  he  is  an- 
swerable for  their  torts.  Fullerton 
V.  Fordyce,  121  Mo.  1,  42  Am.  St. 
Rep.  516,  25  S.  W.  587;  Murphy  v. 
Holbrook,  20  Ohio  St.  137,  5  Am. 
Rep.  633;  International  etc.  Ry. 
Co.  V.  Bender,  87  Tex.  99,  26  S.  W. 
1047;  Memphis  &  C.  R.  Co.  v. 
Hoechuer,  67  Fed.  456,  14  C.  C.  A. 
4.-. 9. 

He  will  be  liable  personally  for 
trespass  and  torts  committed  by 
him,  his  official  position  being  no 
protection  in  such  cases.  Staples 
V.  May,  87  Cal.  178,  25  Pac.  346; 
Hills  V.  Parker,  111  Mass.  508,  15 
Am.  Rep.  63.  But  see  Walling  v. 
Miller,  108   N.   Y.   173,  2   Am,   St. 


Rep.  400,  15  N.  E.  65;  Manning  v. 
Monaghan,  1  Bosw.  (N.  Y.)  459,  23 
N.  Y.  539;  Kenney  v,  Ranney,  96 
Mich.  617,  55  N.  W.  982;  Gutsch  v. 
Mcllhargey,  69  Mich.  377,  37  N.  W. 
303;  Kartell  v.  Tilghman,  99  U.  S. 
547,  25  L.  Ed.  357;  Curran  v.  Craig, 
22  Fed.  101. 

A  receiver  who  is  himself  free 
from  fault  is  not  personally  liable 
for  the  negligence  of  his  em- 
ployees in  operating  the  business 
in  his  charge.  McGhee  v.  Willis, 
134  Ala.  281,  32  So.  301;  Bartlett 
V.  Cicero  Light  etc.  Co.,  177  III. 
68,  69  Am.  St.  Rep.  206,  42  L.  R.  A. 
715,  52  N.  E.  339;  Erskine  v. 
Mcllrath,  60  Minn.  485,  62  N.  W. 
1130;  Vanderbilt  v.  Central  R.  Co., 
43  N.  J.  Eq.  669,  12  Atl.  188;  Keat- 
ing V.  Stevenson,  21  App.  Div.  604, 
47  N.  Y.  Supp.  847;  Cardot  v.  Bar- 
ney, 63  N.  Y.  281,  20  Am.  Rep.  533; 
McNulta  V.  Lochridge,  141  U.  S, 
327,  12  Sup.  Ct.  11,  35  L.  Ed.  796. 

But  if  the  receiver  incurs  ex- 
penses and  charges  without  suffi- 
cient funds  in  his  hands  to  meet 
them,  he  may  become  personally 
liable.  Rogers  v.  Wendell,  54  Hun 
(N.  Y.)  540,  7  N.  Y,  Supp.  781,  8 
N.  Y.  Supp.  515, 

And  a  judgment  against  a  re- 
ceiver must  be  against  him  offi- 
cially and  payable  from  the  re- 
ceivership funds.  Woodruff  v. 
Jewett,  37  Hun  (N.  Y.)  205,  115 
N.  Y.  267,  22  N.  E.  156;  Davis  v. 
Duncan,  19  Fed.  477.  The  proceed- 
ing is  in  the  nature  of  a  pro- 
ceeding in  rem.  It  seems,  how- 
ever, that  he  may  waive  the  right 
to  be  sued  officially  only.  Camp 
V.  Barney,  4  Hun  (N.  Y.)  373; 
Newell  V.  Smith.  49  Vt.  255. 


EFFECT   OF   APPOINTMENT    AND    DUTIES. 


217 


In  other  words,  the  damages  resulting  from  the  negli- 
gence of  the  agents  or  servants  of  a  receiver  are  a 
charge  upon  the  receivership  estate  of  the  character  of 
operating  expenses  and  are  payable  out  of  the  net  income 
or  in  case  of  a  sale  of  the  assets  of  the  receivership  out 
of  the  sale  proceeds.^ 


Although  a  note  may  have  been 
handed  to  a  receiver  that  he  might 
allow  it  as  a  mortgage  debt,  he 
promising  to  attend  to  it,  and 
negligently  failing  to  do  so,  he 
can  not  be  held  answerable  as  re- 
ceiver in  a  court  of  chancery  for 
such  neglect.  The  liability  is  a 
personal  one  solely,  to  be  enforced 
at  law.  Keene  v.  Gaehle,  56  Md. 
343. 

The  liability  of  a  receiver  for 
the  negligence  or  torts  of  his  ser- 
vants and  employees  is  not  an 
individual  one,  but  merely  in  an 
official  capacity.  McNulta  v.  Bnsch, 
134  ni.  46,  24  N.  E.  631;  McNulta 
V.  Lockridge,  137  111.  270,  31  Am. 
St.  Rep.  362,  27  N.  E.  452  (affirmed 
in  141  U.  S.  327,  12  Sup.  Ct.  11,  35 
L.  Ed.  796);  Ersldne  v.  Mcllrath, 
60  Minn.  485,  62  N.  W.  1130;  Gray 
V.  Grand  Trunk  W.  Ry.  Co.,  156 
Fed.  736,  84  C.  C.  A.  392. 

In  such  case  the  liability  is  offi- 
cial. McNulta  V.  Lockridge,  137 
111.  270,  31  Am.  St.  Rep.  362,  27 
N.  E.  452,  141  U.  S.  327,  35  L.  Ed. 
796,  12  Sup.  Ct.  11;  McNulta  v. 
Ensch,  134  111.  46,  24  N.  E.  631; 
Combs  V.  Smith,  78  Mo.  32;  Bon- 
ner V.  Mayfleld,  82  Tex.  234,  18 
S.  W.  305;  Texas  &  P.  Ry.  Co.  v, 
Geiger,  79  Tex.  13,  15  S.  W.  214. 

Damages  for  loss  of  property 
through  the  negligence  of  a  re- 
ceiver in  possession  of  a  storage 
warehouse  may  be  charged  against 


the  property  when  it  is  turned 
over  to  its  owner.  Shedd  v.  See- 
feld,  230  111.  118,  120  Am.  St.  Rep. 
269,  13  L.  R.  A.  (N.  S.)  709,  82 
N.  E.  580. 

8  Bartlett  v.  Cicero  Light  etc. 
Co.,  177  111.  68,  69  Am.  St.  Rep. 
206,  42  L.  R.  A.  715,  52  N.  E.  339; 
Knickerbocker  v.  Benes,  195  111. 
434,  63  N.  E.  174. 

A  claim  for  a  tort  as  a  rule 
ranks  as  an  unsecured  claim. 
Pennsylvania  Steel  Co.  v.  New 
York  City  R.  Co.,  165  Fed.  457. 

One  claiming  a  right  of  action 
for  a  tort  against  a  corporation  in 
the  hands  of  a  receiver  can  not 
sue  the  receivers,  either  at  law  or 
in  equity,  for  the  damage  so  suf- 
fered by  him.  Healy  v.  Defiance 
City  Bank,  160  111.  App.  625;  Healy 
v.  Smith,  160  111.  App.  627. 

Where  the  receiver  of  an  insol- 
vent trust  company  continues, 
under  order  of  the  court,  to  col- 
lect for  a  bank  the  rents  of  a  lot 
mortgaged  to  it,  as  the  trust  com- 
pany had  done,  the  bank  is  not 
necessarily  liable  to  a  tenant  from 
whom  the  rents  are  collected  for 
the  negligence  of  the  receiver's 
employee  in  repairing  the  mort- 
gaged lot.  Carlon  v.  City  Savings 
Bank,  91  Neb.  790,  137  N.  W.  852. 

The  liability  of  a  receiver  fqr 
damages  caused  by  the  negligence 
of  their  servants  in  operating  prop- 
erties under  his  control  is  gener- 
ally  regarded   as   an    official   and 


248 


LAW    OF   RECEIVERS. 


The  rule  in  this  respect  was  stated  in  the  following 
language  in  an  early  case:^ 

''A  receiver,  as  such,  upon  principle  and  authority,  is 
not  personally  liable  for  the  torts  of  his  employees.  Were 
he  so  liable,  few  men  would  take  the  responsibility  of 
such  a  trust;  it  is  only  when  he  himself  commits  the 
w^rong,  that  he  is  held  personally  liable.  The  proceed- 
ing against  him,  as  receiver,  for  the  wrongs  of  his 
employees,  is  in  the  nature  of  a  proceeding  in  rem,  and 


not  a  personal  liability.  Knicker- 
bocker V.  Benes,  93  111.  App.  305. 

Under  Rev.  Stat.,  1895,  arts.  1472 
et  seq.,  relating  to  the  application 
of  funds  in  the  hands  of  a  receiver 
and  the  liability  of  property  after 
redelivery,  the  owner  will  not  be 
responsible  for  liabilities  of  the  re- 
ceiver for  torts  on  the  redelivery 
of  the  property  without  sale,  un- 
less the  property  is  equal  to  such 
claims  in  value  or  such  liability 
has  been  imposed  on  the  owner 
by  the  decree  as  a  condition  of  the 
return.  Klrby  Lumber  Co.  v.  Cun- 
ningham, (Tex.  Civ.)  154  S.  W. 
288. 

Rev.  Stats.,  art.  3017,  authorizing 
an  action  for  the  death  of  any  per- 
son caused  by  the  wrongful  act, 
negligence,  unskilfulness,  or  de- 
fault of  another,  does  not  author- 
ize an  action  against  the  receiver 
of  a  private  corporation  for  death 
caused  by  his  negligence.  Parker 
v.  Dupree,  28  Tex.  Civ.  341,  67 
S.  W.  185. 

The  judgment,  therefore,  should 
not  be  rendered  against  a  receiver 
individually,  but  as  receiver,  pay- 
able out  of  the  funds  held  by  him 
in  that  capacity,  in  due  course  of 
administration  of  his  receivership. 
McNulta  V.  Ensch,  134  111.  46,  24 
N.  E.  631;   Robinson  v.  Kirkwood, 


91  111.  App.  54;  Louisville  South- 
ern Ry.  Co.'s  Receivers  v.  Tucker's 
Admr.,  105  Ky.  492,  49  S.  W.  314; 
Camp  v.  Barney,  4  Hun  (N.  Y.) 
373;  Eddy  v.  Prentice,  8  Tex.  Civ. 
App.  58,  27  S.  W.  1063. 

It  is  the  settled  doctrine  of  the 
federal  courts  that  a  receiver  is 
not  personally  liable  for  injuries 
arising  through  negligent  opera- 
tion of  the  property  not  due  to 
his  personal  negligence,  but  an 
action  against  him  for  such  injur- 
ies is  in  law  one  against  the 
receivership,  in  which  the  judg- 
ment recovered  can  be  enforced 
only  against  the  property  or  funds 
in  his  hands,  and  which  can  not 
be  maintained  after  the  receiver- 
ship has  been  closed  and  the  re- 
ceiver discharged.  Gray  v.  Grand 
Trunk  Western  Ry.  Co.,  156  Fed. 
736,  84  C.  C.  A.  392. 

9  Davis  v.  Duncan,  19  Fed.  477, 
See,  also.  Farmers  Loan  &  T.  Co. 
V.  Central  R.  Co.,  7  Fed.  537,  2  Mc- 
Crary  181. 

The  judgment  for  damages  re- 
sulting from  a  tort  committed  by 
an  employee  of  a  receiver  should 
be  against  the  receiver  in  his 
official  capacity,  to  be  paid  by  him 
in  the  course  of  the  administra- 
tion of  the  receivership.  McNTulta 
v.  Ensch,  134  111.  46,  24  N.  E.  631. 


EFFECT    OF   APPOINTMENT   AND    DUTIES.  249 

renders  tlie  property  in  his  liands,  as  such,  liable  for  com- 
pensation for  such  injuries." 

If  the  receiver  commits  a  tort  while  acting  beyond  the 
scope  of  his  authority,  he  will  be  personally  liable  there- 
for.^" However,  a  receiver  is  not  liable  for  a  tort  com- 
mitted by  the  defendant  prior  to  his  appointment.^^ 

While  a  court  of  chancery  appointing  a  receiver  will 
throw  around  him  its  shield  of  protection  in  all  necessary 
cases,  yet  it  can  not  be  recognized  as  a  defense  to  a  suit 
at  law  for  a  breach  of  any  obligation  or  duty  which  was 
fairly  and  voluntarily  assumed  by  him  as  receiver,  that 
he  is  an  officer  of  court  acting  under  a  decree  of  a  court 
of  chancery.  The  obligations  and  duties  which  the  re- 
ceiver assumes  are,  in  all  cases,  and  like  all  other  persons, 
to  be  measured  by  the  nature  and  character  of  the  busi- 
ness which  he  engages  in.  Thus  it  can  not  be  contended 
that  the  receiver  who  is  the  mere  custodian  of  property, 
answerable  only  for  its  safe  keeping  and  due  return  when 
called  upon  for  that  purpose,  occupies  a  similar  position 
with  like  responsibilities  to  the  receiver,  who  by  virtue  of 
his  official  position  is  placed  in  possession  of,  and  is 
charged  with  the  management  and  control  of  a  railway 
where  he  by  virtue  of  his  undertaking  assumes  the  func- 
tions of  a  common  carrier,  and  where  in  his  dealings  he 
is  constantly  brought  in  contact  with  the  public.  In  the 
latter  case  his  responsibilities  are  largely  increased.   The 

10  Curran  v.  Craig,  22  Fed.  101;  N.    W.    303;    Kenney    v.    Ranney, 

Bank  of  Montreal  v.  Thayer,  7  Fed.  96  Mich.  617,  55  N.  W.  982. 

622,  2  McCrary  1;  Kartell  V.  Tilgh-  Where    a    receiver    becomes    a 

man    99  U    S    547    25  L.  Ed.  357-  trespasser   by    reason    of   forcibly 

Barton  v.  Barbour,  104  U.  S.  126,  ^^^''""^  possession  of  property  con- 

9fi  I     FH    9,79  trary  to  an  order  restraining  him 

from  doing  so,  he  will   be   liable 

And  where  a  receiver  wrongfully  ^g    ^^^j^   trespasser.      Manning   v. 

takes   possession   of  property,   he  Monaghan,  1  Bosw.  (N.  Y.)  459. 

will  become  personally  liable  for  ii  Northern  Pac.  R.  Co.  v.  Hef- 

the    tort    even    though    he    acted  lin,  83   Fed.   93,   27   C.   C.  A.  460; 

under  his  official  authority.  Gutsch  Dillon   v.    Oregon    etc.    R.    Co.,   75 

V.    Mcllhargey,    69    Mich.    377,    37  Fed.  949, 


250  LAW   OF   RECEIVERS, 

very  nature  of  tlie  business  carries  with  it  extraordinary 
duties  and  corresponding  liabilities,  and  hence  it  is  that 
courts  are  more  disposed  to  charge  tliis  class  of  receivers 
with  a  greater  degree  of  responsibility,  and  recognize  in 
the  public,  and  those  dealing  with  them,  greater  pri\i- 
leges  and  greater  facilities  for  relief,  not  only  in  matters 
purely  ex  contractu  but  more  especially  in  matters 
ex  delicto}^ 

Where  the  receivership  estate  is  chargeable  for  the 
damages  resulting  from  a  tort,  it  is  immaterial  that  suc- 
cessive receivers  have  been  appointed,  since  the  receiver- 
ship is  continuous  regardless  of  changes  in  the  personnel 
of  the  receiver,  who  is  merely  the  arm  of  the  court. ^^ 

§  59.    Right  of  Receiver  to  Make  Repairs. 

The  receiver  derives  his  power,  primarily,  from  the 
court,  and  his  official  action,  duties,  and  responsibilities 
are  measured  by  the  scope  of  the  order  which,  after  his 
qualification,  constitutes  him  receiver,  and  such  supple- 
mentary orders  and  directions  as  he  may  subsequently 
receive  in  the  due  administration  of  the  estate  or  matters 
in  controversy.  His  discretionary  powders  are  limited,  as 
a  rule,  to  those  acts  and  transactions  which  are  incident 
to  the  general  scope  of  authority  given  to  him.  He  is  an 
offi.cer  of  the  court,  and  in  this  sense  has  been  considered 
the  hand  of  the  court,  and  as  such  he  has  been  held  bound 
to  render  to  the  court  a  strict  account  of  his  official 
action.^  As  courts  of  equity,  and  those  exercising  equi- 
table jurisdiction,  have  extended  their  jurisdiction,  along 
with  the  general  growth  of  remedial  jurisprudence,  the 
functions  of  the  receiver  have  been  increased  very  mate- 

12  Bliimenthal  V.  Brainerd,  3S  Vt.  i  Chancellor  Bland,  in  William- 
402,  91  Am.  Dec.  349;  Sprague  v.  son  v.  Wilson,  1  Bland  Ch.  (Md.) 
Smith,  29  Vt.  421,  70  Am,  Dec.  424.  418;   Verplanck  v.  Mercantile  Ins. 

13  Knickerbocker  v.  Banes,   195  Co.,  2  Paige  (N.  Y.)  438. 
111.  434,  63  N.  E.  174. 


EFFECT    OF   APPOINTMENT   AND   DUTIES. 


251 


lially  as  compared  with  receiversliips  in  the  earlier  stages 
of  English  and  American  courts.^ 

The  receiver,  occupying  a  position  of  perfect  inde- 
pendence, so  far  as  the  parties  are  concerned,  appointed 
by  the  court  by  reason  of  such  relation,  and  reflecting  as 
he  does  the  impartiality  of  the  court  as  between  conflict- 
ing interests,  is  not  the  agent  or  special  representative 
of  the  contestants  or  either  of  them.  Neither  the  law  nor 
the  court  will  permit  him  in  his  administration  to  mani- 
fest the  slightest  inclination  towards  one  party  or  the 
other.  He  is  a  trustee  of  the  strictest  character,  conserv- 
ing the  interests  of  all  parties  with  special  favors  for 
none,^  and  the  property  and  funds  confided  to  his  care 


2  "In  the  progress  and  growth 
of  equity  jurisdiction,  it  has  be- 
come usual  to  clothe  such  officers 
with  much  larger  powers  than 
were  formerly  conferred."  Mr. 
Justice  Swayne  in  Davis  v.  Gray, 
83  U.  S.  (16  Wall.)  203,  219,  21 
L.   Ed.  447,  452. 

3  Day  V.  Postal  Tel.  Co.,  66  Md. 
354,  7  Atl.  608;  Commonwealth  v. 
Franklin  Ins.  Co.,  115  Mass.  278; 
First  Nat.  Bank  of  Detroit  v.  E.  T. 
Barnum  Wire  &  Iron  Works,  60 
Mich.  487,  27  N.  W.  657;  Green  v. 
Bostwick,  1  Sandf.  Ch.  (N.  Y.)  185; 
Deyendorf  v.  Dickinson,  21  How. 
Pr.  (N.  Y.)  275;  Curtis  v.  Leavitt, 
1  Abb.  Pr.  (N.  Y.)  274;  Brown  v. 
Northrup,  15  Abb.  Pr.  N.  S.  (N.  Y.) 
333;  Corey  v.  Long,  43  How.  Pr. 
(N.  Y.)  492,  497;  Brown  v.  War- 
ner, 78  Tex.  543,  22  Am.  St.  Rep. 
67,  11  L.  R.  A.  394,  14  S.  W.  1032; 
Davis  V.  Duke  of  Marlborough,  2 
Swanst.  108;  Portman  v.  Mill,  8 
L.  J.  Ch.  N.  S.  161. 

The  receiver  does  not  in  any 
special  sense  represent  the  party 
upon  whose  motion  he  is  ap- 
pointed, more  than  any  other  party 


to  the  cause.  He  owes  an  equal 
duty  to  all,  and  is  responsible  to 
the  court  alone.  Baker  v.  Backus 
Adm'r,  32  111.  79;  Beverley  v. 
Brooke,  4  Gratt.  (Va.)  187,  208; 
First  Nat.  Bank  of  Detroit  v.  E.  T. 
Barnum  Wire  &  Iron  Works,  60 
Mich.  487,  27  N.  W.  657;  Union 
Nat.  Bank  v.  Bank  of  Kansas  City, 
136  U.  S.  223,  34  L.  Ed.  341,  10 
Sup.  Ct.  1013;  Lottimer  v.  Lord, 
4  E.  D.  Smith  (N.  Y.)  183;  Snow 
V.  Winslow,  54  Iowa  200,  6  N.  W. 
191. 

He  is  not  to  be  controlled  by 
the  representatives  of  any  party 
to  the  suit.  Iddings  v.  Bruen,  4 
Sandf.  Ch.  (N.  Y.)  417. 

His  powers  and  duties  are  meas- 
ured by  the  order  of  court  making 
the  appointment  and  the  estab- 
lished rules  and  practice  of  such 
court.  Battle  v.  Davis,  66  N.  C. 
252. 

See.  also,  Skinner  v.  Maxwell, 
66  N.  C.  45,  68  N.  C..400;  Booth  v. 
Clark,  58  U.  S.  (17  How.)  322,  15 
L.  Ed.  164;  Green  v.  Bostwick,  1 
Sandf.  Ch.  (N.  Y.)  185;  Hunt  v. 
Wolfe,   2   Daly    (N.   Y.)    298,    303; 


252 


LAW   OF    RECEIVERS. 


are  in  custodia  legis,  and  these  it  is  his  duty  to  guard  and 
preserve  with  scrupulous  care.^ 

This  position  of  trust  and  independence  he  continues 
to  occupy  until  the  litigation  is  brought  to  an  end,  and 
it  is  judicially  ascertained  to  whom  the  property  or  its 
possession  rightfully  belongs,  after  which  he  becomes  the 
representative  of  such  successful  party;  or  where  the 
property  is  sold  for  the  benefit  of  creditors,  he  is  the  hand 
of  the  court  and  the  agent  of  the  creditors  in  the  distri- 
bution of  the  proceeds.  He  is  in  no  sense,  however,  the 
representative  of  those  who  are  not  parties  to  the  suit, 
or  become  such  during  its  progress.^ 


Van  Rensselaer  v.  Emery,  9  How. 
Pr.  (N.  Y.)  135;  Corey  v.  Long,  43 
How.  Pr.  (N.  Y.)  492,  497;  Deven- 
dorf  V.  Dickinson,  21  How.  Pr. 
(N.  Y.)  275;  Kaiser  v.  Kellar,  21 
Iowa  95;  Snow  v.  Wlnslow,  54 
Iowa  200,  6  N.  W.  191;  Hooper  v. 
Winston,  24  111.  353;  EUicott  v. 
Warford,  4  Md.  80;  Williamson  v. 
Wilson,  1  Bland  Ch.  (Md.)  418; 
Cobum  V.  Ames,  57  Cal.  201. 

Where  property  is  placed  in  the 
hands  of  a  receiver,  upon  a  decree 
for  the  plaintiff,  the  receiver's 
duties,  as  such,  are  at  an  end,  and 
he  holds  merely  as  trustee  for  the 
plaintiff,  and  the  goods  can  be 
levied  on  in  his  hands,  for  the 
plaintiff's  debts.  Very  v.  Watkins, 
64  U.  S.  (23  How.)  469,  16  L.  Ed. 
522.  And  see  Lottimer  v.  Lord, 
4  E.  D.  Smith  (N.  Y.)  183;  In  re 
Colvin's  Estate,  3  Md.  Ch.  278; 
Ellicott  V.  W^arford,  4  Md.  80; 
King  V.  Cutts,  24  Wis.  627;  Meier 
V.  Kansas  Pac.  Ry.  Co.,  5  Dill.  476, 
Fed.  Cas.  No.  9395. 

In  respect  to  the  dissolution  of 
corporations,  where  by  the  act  of 
dissolution  the  corporation  in  ef- 
fect makes  an  assignment  for  the 


benefit  of  its  creditors,  in  which 
case  the  receiver  takes  only  the 
rights  of  the  corporation  such  as 
could  be  asserted  in  its  own  name, 
and  therefore  in  such  case  is  the 
representative  of  the  corporate 
body  itself  and  not  of  Its  creditors 
or  shareholders.  Republic  Life 
Ins.  Co.  v.  Swigert,  135  111.  150,  12 
L.  R.  A.  328,  25  N.  E.  680. 

4  Ashurst  V.  Lehman,  86  Ala. 
370,  5  So.  731;  Gayle  v.  Johnson, 
80  Ala.  388;  Cobum  v.  Ames,  57 
Cal.  201,  Hooper  v.  Winston,  24 
111.  353;  Corey  v.  Long,  43  How. 
Pr.  (N.  Y.)  492,  497;  Devendorf  v. 
Dickinson,  21  How.  Pr,  (N.  Y  ) 
275;  Hunt  v.  Wolfe,  2  Daly  (N.  Y.) 
298,  303;  Skinner  v  Maxwell,  66 
N.  C.  45,  68  N.  C.  400;  Battle  v. 
Davis,  66  N.  C.  252. 

5  Howell  V.  Ripley,  10  Paige 
(N.  Y.)  43.  In  a  case  where  a 
creditor's  bill  is  filed  in  behalf  of 
the  complainants  therein,  and  not 
in  behalf  of  other  creditors,  the 
receiver  is  not  necessarily  a  trus- 
tee for  the  benefit  of  all  creditors, 
but  for  the  benefit  of  those  cred- 
itors in  whose  behalf  he  is  ap- 
pointed.    Young  V.  Clapp,  147  111. 


EFFECT   OF   APPOINTMENT   AND    DUTIES. 


253 


In  handling  the  receivership,  a  receiver  should  exercise 
the  same  degree  of  discretion  which  an  ordinarily  pru- 
dent man  of  business  exercises  in  the  management  of  his 
own  affairs.*^ 

From  the  general  nature  of  the  duties  of  a  receiver  to 
preserve  the  property  we  believe  that  the  authority  to 
make  such  reasonable  repairs  to  the  property  as  would 
appear  to  be  necessary  to  prevent  the  property  from  de- 
preciation and  decay  would  be  a  duty  on  the  part  of  the 
deceiver.  But  the  power  of  the  receiver  to  make  repairs 
without  an  order  of  court  was  under  the  early  decisions 
regarded  as  very  limited,'  although  allowances  for  re- 
pairs were  allowed  where  it  was  shown  that  the  expend- 
itures were  essential  to  the  preservation  of  the  property 
or  for  the  lasting  benefit  of  the  estate,^  or  where  the 


176,  32  N.  E.  187,  35  N.  E.  372; 
Russell  V.  Chicago  Trust  &  Sav. 
Bank,  139  111.  538,  17  L.  R.  A.  345, 
29  N.  E.  37;  Bostwick  v.  Menck, 
4  Daly  (N.  Y.)  68;  Manley  v.  Ras- 
siga,  13  Hun  (N.  Y.)  288. 

6  McKennon  v.  Pentecost,  8 
Okla.  117.  56  Pac.  958. 

7  Hooper  v.  Winston,  24  111.  353; 
Attorney  General  v.  Vigor,  11  Ves. 
Jr.  563;  Ex  parte  Hilbert,  11  Ves. 
Jr.  397. 

s  Central  Trust  Co.  v.  Wabash 
etc.  R.  Co.,  52  Fed.  908;  Thornhill 
V.  Thornhill,  14  Sim.  600;  Blunt  v. 
Clitherow,  6  Ves.  799;  Attorney 
General  v.  Vigor,  11  Ves.  563. 

But  in  Wyckoff  V.  Scofield,  103 
N.  Y.  630,  9  N.  E.  498,  it  was  held 
that  a  receiver  in  a  foreclosure 
suit  has  no  authority  without  the 
consent  of  the  court  to  make  re- 
pairs. 

In  Edee  v.  Strunk,  35  Neb.  307, 
53  N.  W.  70,  an  order  appointing 
a  receiver  was  regular  on  its  face 


and  apparently  within  the  juris- 
diction of  the  court  and  therefore 
prima  facie  valid  under  which  the 
receiver  collected  money  and  ap- 
plied the  same  in  payment  of 
taxes  and  for  repairs  which  were 
necessary,  such  an  order  is  a  suf- 
ficient justification  in  a  suit 
brought  against  the  receiver  to  re- 
cover rents  collected  by  him  after 
the  order  appointing  him  has  been 
vacated  for  want  of  sufficient  no- 
tice of  the  application.  If,  how- 
ever, the  receiver  claims  rights  or 
property  he,  in  such  case,  is  re- 
quired to  show  a  valid  appoint- 
ment, though  it  is  unnecessary  to 
show  each  step  taken  in  the  pro- 
ceeding. (See  Johnson  v.  Powers, 
21  Neb.  292,  32  N.  W.  62,  distin- 
guished.) Cf.  In  re  O'Connor,  65 
Hun  620,  19  N.  Y.  Supp.  971,  47 
N.  Y.  St.  Rep.  415;  Rockwell  v. 
Merwin,  45  N.  Y.  166. 

A  receiver  is  not  authorized 
without  a  previous  order  of  court 
to  incur  any  expense  on  account 


254  LAW    OF   RECEIVERS. 

receiver  acted  in  good  faith  for  the  best  interests  of  the 
estate  or  where  it  was  necessary  to  act  quickly  in  order 
to  prevent  damages.^ 

It  may  be  said  in  a  general  way  that  before  the  court 
will  make  an  allowance  for  such  jjurpose  without  an  order 
previously  authorizing  expenditures,  it  must  appear  that 
had  application  been  made  the  court  A\ithout  doubt  would 
have  granted  the  order  in  the  first  instance.^" 

If,  however,  he  spends  any  large  amount  without  the 
authority  of  the  court  he  does  so  with  a  risk  of  having 
such  items  as  do  not  meet  with  the  court's  approval  dis- 
allowed in  his  accounts,^^  and  if  in  the  making  of  repairs 
he  disregards  the  orders  of  the  court  not  to  spend  money 
on  repairs,  his  payments  will  be  disallowed.^^ 

The  proper  practice  for  the  protection  of  the  receiver 
is  to  provide  in  general  terms  in  the  order  of  appoint- 
ment of  the  receiver  for  the  making  of  repairs,  and,  of 
course,  in  the  event  of  the  making  of  substantial  repairs 
to  obtain  an  order  of  court  authorizing  them.^^ 

The  power  of  the  court  to  authorize  the  receiver  to 
make  repairs,  and  charge  the  expense  to  the  estate,  is 

of   property  in  his  hands  beyond  n  Graham   v.   Noakes    (1895),   1 

what  is  absolutely  essential  to  its      Ch.  66. 

preservation   and   use   as   contem-  ^2  See  Blunt  v.  Clitherow,  6  Ves. 

plated  by  his  appointment.     Cow-  '^^• 

_,,        .         TTDTTDu  13  Where  the  receiver  of  a  rail- 

drey  v.  Galveston,  H.  &  H.  R.  R.  ,   .     ^     .,  ,         *  ^u  . 

^  „„  .     -.«,-«  I'oad  IS  by  the  order  of  the  court 

Co.,  93  U.  S.  352,  23  L.  Ed.  950.  ^.       .   ^    \.  *•  ^v,       ^   ^  „ 

'  directed    to    continue    the    opera- 

oThe    court   may   leave   to   the  ^j^^^g   ^^   ^j^^   ^.^^d   and   keep    the 

discretion  of  its  receiver  the  price  property  in  repair,  he  may  make 

to  be  paid  for  work  which  he  is  g^g^   repairs   without   further  or- 

authorized  to  contract  for.    Girard  (jers     of     the     court.     Mercantile 

Life  Ins.  A.   &  T.  Co.   v.   Cooper,  Trust    etc.    Co.    v.    Southern    Iron 

162  U.  S.  529,  40   L.   Ed.  1062,  16  ^^r  Line,  113  Ala.  543,  21  So.  373. 

Sup.  Ct.  879;   Heffron  v.  Milligan,  j^.^  order  to  change  the  location 

40     111.    App.     291;      Thornhill    v.  ^j  ^  railroad  and  the  building  of 

Thornhill,  14  Sim.  600;  McCartney  ^  bridge  should  be  made  only  upon 

V.  Walsh,  Hayes  29,  note.  the    report   of   a   master  showing. 

10  Brown  v.  Hazlehurst,  54  Md.  the  necessity.     Hand  v.  Savannah 

26.  etc.  R.  Co.,  10  S.  C.  406. 


EFFECT    OF   APPOINTMENT   AND    DUTIES.  255 

much  more  liberal,  and  necessarily  must  be,  in  case  of 
receiverships  of  railways,  where  not  only  the  interests 
of  the  parties  are  involved,  but  the  convenience  of  the 
public  is  to  be  conserved.^^  A  railroad  receiver  may  con- 
tract with  another  company  for  exchange  of  track  facih- 
ties.i^  But  there  is  a  limitation  on  the  power  of  the 
receiver  to  make  contracts,  and  he  has  no  right  to  make 
a  contract  involving  large  outlays  that  may  extend  be- 
yond the  lifetime  of  the  receivership.^*^ 

§  60.    Expenditures  for  Supplies,  Labor,  and  the  Like. 

^It  may  be  stated  as  a  general  proposition  that  the  ordi- 
nary outlays  where  the  amounts  are  small,  and  which  are 
necessary  to  preserve  and  protect  the  property  from  loss 
or  injury,  may  be  made  by  the  receiver  as  fairly  within 
the  line  of  discretion  which  is  necessarily  allow^ed  to  him, 
intrusted,  as  he  is,  with  the  faithful  and  successful  man- 
agement of  the  property.^    In  cases,  however,  involving 

14  Hoover  v.  Montclair  &  G.  L.  lace  v.  Loomis,  97  U.   S.   146,   24 

R    Co,  29  N.  J.  Eq.  4;   Stanton  v.  L.  Ed.  895. 

Alabama  &  C  R   Co.,  2  Woods  506,  i  Kneeland  v.  American  Loan  & 

Fed     Cas     No.    13296;     Bright    v.  T.  Co.,  136  U.  S.  89,  34  L.  Ed.  379, 

North    2  Phill    216;  Jerome  v.  Mc-  10  Sup.  Ct.  950;   Union  Trust  Co. 

Carter  94  U   S  734    24  L.  Ed.  136;  v.  Souther,  107  U.  S.  591,  27  L.  Ed. 

Morison  v    Morison,  7  DeG.  M.  &  488,  2  Sup.  Ct.  295;   Miltenberger 

Q    214  V.  Logansport,  C.  &  S.  W.  R.  Co., 

'is  Jourdan  v.  Long  Island  R.  Co.,  106  U.  S.  286,  289,  27  L.  Ed.  117, 

12    Hun    (N    Y)  657;   see  further  119,    1    Sup.    Ct.    140;    Wallace    v. 

under  title  of  Railroads.  Loomis,   97   U.    S.    146,    24    L.    Ed. 

16  Chicago  Deposit  Vault  Co.  v.  895;  Missouri  Pac.  R.  Co.  v.  Texas 

McNulta,  153  U.  S.  554,  38   L.  Ed.  &  P.  Ry.  Co.,  41  Fed.  319. 
819   14  Sup.  Ct.  915.  In    Teutonia    Bank    etc.    Co.    v. 

In  Barton  v.  Barbour,  104  U.  S.  Security  Brewing  Co.,  137  La.  1046, 

126    26  L.  Ed.  672,  the  court  says:  69  So.  833,  the  court  said: 
"It 'has    come    to    be    settled    law  "The  argument  that  the  provi- 

that  a  court  of  equity  may,  and  in  sion  in  act  212  of  1910  authorizing 

most  cases  ought  to  authorize  its  a  receiver  to  borrow  money   and 

receiver  of  a  railroad  property  to  issue   certificates   therefor,   to   be 

keep  it  in  repair,  and  to  manage  taxed  as  costs,  excludes  the  idea 

and   use   it    in   the   ordinary    way  that  he  may  incur  debts  for  neces- 

until   it   can   be   sold   to  the   best  sary  supplies,  does  not  appear  to 

advantage  of  all  interested."  Wal-  us  to  be  well  founded.     The  law- 


256 


LAW    OF   RECEIVERS. 


large  outlays  his  business  sagacity  would  suggest,  and  it 
is  the  duty  of  the  receiver  to  apply  to  the  court  for  its 
sanction  and  authority  for  the  contemplated  expenditure,^ 
Assuming  this  application  to  have  been  made,  it  becomes 
a  matter  of  importance  to  determine  the  scope  of  power 
the  court  will  exercise  in  authorizing  its  receiver  to  make 
expenditures  upon  the  trust  property  in  the  shape  of 
supplies,  labor,  improvements,  etc. 


maker,  we  think,  proceeded  upon 
the  theory  that  a  receiver  to 
whom  authority  is  granted  to  con- 
duct as  that  of  a  going  concern 
the  business  of  a  corporation  of 
which  he  is  placed  in  charge  would 
have  the  right  to  incur  debt  for 
the  material  and  supplies  neces- 
sary to  the  business  as  an  incident 
to  that  authority,  but  that,  in  the 
event  of  his  being  obliged  to  bor- 
row money,  something  more  spe- 
cific in  the  way  of  a  grant  might 
be  required,  either  for  the  borrow- 
ing or  the  issuance  of  the  certifi- 
cates evidencing  the  transaction, 
or,  as  is  quite  likely,  it  may  have 
been  considered  that,  whilst  au- 
thority to  buy  supplies  on  credit 
might  be  safely  conferred,  author- 
ity to  borrow  money  had  best  be 
exercised  under  the  eye  of  the 
court  in  each  instance.  Whilst, 
therefore,  the  right  of  one  who 
should  lend  money  to  a  receiver 
without  obtaining  the  certificate 
required  by  the  statute  to  recover 
from  the  receivership  may  well  be 
doubted,  that  fact  does  not  bear 
upon  the  right  of  the  seller  of 
necessary  supplies  so  to  recover, 
since,  as  we  have  stated,  the  exer- 
cise of  the  right  by  the  receiver 
to  buy  such  supplies  is  incidental 
to  <^he  discharge  of  the  duty  im- 
posed upon  him." 


In  Kneeland  v.  Bass  Foundry  & 
Mach.  Works,  140  U.  S.  592,  35 
L.  Ed.  543,  a  claim  was  allowed  for 
supplies  furnished  to  a  receiver, 
appointed  on  the  application  of  a 
judgment  creditor,  and  ordered  to 
be  paid  from  the  proceeds  of  sale, 
where  so  far  as  the  record  showed 
that  was  the  only  fund  available 
for  its  payment  and  where  the  sup- 
plies were  necessary  for  the  con- 
tinued operation  of  the  road,  and 
had  gone  into  the  general  prop- 
erty covered  by  the  mortgage, 
which  was  sold  at  the  foreclosure 
sale,  upon  the  authority  of  Fos- 
dick  V.  Schall,  99  U.  S.  235,  25 
L.  Ed.  339;  Miltenberger  v.  Lo- 
gansport,  C.  &  S.  W.  R.  Co.,  106 
U.  S.  286,  27  L.  Ed.  117,  1  Sup.  Ct. 
140;  Union  Trust  Co.  v.  Souther, 
107  U.  S.  591,  27  L.  Ed.  488,  2  Sup. 
Ct.  295;  Wallace  v.  Loomis,  97 
U.  S.  146,  24  L.  Ed.  895;  Burnham 
V.  Bowers,  111  U.  S.  776,  28  L.  Ed. 
596,  4  Sup.  Ct.  675. 

A  temporary  receiver  is  not 
liable  as  such  on  a  contract  for 
the  employment  of  a  truckman; 
where  he  has  not  been  authorized 
to  make  such  contract.  Meyer  v. 
Lexow,  1  App.  Div.  116,  37  N.  Y. 
Supp.  67. 

2  Cowdrey  v.  Galveston,  H.  &  H. 
R.  Co.,  1  Woods  331,  Fed.  Cas.  No. 
3293. 


EFFECT    OF    APPOINTMENT    AND    DUTIES.  257 

The  right  to  incur  such  expenditures  being  curbed  by 
the  limitation  that  they  be  reasonable  and  essential  for 
the  preservation  of  the  property,  it  necessarily  follows 
that  each  case  must  be  determined  by  a  consideration  of 
the  nature  of  the  property  constituting  the  receivership 
estate  and  the  general  purpose  of  the  receivership.  The 
question  naturally  arises  in  connection  with  the  operation 
of  the  receivership  property  as  a  going  business. 

§  61.    Conducting  the  Receivership  as  a  Going  Business. 

Both  in  England  and  this  country,  the  law  of  receiver- 
ship has  been  extended  by  statutory  enactment  to  many 
subjects,  not  pre\dously  embraced  in  the  ordinary  chan- 
cery jurisdiction,  and  the  powers,  duties,  and  relationship 
of  the  receiver  have  been  likewise  greatly  increased,  and 
in  many  cases,  particularly  with  regard  to  insolvent  cor- 
porations, he  is  vested  with  all  the  property  and  effects 
of  the  corporation,  the  power  to  sell  and  dispose  of  the 
same  and  distribute  the  proceeds  to  its  creditors  and 
stockholders.  The  functions  of  this  class  of  receivers  are 
sui  generis  and  a  resort  to  the  statute  must  be  had  in 
order  to  ascertain  the  extent  of  their  powers. 

/  Considerable  confusion  exists  amongst  the  decisions 
in  respect  to  the  right  of  a  court  to  conduct  the  receiver- 
ship as  a  going  concern,  but  we  believe  that  the  principle 
governing  the  rule  to  be  followed  in  such  cases  is  of  such 
a  clear-cut  character  that  no  difficulty  ought  to  exist  in 
applying  it  to  concrete  cases.  The  principle  which  should 
always  be  adhered  to  in  such  circumstances  is  that  the 
main  purpose  of  the  receivership  is  the  preservation  of 
the  property  constituting  the  receivership  estate.  If  the 
business  in  the  hands  of  the  receivership  is  one  of  such 
a  nature  that  a  cessation  of  business  will  result  in  a  loss 
of  the  property  or  a  great  depreciation  in  its  value,  the 
court  should  direct  the  receiver  to  continue  such  opera- 


1  Roc. — 17 


258 


LAW    OF   RECEIVERS. 


tion,^  otherwise  and  ordinarily  a  receiver  does  not  con- 
(^  tinue  the  business  as  a  going  one  indefinitely..    Such  a 


1  The  case  of  Appeal  of  Pramuk, 
250  Pa.  45,  95  Atl.  326,  is  an  in- 
stance where  the  receiver  of  a 
brewing  company  which  was 
"manufacturing  and  selling  malt 
and  brewed  liquors,"  was  author- 
ized by  the  court  to  carry  on  the 
business  and  allowed  to  borrow 
$25,000  to  be  used  in  replenishing 
stock  and  supplies  and  renewing 
equipment  essential  to  continue 
the  business  as  a  going  concern. 
The  business  was  carried  on  for 
thirty-five  months,  when  it  was  ad- 
judged a  bankrupt  in  the  federal 
court. 

The  bankruptcy  court  in  In  re 
Consumers  Albany  Brewing  Co., 
216  Fed.  988,  with  the  consent  of 
more  than  90  per  cent  of  the  bond- 
holders, consented  to  an  order 
directing  the  trustee  to  run  a 
brewery  as  a  going  concern  on 
the  ground  that  it  was  essential 
to  the  protection  and  preservation 
of  the  estate. 

An  order  authorizing  a  receiver 
to  borrow  given  sums  of  money  to 
carry  on  the  business  does  not 
entitle  him  to  purchase  goods  on 
credit  in  excess  of  such  amount. 
Haines  v.  Buckeye  Wheel  Co.,  224 
Fed.  289,  139  C.  C.  A.  525. 

The  object  of  appointing  a  re- 
ceiver is  to  preserve  the  property 
for  the  benefit  of  all  parties  inter- 
ested, and  this  object  is  some- 
times best  attained  by  continuing 
a  business,  which  will  be  done 
where  the  interests  of  all  parties 
will  be  best  preserved  by  doing 
so.  Knickerbocker  v.  McKindley 
Coal  etc.  Co.,  172  111.  535,  64  Am. 
St.  F^ep.  54,  50  N.  E.  300. 

A  receiver  appointed   on  appli- 


cation of  a  subscriber  to  secure 
the  location  of  a  factory,  for  the 
purpose  of  protecting  the  interests 
of  the  subscriber,  should  not  be 
authorized  to  continue  the  busi- 
ness generally,  but  only  to  collect 
debts  and  protect  the  property. 
Vance  v.  Shiawassee  Circuit 
Judge,  102  Mich.  342,  60  N.  W.  761. 

The  receivership  of  an  insolvent 
company  was  created  at  the  in- 
stance and  for  the  benefit  of  its 
bondholders  though  the  bill  there- 
for was  filed  by  the  trustees  for 
creditors,  to  whom  it  made  an  as- 
signment, the  expenses  of  the  ef- 
fort to  carry  on  the  business 
through  the  receivers  will  be  pre- 
ferred to  the  claim  of  the  bond- 
holders, because  of  having  ob- 
tained release  of  a  steamer  of  the 
company  from  a  libel,  though  the 
decree  authorizing  the  receivers 
to  obtain  the  release  provided  the 
bondholders  should  be  subrogated 
to  the  right  of  the  libelant.  Jack- 
son Coal  &  Coke  Co.  v.  Phillips 
Line,  114  Va.  40,  75  S.  E.  681. 

A  court  of  equity  is  not  in  gen- 
eral authorized  to  empower  a 
receiver  of  a  mere  private  corpor- 
ation, having  no  duty  to  perform 
a  service  of  a  public  nature,  to 
incur  liabilities  in  the  operation 
of  the  property  of  the  corporation, 
and  to  give  such  liabilities  priority 
over  existing  lien-holders  who  are 
not  parties  to  the  receivership 
proceedings,  and  have  not  con- 
sented to  or  acquiesced  therein, 
in  the  absence  of  some  special 
equity  in  favor  of  general  cred- 
itors. But  in  respect  to  railroad 
and  other  public  service  corpora- 
tions in  the  operation  of  which  the 


EFFECT   OF    APPOINTMENT    AND    DUTIES. 


259 


condition  would  doubtless  arise  where  the  value  of  the 
business  consists  largely  in  its  good  will  or  location  as  a 


rublic  have  an  interest,  where  the 
duty  to  preserve  the  property  and 
the  public  interest  requires  a  con- 
tinuance of  the  operation,  and  per- 
haps in  other  peculiar  and  special 
cases,  owing  to  the  nature  of  the 
I)roperty  and  the  rights  of  the  par- 
ties therein,  a  court  of  equity  may, 
in  the  exercise  of  an  extraordinary 
power  committed  to  it  for  the  pub- 
lic good,  direct  its  receiver  to 
maintain  and  operate  the  property 
of  the  corporation.  Knickerbocker 
Trust  Co.  v.  Green  Bay  Phosphate 
Co.,  62  Fla.  519,  56  So.  699. 

If  a  manufacturing  concern  with 
a  quantity  of  raw  material  is  in  re- 
ceivership, court  may  direct  ac- 
cumulated raw  material  manufac- 
tured into  marketable  product  and 
to  this  end  can  authorize  receiver 
to  contract  debts.  American  Pig 
Iron  etc.  Co.  v.  German,  126  Ala. 
194,  85  Am.  St.  Rep.  21,  28  So.  603. 
A  receiver  acting  as  manager 
of  a  hotel  is  not  answerable  for  a 
small  sum  of  money  loaned  to  a 
guest.  Heffron  v.  Rice,  149  111.  216, 
41  Am.  St.  Rep.  271,  36  N.  E.  562. 

In  Truman  v.  Redgrave,  18  Ch. 
D.  547,  the  court  appointed  man- 
agers to  carry  on  the  business  of 
a  hotel. 

A  receiver  who,  without  an  or- 
der of  court,  employs  a  person  to 
manage  a  hotel  owned  by  the  com- 
pany over  whose  property  he  is 
receiver,  and  afterwards  leases  it 
to  such  manager  without  notice  to 
a  person  furnishing  the  hotel 
with  supplies,  becomes  personally 
liable.  Sayles  v.  Jourdan,  50  Hun 
604,  2  N.  Y.  Supp.  827,  19  N.  Y. 
St.  Rep.  349. 
A   managing   receivership   of   a 


private  business  corporation  is 
never  undertaken,  except  with  the 
view  of  winding  up  its  affairs  and 
the  sale  of  its  property;  the  busi- 
ness being  taken  over  and  con- 
tinued in  order  that  the  whole 
may  be  disposed  of  in  the  end  as  a 
going  concern.  And  where  such 
receivers  have  conducted  the  busi- 
ness for  eleven  months  at  a  loss, 
contracting  a  large  indebtedness 
which  they  have  no  means  of  pay- 
ing, and  who  failed  to  keep  cost 
sheets  which  would  have  shown 
the  condition  of  the  business  and 
as  were  kept  by  like  concerns,  will 
be  charged  with  personal  liability 
for  so  much  of  such  indebtedness 
as  might  have  been  prevented  by 
proper  care  and  attention  to  the 
conduct  of  the  business.  Gutter- 
son  &  Gould  V.  Lebanon  Iron  etc. 
Co.,  151  Fed.  72. 

Where  a  receiver  of  a  corpora- 
tion is  managing  the  property 
with  a  view  to  primary  operation 
and  contingent  liquidation  instead 
of  the  opposite,  the  remedy  is  by 
proceedings  to  compel  him  to  per- 
form his  duty.  Burton  v.  R.  G. 
Peters  Salt  &  Lumber  Co.,  190 
Fed.  262. 

The  court  appointing  a  receiver 
may  not  authorize  the  receiver  to 
continue  the  business,  in  the  ab- 
sence of  consent  of  prior  contract 
lien  creditors.  Stacy  v.  McNich- 
olas,  76  Ore.  167,  144  Pac.  96,  148 
Pac.  67. 

A  court  can  not,  by  means  of  a 
receivership  in  aid  of  execution, 
conduct  the  business  of  a  private 
partnership  as  it  might  that  of  a 
railroad  or  other  business  charged 
with    a    public    duty.     First    Nat. 


260 


LAW   OF    RECEIVERS. 


going  business  at  a  particular  place  or  in  its  organized 
sales  system.    A  condition  which  would  result  in  great 


Bank  v.  Cook,  12  Wyo.  492,  2 
L.  R.  A.  (N.  S.)  1012,  76  Pac.  674, 
78   Pac.   1083. 

A  receiver  appointed  to  take 
charge  of  a  stock  of  groceriea 
pending  litigation  can  not  conduct 
a  general  grocery  business  tliere- 
with,  unless  specifically  ordered 
by  the  court  to  do  so.  Face  v. 
Hall,  183  Mich.  22,  148  N.  W.  777. 

In  United  States  Inv.  Corp.  v. 
Portland  Hospital,  40  Ore.  523,  56 
L,  R.  A.  627,  64  Pac.  644,  67  Pac. 
194,  a  receiver  was  appointed  over 
a  hospital  and  directed  to  operate 
it. 

The  receiver's  possession  of 
property  does  not  justify  him, 
without  an  order  of  court  ex- 
pressly authorizing  him,  or  the 
business  is  such  as  to  impera- 
tively require  it,  to  open  a  busi- 
ness with  the  property  or  moneys 
in  his  hands.  Hence  he  has  no 
authority  unless  expressly  author- 
ized by  the  court,  or  the  business 
is  such  as  to  imperatively  require 
him,  to  open  a  drug  business  with 
the  property  or  moneys  in  his 
hands  and  employ  therein  his  son, 
who  is  not  a  druggist,  and  run  a 
physician's  office  in  connection 
therewith.  Terry  v.  Martin,  7 
N.  M.  54,  32  Pac.  157. 

Leave  to  continue  the  business 
was  ordered  in  the  following 
cases:  Dayton  v.  Wilkes,  17  How. 
Pr.  (N.  Y.)  510;  Graham  v. 
Graham,  2  Vict.  Rep.  145. 

In  Cake  v.  Mohun,  164  U.  S.  311, 
17  Sup.  Ct.  100,  41  L.  Ed.  447,  a 
case  where  the  expenditures  of  a 
receiver  in  operating  a  hotel  weie 
given  precedence  over  a  debt  se- 
cured  by  mortgaso,  the   Supreme 


Court  of  the  United   States  said: 

"While,  as  a  general  rule,  a  re- 
ceiver has  no  authority,  as  such, 
to  continue  and  carry  on  the  busi- 
ness of  which  he  is  .  .  .  receiver, 
there  is  a  discretion  on  the  part 
of  the  court  to  permit  this  to  be 
done  when  the  interests  of  the 
parties  seem  to  require  it;  and  in 
such  cases  his  power  to  incur  ob- 
ligations for  supplies  and  ma- 
terials incidental  to  the  business 
follows  as  a  necessary  incident  to 
the  office,"  citing  Barton  v.  Bar- 
bour, 104  U.  S.  126,  26  L.  Ed.  672; 
Thompson  v.  Phenix  Ins.  Co.,  136 
U.  S.  287,  10  Sup.  Ct.  1019,  34 
L.  Ed.  408. 

The  conditions  imposed  by  act 
No.  159  of  1898  and  No.  212  of 
1910  on  a  receiver's  exercise  of 
authority  to  borrow  money,  held 
not  to  prevent  him  from  incurring 
debts  necessary  to  carry  on  the 
brewing  business  placed  in  his 
hands.  Teutonia  Bank  &  Trust 
Co.  V.  Security  Brewing  Co.,  137 
La.  1046,  69  So.  833. 

In  Roberts  v.  Bowen  Mfg.  Co., 
169  N.  C.  27,  85  S.  E.  45,  the  court 
said: 

"The  title  of  a  receiver  re- 
lates only  to  the  time  of  his  ap- 
pointment, and  valid  liens  existing 
at  that  time  are  not  divested 
thereby.  Bank  v.  Western  Caro- 
lina Bank,  127  N.  C.  432,  433,  37 
S.  E.  461;  Pelletier  v.  Greenville 
Lumber  Co.,  123  N.  C.  596,  68  Am. 
St.  Rep.  837,  31  S.  E.  855;  Fisher 
v.  Bank,  132  N.  C.  776,  44  S.  E. 
601;  Kneeland  v.  American  Loan 
&  Trust  Co.,  136  U.  S.  89,  34  L.  Ed. 
379,  10  Sup.  Ct.  950.  In  Interna- 
tional Trust  Co.  v.  Decker  Bros., 


EFFECT   OF    APPOINTMENT    AND    DUTIES.  261 

loss  might  also  occur  in  mining  operations,  caused  by  the 
filling  of  the  mine  with  water  or  by  the  drilling  of  other 
ioil  wells  near  oil  wells  in  the  hands  of  a  receiver,  thereby 
/  causing  a  migration  of  the  oil  to  such  new  wells.    Another 
'distinction  which  is  well  recognized  is  the  operation  of 
public  utilities.   In  such  cases  the  right  of  the  public  to 
have  the  public  utility  operated  as  a  going  concern  has 
been  universally  regarded  as  a  valid  reason  for  the  issu- 
ance of  receiver's  certificates  for  the  continuance  of  the 
business.  A  detailed  discussion  of  the  decisions  in  respect 
to  public  utilities  and  mining  operations  will  be  under- 
taken in  the  sections  relating  to  those  topics.    The  ques- 
tion also  crops  out  in  the  cases  involving  the  issuance  of 
receiver's  certificates.    In  fact,  the  propriety  of  continu- 
ing the  business  is  generally  the  question  which  is  the 
fundamental  one  when  a  request  is  made  by  the  receiver 
to  issue  receiver's  certificates,  since  the  desirability  of 
continuing  the  business  is  generally  apparent  where  the 
assets  of  the  receivership  are  sufficient  for  that  purpose 
without  a  resort  to  receiver's  certificates.    Another  ques- 
tion wliich  often  arises  in  this  connection  is  the  one 
whether  the  expenses  incidental  to  the  operation  of  the 
business  should  take  priority  over  contract  liens,  such  as 
mortgages  and  the  like,  or  be  payable  only  out  of  the 
income.    In  this  respect  the  rule  is  that-Mcpenses  incurred 

152  Fed.  78,  81  C.  C.  A.  302,  11  business,  and  to  make  the  same  a 
L.  R.  A.  (N.  S.)  152,  the  court,  first  and  paramount  lien  upon  the 
quoting  from  International  Trust  corpus  of  the  property,  superior 
Co.  V.  United  Coal  Co.,  27  Colo.  to  that  of  prior  lien-holders,  with- 
246,  60  Pac.  621,  83  Am.  St.  Rep.  out  their  consent.'  Union  Trust 
59  said:  Co.  v.  Southern  Sawmills  &  L. 
'■  'We  are  of  opinion  that,  in  ad-  Co.,  166  Fed.  193,  92  C.  C.  A.  101." 
ministering  the  affairs  of  an  ordi-  A  receiver  can  not,  without  dis- 
nary  insolvent  private  business  cretion  of  the  court,  incur  any  ex- 
corporation  for  which  a  receiver  pense  beyond  what  is  absolutely 
has  been  appointed,  a  court  of  essential  to  the  preservation  and 
equity  has  not  the  power  to  au-  use  of  the  property.  Cowdrey  v. 
thorize  the  receiver  to  incur  in-  Galveston  H.  &  H.  R.  R.  Co.,  93 
debtedness     for    carrying   on    the  U.   S.  352,  23  L.   Ed.  950. 


262 


LAW   OF   RECEIVERS. 


by  the  receiver  in  tlie  operation  of  the  property  not 
necessary  for  the  care  and  preservation  of  the  property 
should  be  paid  as  far  as  possible  from  the  income  of  the 
property,  but  any  balance  of  the  operating  expenses  must 
share  with  the  general  expenses  of  the  receivership.^ 

It  is,  however,  the  duty  of  receivers  on  ascertaining 
that  the  business  of  the  receivership  is  being  conducted 
at  a  loss  to  make  no  payments  to  its  creditors  except  pro 
rata,  and  for  preferences  given  after  that  time  they  will 
be  held  personally  accountable  to  other  creditors.^ 


2  Stacy  V.  McNicholas,  76  Ore. 
167,  144  Pac.  96,  148  Pac.  67. 

The  appointment  of  a  receiver 
to  protect  and  preserve  property 
pending  litigation  does  not  ipso 
facto  affect  the  status  of  liens 
existing  upon  the  property;  but, 
where  a  receiver  is  lawfully  ap- 
pointed at  the  instance  and  for 
the  benefit  of  lien  creditors,  all 
proper  charges,  expenses,  and  lia- 
bilities incurred  as  incident  to 
duly  conferred  receivership 
powers  and  duties  may  be  a 
charge  upon-  the  earnings  and 
corpus  of  the  property  superior  to 
the  lien  creditors  who  take  part 
in  or  expressly  or  impliedly  con- 
sent to  or  acquiesce  in  the 
receivership  proceedings.  Knick- 
erbocker Trust  Co.  V.  Green  Bay 
Phosphate  Co.,  62  Fla.  519,  56  So. 
699. 

In  Ellis  V.  Vernon  Ice,  Light  & 
Water  Co.,  86  Tex.  109,  23  S.  W. 
858,  the  Supreme  Court  of  Texas 
said: 

"The  conduct  of  a  business  that 
has  proved  insolvent  is  not  likely 
to  yield  a  net  income,  and,  if  the 
creditor  of  the  receiver  could  only 
look  to  such  income  for  the  satis- 
faction of  their  claims,  he  would 
be  unable  to  obtain  credit,  and  the 


operation  of  the  works  would  be 
impracticable.  Accordingly,  the 
rule  is  that  the  expense  of  admin- 
istering and  preserving  the  prop- 
erty is  to  be  charged,  first,  upon 
the  net  income,  and,  if  that  be  not 
sufficient,  then  upon  the  property 
itself  or  its  proceeds  upon  sale." 

In  First  National  Bank  v.  Ewing, 
103  Fed.  168,  43  C.  C.  A.  150,  the 
United  States  Circuit  Court  of 
Appeals  held  that  receiver's  cer- 
tificates and  operating  expenses 
for  which  no  certificates  had  been 
issued  were  equally  entitled  to 
precedence  over  the  claims  of  the 
holder  of  first  and  second  mort- 
gages on  a  railroad,  and  that, 
though  the  bank,  holder  of  the 
mortgage  bonds,  was  not  a  party 
to  the  proceeding  in  which  the  re- 
ceiver was  appointed,  its  president 
was  aware  of  the  receivership  and 
of  the  application  for  authority  to 
issue  certificates,  and  was  bound 
by  that  action. 

3  Gutterson  &  Gould  v.  Lebanon 
Iron  &  Steel  Co.,  151  Fed.  72. 

Where  a  receiver  continues 
without  the  court's  order,  the  oper- 
ations of  the  company  placed  in 
its  charge,  as  a  going  concern,  and 
thereby  sustains  a  loss,  such  loss 
must   be   borne   by    the    receiver. 


EFFECT  OF  APPOINTMENT  AND   DUTIES. 


263 


Where  a  receiver  is  directed  by  the  court  to  contiime 
the  business  of  the  receivership,  he  will  be  obligated  to 
pay  as  part  of  the  operating  expenses  of  the  business  pay^ 
ments  to  an  injured  employee  due  him  under  a  work- 
men's compensation  act,  since  such  payments  are  re- 
garded as  part  of  the  compensation  due  him  for  services 
rendered  and  in  legal  effect  not  distinguishable  from 
ordinary  wages.^ 


and  the  amount  of  the  same  de- 
ducted from  his  commissions.  Vil- 
lere  v.  N§w  Orleans  Pure  Milk 
Co.,  122  La.  717,  48  So.  162. 

4  Wood  V.  Camden  Iron  Works, 
2'21  Fed.  1010. 

In  the  above  case  the  court  said: 
"Before  the  appointment  of  the 
receiver  the  defendant  corporation 
had  become  liable  to  make  certain 
weekly  payments  to  some  injured 
employees  and  to  the  representa- 
tives of  some  who  had  been 
killed,  in  accordance  with  the  pro- 
visions of  the  New  Jersey  em- 
ployers' liability  act  (P.  L.  1911, 
p.  134).  As  respects  one  employee, 
payments  were  required  to  be 
made  pursuant  to  a  judgment  of 
the  Common  Pleas  Court  of  Cam- 
den County,  N.  J.;  but  no  suits 
had  been  instituted  for  the  others. 
The  defendant  corporation  made 
the  payments  to  which  the  per- 
sons were  respectively  entitled, 
until  the  receiver  was  appointed. 
The  receiver  has  now  petitioned 
the  court  for  instructions  as  to 
whether  he  should  continue  to 
make  these  payments. 

"It  is  urged,  on  behalf  of  the 
receiver,  that  as  long  as  he  con- 
tinues to  run  the  business  of  the 
defendant  he  is  obligated,  under 
the  provisions  of  the  above-men- 
tioned statute,  to  continue  to 
make    the    weekly    payments,      I 


think  his  contention  is  correct. 
The  act  provides  that,  when  an 
employer  and  an  employee  shall, 
by  agreement,  either  express  or 
implied  (as  therein  provided),  ac- 
cept the  provisions  of  section  2 
of  the  act,  compensation  for  per- 
sonal injuries,  or  for  the  death 
of  an  employee,  shall  be  made  by 
the  employer  without  regard  to 
the  negligence  of  the  employer, 
according  to  the  schedule  con- 
tained in  the  act.  The  schedule 
provides  for  weekly  payments, 
based  on  the  amount  of  the  em- 
ployee's wages  and  the  extent  of 
the  injury  received.  It  has  been 
held  by  the  Supreme  Court  of  New 
Jersey,  in  Interstate  Telephone  & 
Telegraph  Co.  v.  Public  Service 
Electric  Co.,  86  N.  J.  L.  26,  90  Atl. 
1062,  that  the  obligations  and 
rights  thus  created  are  contrac- 
tual, and  that  the  payments  which 
the  act  requires  to  be  made  to  the 
injured  employee,  or  to  his  repre- 
sentatives in  the  event  that  he 
is  killed,  are  part  of  the  compen- 
sation of  the  employee  for  ser- 
vices rendered,  and,  in  legal  effect, 
are  indistinguishable  from  ordi- 
nary wages.  Mr.  Justice  Swayze, 
in  writing  the  opinion  of  the  Su- 
preme Court,  said  (on  page  1063) : 
"  'It  [the  compensation  provided 
for  in  the  act]  is  none  the  less 
compensation  for  labor   done   be- 


264 


LAW   OF   RECEIVERS. 


The  powers  of  active  receivers,  to  wliom  are  confidod 
the  management  of  going  concerns,  are  necessarily  much 
broader  than  tlie  powers  of  passive  receivers,  who  merely 
preserve  the  property,  collect  the  assets,  and  report  the 
fund  to  the  conrt  for  distribution.^ 


cause  the  statute  directs  that  its 
paj'ment  shall  be  distributed  over 
a  certain  number  of  weeks  in  the 
future.' 

"I  think  that  the  logical  result 
of  such  construction  is  that  the 
contract  of  employment,  provided 
for  in  the  statute,  is  to  pay,  in 
consideration  of  work  to  be  done, 
so  much  during  the  time  the  em- 
ployee is  working,  and,  if  he  shall 
be  injured,  his  wages  shall  be  con- 
sidered to  have  been  increased  in 
the  proportions  allowed  by  the 
statute  for  the  time  therein  pro- 
vided, the  excess  to  be  payable 
at  certain  designated  periods  in 
the  future. 

"Paragraph  8  of  section  2  of  this 
act  provides  that: 

"  'Such  agreement  .  .  .  shall  bind 
the  employee  himself,  and  for 
compensation  for  his  death  shall 
bind  his  personal  representatives, 
his  widow  and  next  of  kin,  as  well 
as  the  employer,  and  those  con- 
ducting his  business  during  bank- 
ruptcy or  insolvency.' 

"As  before  shown,  one  of  the 
terms  of  the  agreement  is  that,  if 
the  employee  shall  be  injured,  the 
employer,  in  consideration  of  the 
work  which  the  employee  has 
done,  shall  make  the  deferred  pay- 
ments at  specified  times.  The  act 
specifically  provides  that  the 
agreement  shall  bind  'those  con- 
ducting the  employer's  business 
during  bankruptcy  or  insolvency.' 
it  therefore  follows  that  a  re- 
ceiver, who  is  conducting  the  busi- 


ness of  the  original  employer  dur- 
ing insolvency,  as  in  this  case, 
is,  by  the  terms  of  the  act,  bound 
to  make  the  payments  which  the 
employee  (or  his  representatives) 
was  entitled  to  receive  from  the 
original  employer  during  the  time 
that  he  conducts  the  business.  It 
is  thus  a  burden  placed  upon  the 
continuance  of  the  business.  If, 
in  any  given  case,  it  is  deemed 
proper  that  the  business  of  the 
employer  should  be  continued  dur- 
ing bankruptcy  or  insolvency,  or 
any  part  thereof,  the  law  provides 
that  the  agreement  which  was 
originally  entered  into  between 
the  employer  and  the  injured  em- 
ployee, and  every  part  thereof, 
must  be  fulfilled  by  the  receiver 
to  the  same  extent  as  the  em- 
ployer would  have  been  compelled 
to  fulfill  it.  It  therefore  follows 
that,  as  the  requirement  to  make 
the  weekly  payments  to  the  em- 
ployee, or  his  representatives,  is 
a  burden  cast  by  the  law  upon 
those  who  continue  the  business, 
the  payments  to  be  made  by  the 
receiver  must  be  classed  as  oper- 
ating or  administrative  expenses. 

"The  receiver  will  therefore  be 
instructed  to  continue  to  make  the 
payments  as  long  as  he  continues 
to  conduct  the  business,  such  paj'- 
ments  to  be  considered  operating 
expenses,  and  paid  in  the  same 
way  as  wages  of  other  employees 
are  paid." 

5  State  Bank  of  Virginia  v.  Do- 
mestic Sewing  Mach.  Co.,  99  Va. 


EFFECT   OP   APPOINTMENT    AND    DUTIES.  265 

But  even  though  the  receiver  is  empowered  to  under- 
take new  enterprises,  such  power  should  be  exercised  with 
great  caution  and  only  under  exceptional  circumstances.® 

Funds  to  operate  a  private  business  should  not  ordi- 
narily be  authorized  if  these  funds,  represented  by 
receiver's  certificates,  are  to  be  given  priority  over  bond- 
holders' mortgage  liens. '^ 

In  some  instances  receivers  have  been  empowered  to 
complete  construction  work  under  way  at  the  time  of  the 
appointment  of  the  receiver,  or  start  new  enterprises,* 
but  most  of  such  cases  arise  in  connection  with  the  com- 
pletion of  public  utilities  which  were  not  completed  for 
lack  of  funds  and  for  the  completion  of  which  receiver's 
certificates  are  issued. 

An  order  appointing  a  receiver  of  a  corporation,  with 
power  to  administer  its  affairs  for  the  best  interest  of  all, 
does  not  confer  upon  the  receiver  power  to  continue  the 
operations  of  the  corporation  and  incur  liabilities  as  a 
going  concern,  but  such  power  must  be  given  in  express 
and  precise  language.^ 

411,  86  Am.  St.  Rep.  891,  39  S.  E.  manufacture    of    proprietary    arti- 

141-  cles    involving     secret     formulas. 

6  Fidelity  Title   &   Trust  Co.  v.  Merrell  v.   Pemberton,   62  Ga.  29. 

Kansas  Natural  Gas  Co.,  219  Fed.  The    court    will    not    as    a    rule 

614.  order    its    receiver    to    operate    a 

T  Central    Trust    &    Sav.    Co.    v.  business  which  has  not  yet  been 

Chester  County  Electric  Co.,  9  Del.  commenced.      Merrell    v.   Pember- 

Ch.  247,  80  Atl.  801.  ton,  62  Ga.  29. 

sit  is  sometimes  necessary  for  Where  a  construction  company 

the  receiver  to  complete  contracts  became  insolvent,  and  a  receiver 

partially     executed.        Taylor     v.  was   appointed,    he   may   continue 

Neate,  L.  R.  39  Ch.  Div.  538.     See,  the  work,  and  persons  furnishing 

also,  Meridian  News  &  Pub.  Co.  v.  labor   or   material   at  his   request 

Diem   &   W.    Paper   Co.,    70   Miss.  are  entitled  to  be  first  paid.     Gui- 

695,  12  So.  702.  marin  &   Co.  v.   Southern   Life  & 

Nor   in   a  matter   involving  the  Trust  Co.,   100  S.   C.  12,  84   S.  E. 

violation    of   a    contract    will    the  298. 

court  through  its  receiver  set  up  o  Villere   v.    New    Orleans    Pure 

a  new  business,  or  engage  in  the  Milk  Co.,  122  La.  717,  48  So.  162. 


266  LAW   OF  RECEIVERS. 

The  order  in  such  cases  should  be  broad  in  its  terms  so 
as  to  give  the  receiver  the  large  discretionary  powers 
/  necessary  for  the  proper  handling  of  a  business  enter- 
prise. And  it  is,  of  course,  more  advisable  to  obtain  gen- 
eral or  special  orders  authorizing  the  receiver  to  conduct 
the  receivership  as  a  going  business  in  advance  of  doing 
so  than  to  take  the  risk  of  having  the  expenses  incidental 
.^thereto  refused  on  an  accounting. ^*^ 

Where  the  receiver  is  directed  to  continue  the  business 
of  the  receivership,  the  court  will  not  interfere  with  the 
exercise  of  his  discretion  in  the  emplojnuent  of  the  agents 
and  servants  for  that  purpose  unless  he  abuses  such 
discretion.^^ 

Where  the  order  of  the  court  merely  authorizes  the 
receiver  to  borrow  a  definite  sum  for  the  purpose  of  con- 
tinuing the  business,  the  receiver's  powers  in  the  prose- 
cution of  the  business  are  limited,  and  it  was  held  that 
he  has  no  authority  to  make  purchases  on  credit  and  bind 
the  estate  in  his  hands  for  the  payment  of  the  debts  so 
contracted  without  the  express  authority  of  the  court.^^ 

It  is  different,  where  the  order  of  the  court  directing 
him  to  continue  the  business  does  not  contain  language 
limiting  his  powers  in  the  prosecution  of  the  business. ^^ 

10  Allen  V.  Hawley,  6  Fla.  142,  13  The  power  to  continue  busi- 
164,  63  Am.  Dec.  198;  Lehigh  Coal  ness  of  a  bankrupt  corporation 
&  Nav.  Co.  V.  Central  R.  Co.,  41  through  a  receiver  or  trustee  im- 
N.  J.  Eq.  167,  3  Atl.  134;  Jackson  plies  the  power  to  make  debts,  to 
V.  De  Forest,  14  How.  Pr,  (N.  Y.)  provide  for  their  payment,  and  to 
81;  Heatherton  v.  Hastings,  5  Hun  borrow  money  for  urgent  necessi- 
(N.  Y.)  459;  Marten  v.  Van  ties.  In  re  Erie  Lumber  Co.,  150 
Schaick,     4     Paige    (N.    Y.)    479;  Fed.  817. 

Langdon  v.  Vermont  &  C.  R.  Co.,  Where  a  receiver  is   appointed 

54  Vt.  593 ;  Clarke  v.  Central  R.  R.  to  run  a  hotel  and  make  such  pur- 

&  B.  Co.,  66  Fed.  16;  Piatt  v.  Phil-  chases   as   may   be   necessary,   he 

adelphia  &  R.  R.  Co.,  65  Fed.  660;  has  implied  authority  to  purchase 

Continental   Trust  Co.   v.   Toledo,  on  credit,  in  the  absence  of  any 

St.  L.  &  K.  C.  R.  Co.,  59  Fed.  514.  provisions  thereto  in  the  order  of 

11  Taylor  v.  Sweet,  40  Mich.  736.  appointment.     Highland  Ave.  etc. 

12  Haines  V.  Buckeye  Wheel  Co.,  R.  Co.  v.  Thornton,  105  Ala.  225, 
224  Fed.  289,  139  C.  C.  A.  525.  16  So.  699. 


EFFECT   OF   APPOINTMENT    AND   DUTIES. 


267 


Under  an  order  appointing  a  receiver  and  authorizing 
him  to  continue  the  business  of  the  receivership,  operate 
its  factory  and  purchase  all  necessary  supplies  and  ma- 
terials and  employ  hands  for  that  purpose,  those  dealing 
with  him  are  bound  to  know  that  he  possesses  limited 
powers  and  that  he  is  constantly  subject  to  the  orders  of 
the  power  which  created  him.  They  must  also  be  held  to 
know  that  he  can  make  no  contract  effectual  against  the 
trust  which  was  not  first  authorized  or  subsequently  rati- 
fied.i* 


Where,  under  special  circum- 
stances or  conditions,  or  in  pecu- 
liar classes  of  property  such  as 
public  service  corporations,  a 
court  of  equity  appoints  a  receiver 
at  the  instance  and  for  the  benefit 
of  lien  creditors,  and  upon  a 
proper  showing  confers  on  him 
authority  to  operate  the  property 
for  the  benefit  of  the  creditors,  all 
proper  expenses  and  liabilities  in- 
curred in  the  operation  may  be  a 
first  charge  on  the  income  from 
the  property,  or,  if  it  is  insuffi- 
cient, on  the  corpus  of  the  prop- 
erty to  the  exclusion  even  of  the 
prior  liens.  Knickerbocker  Trust 
Co.  V.  Green  Bay  Phosphate  Co., 
62  Fla.  519,  56  So.  699. 

Under  the  "companies  act"  of 
1862,  which  provided  that  the  offi- 
cial liquidator  should  have  power, 
with  the  sanction  of  the  court,  "to 
carry  on  the  business  of  the  com- 
pany, so  far  as  may  be  necessary 
for  the  beneficial  winding  up  of 
the  same,"  it  was  held  that  the 
word  "necessary"  as  used  in  the 
act  had  sole  reference  to  the 
"beneficial  winding  up"  of  the 
business  of  the  company,  and  not 
with  a  view  of  its  continuance  in 
business,  no  matter  if  the  contin- 
uance  of  the   business   would   be 


beneficial  to  the  shareholders.  In 
re  Wreck,  Recovery,  and  Salvage 
Co.,  L.  R.  15  Ch.  Div.  353. 

In  Teutonia  Bank  etc.  Co.  v. 
Security  Brewing  Co.,  137  La. 
1046,  69  So.  833,  the  court  said: 
"We  are  of  opinion  that  the  au- 
thority vested  in,  and  the  duty 
imposed  on,  the  receivers,  to  oper- 
ate the  brewery  as  a  going  con- 
cern, carried  with  it  the  authority 
to  Incur  such  expenses  as  were 
necessary  to  the  performance  of 
that  duty,  and  that  the  expenses 
so  incurred  fall  within  the  cate- 
gory and  enjoy  the  privileges  es- 
tablished in  favor  of  law  charges." 

In  Cake  v.  Mohun,  164  U.  S.  311, 
41  L.  Ed.  447,  17  Sup.  Ct.  100,  the 
receiver  was  expressly  authorized 
by  the  order  of  the  court  "to  carry 
on  and  manage  the  business  of 
keeping  said  hotel  in  substantially 
the  same  manner  as  it  has  here- 
tofore been  carried  on,"  and  it 
was  held  that  the  receiver  had 
power  to  incur  obligations  for  sup- 
plies and  materials  incidental  to 
the  business. 

i^Brunner,  Mond  &  Co.  v.  Cen- 
tral Glass  Co.,  18  Ind.  App.  174, 
63  Am.  St.  Rep.  339,  47  N.  E.  686. 

In  the  above  case  the  court  said: 
"Under  the  order  of  appointment. 


268 


LAW    OP    RECEIVERS. 


Where  a  business  is  being  operated  as  a  going  concern 
with  the  knoAvledge  or  consent  of  secured  creditors,  they 
are  estojjped  to  deny  that  supplies  furnished  to  the  re- 
ceiver should  be  paid  in  preference  to  the  debt  due 
them.^^ 


the  receiver  had  the  right  to  apply 
money  in  his  hands  belonging  to 
the  trust  at  the  time  he  entered 
upon  the  discharge  of  his  duties, 
or  money  received  thereafter  from 
its  earnings,  for  such  purposes  as 
were  necessary,  in  his  judgment, 
within  the  purview  of  the  order, 
to  carry  on  the  business,  talking 
the  rislv,  if  any,  that  tlie  court 
would  approve  his  action.  The 
order  was  not,  we  think,  broad 
enough  to  authorize  him  to  bind 
the  trust  by  a  contract  for  sup- 
plies for  a  period  of  ten  months 
in  advance,  without  the  sanction 
of  the  court.  Without  such  sanc- 
tion, the  court  would  be  free  to 
deal  with  it  as  it  deemed  just;  to 
modify,  approve,  or  disregard  it 
entirely.  It  was  in  the  power  of 
the  court  to  close  up  the  receiver- 
ship at  any  time,  and  the  exercise 
of  this  discretion  was  not  to  be 
hampered  by  a  contract  of  the 
receiver  extending  engagements 
for  stated  periods." 

A  receiver  is  the  agent  of  the 
court,  and  those  who  deal  with 
him  do  so  with  reference  to  his 
authority  as  receiver;  the  nature 
and  extent  of  which  they  must 
take  notice,  and  those  who  sell 
goods  to  a  receiver  do  so  on  the 
faith  of  the  property  or  business 
of  the  receivership,  and  with  pre- 
sumed knowledge  of  the  receiver's 
authority.  Knickerbocker  Trust 
Co.  v.  Green  Bay  Phosphate  Co., 
62  Fla.  519,  56  So.  699. 

15  Teutonia  Bank  &  Trust  Co.  v. 


Security  Brewing  Co.,  137  La. 
1046,  69  So.  833. 

In  the  above  case  the  court  said: 
"It  is  clear,  therefore,  that  the 
Teutonia  bank  not  only  knew  what 
was  done  and  being  done,  but  that 
it  provoked  the  action;  and  this 
court  can  hardly  be  expected  to 
believe  that  the  Interstate  Bank 
was  not  equally  well  informed. 

"In  Knickerbocker  v.  McKindley 
Coal  &  Mining  Co.,  172  111.  535,  50 
N.  E.  300,  64  Am.  St.  Rep.  54,  it 
was  said  by  the  Supreme  Court 
of  Illinois  in  regard  to  the  opera- 
tion of  a  hotel: 

"  'The  appellants  are  estopped 
from  saying  that  appellees  should 
not  be  paid  for  the  coal  and  gro- 
ceries furnished  by  them  to  the 
receiver,  when  the  receiver  was 
running  the  hotel  with  their  con- 
sent (and  acquiescence)  and  with 
their  furniture  and  fixtures.  It  is 
impossible  to  conceive  how  a  hotel 
can  be  operated  properly  without 
coal  and  without  groceries.' 

"And  so  it  may  be  said  here.  It 
is  impossible  to  conceive  how  a 
brewery  can  be  operated  without 
malt,  hops,  coal,  wagons,  horses, 
lights,  etc.,  and  it  would  be  absurd 
to  suppose  that  those  necessities 
would  be  furnished  by  persons 
dealing  in  them  to  receivers 
placed  in  charge  of  a  going  brew- 
ery for  the  benefit  of  the  creditors 
as  well  as  its  owners,  if  those  in- 
terested parties  were  at  liberty  at 
any  time  to  appropriate  the  prop- 
erty of  the  concern  to  the  payment 


EFFECT   OF    APPOINTMENT    AND   DUTIES.  269 

Where  a  receiver  of  a  corporation  is  ordered  by  tlie 
court  to  operate  the  property  in  the  usual  course  of  busi- 
ness, and  purchases  necessary  ^oods,  and  the  sale  is  to 
him  as  receiver,  and  there  is  no  assumption  of  personal 
liability  and  no  fraud,  the  receiver  is,  in  general,  not 
liable  individually^  for  the  purchases. ^^ 

But  where  such  a  receiver  operates  the  property  at 
a  loss  contrary  to  prior  statements  made  by  him  in  his 
accounts  and  in  an  answer  to  a  petition  for  his  removal, 
he  will  be  charged  personally  with  such  losses. ^^ 

In  England,  it  is  customary  for  the  court  to  appoint  a 
manager  of  a  business  or  undertaking  for  the  purpose 
of  winding  up  and  selling  it.  It  is  an  interim  manage- 
ment the  necessity  for  which  is  the  result  of  the  jurisdic- 
tion to  wind  up  and  sell  as  a  going  concern. ^^ 

Under  such  an  appointment  the  manager  is,  however, 
merely  to  carry  the  business  on  in  accordance  with  the 
general  course  of  that  particular  business. ^^ 

of  their  debts,  and  leave  the  debts  Ch.    D.    547;    Taylor   v.   Neate,    39 

so    created    through    their   agency  Ch.  D.  538;  Makins  v.  Percy  Ibbot- 

and  for  their  advantage  unpaid.  son  &  Co.  (1891),  1  Ch.  133;  Whit- 

"It  is  said  that  the  operation  of  ^e^  v-  Challis  (1892),  1  Ch.  64. 
the  brewery  did  not  inure  to  the  ^^  Gardner  v.  London  etc.  Ry., 
advantage  of  the  bondholders,  bjit  ^-  ^-  ^  Ch.  App.  201,  212,  Cairns, 
was  altogether  disastrous,  which  ^-  ^-  ^^^^'  "^ow  I  apprehend  that 
is  quite  true.  But  the  experiment  nothing  is  better  settled  than  that 
was  theirs,  nevertheless,  and,  as  ^^^^  '^°"i't  ^o^s  not  assume  the 
the  profit  would  have  been  theirs.  management  of  a  business  or  un- 
if  it  had  proved  successful,  they,  dertaking  except  with  a  view  to 
and  not  the  persons  who  fur-  ^^^^  winding  up  and  sale  of  the 
nished,  on  credit,  the  means  with  business  or  undertaking.  The 
which  it  was  carried  on,  should  management  is  an  interim  man- 
bear  the  loss."  agement;     its     necessity    and    its 

justification     spring     out     of     the 


16  Hillsborough    Grocery    Co.    v 
Ingalls,  60  Fla.   105,  53  So.  930. 


jurisdiction     to    liquidate    and    to 

sell;    the  business  or  undertaking 

17  Covington  v.  Hawes-La  Anna      jg  managed   and  continued   in  or- 

Co..  245  Pa.  73,  Ann.  Cas.  1915D,      ^er  that  it  may  be  sold  as  a  going 

1254,  91  Atl.  514.  concern,    and    with    the    sale    the 

isSheppard    v.    Oxenford,    1    K.       management  ends." 
&  J.  491;    Steer  v.  Steer,  2  Dr.  &  lo  Taylor    v.    Neate,    39    Ch.    D. 

Sm.  311;  Truman  v.  Redgrave,  18      538. 


CHAPTER  ly. 

GENERAL.  RULE  AS  TO  WHO  MAY  BE  APPOINTED  RECEIVER. 

§  62.    The  General  Rule. 

In  the  selection  of  a  person  to  act  as  receiver  tlie  court 
exercises  a  judicial  discretion  which  is  governed  by 
certain  well  defined  principles.  Although  a  receiver  is 
not  a  public  officer,^  he  is,  as  has  been  show^n  before,  an 
officer  of  the  court  or,  as  has  been  frequently  stated,  an 
arm  of  the  court.  His  acts  in  so  far  as  he  executes  the 
orders  and  directions  of  the  court  are  acts  of  the  court 
itself  and  he  must  account  to  the  court  for  all  of  his  acts. 
But  he  also  sustains  an  important  trust  relationship 
toward  the  parties  interested  in  the  receivership.  Hence, 
it  is  apparent  that  he  must  be  a  person  competent  to  per- 
form the  duties  required  of  him  in  the  dual  capacity  just 
mentioned.-  He  should  be  a  person  unexceptional  to  all 
of  the  interested  parties^  and  indifferent  and  impartial 

1  Cohnen  v.  Sweenie,  105  Mich.  thousands."  In  re  Empire  City 
643,  63  N.  W.  641.  Bank,   10    How.   Pr.    (N.   Y.)    498; 

2  Simpson  v.  Ottawa  &  P.  R.  Co.,  Williamson  v.  W^ilson,  1  Bland.  Ch. 
1  Ont.  Ch.  Chamb.  99;  Supton  v.  (Md.)  418;  Smith  v.  New  York 
Stephenson,  11  Ir.  Eq.  484;  Wynne  Consol.  Stage  Co.,  28  How.  Pr. 
V.  Lord  Newhorough,  15  Ves.  Jr.  (N.  Y.)  208;  In  re  Empire  City 
283;  Tharpe  v.  Tharpe,  12  Ves.  Jr.  Bank,  10  How.  Pr.  (N.  Y.)  498; 
317;  Taylor  v.  Life  Association,  Perry  v.  Oriental  Hotel  Co.,  L.  R. 
3  Fed.  465,  13  Fed.  493.  5  Ch.  App.  420;  Cookes  v.  Cookes, 

In  making  the  appointment,  all  2    DeG.   J.    &    S.    526;    Wynne   v. 

private  considerations  and  prefer-  Lord  Newhorough,  15  Ves.  Jr.  283. 

ences   are  not   to  be   considered;  3  Hooper  v.  Winston,  24  111.  353; 

"No  man   and   the   counsel   of  no  Baker  v.  Backus,  32  111.  79;  Kaiser 

man  has  a  right  to  complain  that  v.  Kellar,  21  Iowa  95;  Williamson 

he  or  his  particular  friend  is  not  v.  Wilson,  1  Bland.  Ch.  (Md.)  418; 

appointed    a    receiver;    especially  Ellicott    v.    Warford,     4     Md.    SO; 

where  the  assets,  as  in  these  bank  Merchants'  Nat.  Bank  v.  McLeod, 

cases,   to  be  entrusted   to  his  re-  38  Ohio  St.  174;  Waters  v.  Carroll, 

sponsibility    are    counted    not    by  9  Yerg.   (Tenn.)   102;    Richards  v. 

thousands     but    by     hundreds    of  Chesapeake  &  O.  R.  Co.,  1  Hughes 

(270) 


WHO    MAY    BE    APPOINTED    RECEIVERS. 


271 


as  to  all  the  parties.^    The  decisions  in  respect  to  tlie 
propriety  of  appointing  various  persons  as  receivers  do 


28,  Fed.  Cas.  No.  11771;  Simpson 
V.  Ottawa  &  P.  R.  Co.,  1  Ch. 
Chamb.  99;  Brant  v.  Willoughby, 
17  Grant  Ch.  (Ont.)  627;  Wilson  v. 
Poe,  1  Hog.  322;  Corey  v.  Long, 
43  How.  Pr.  (N.  Y.)  492,  497; 
Devendorf  v.  Dickinson,  21  How. 
Pr.  (N.  Y.)  275;  Osborn  v.  Heyer, 
2  Paige  (N.  Y.)  342;  Brown  v. 
Northrup,  15  Abb.  Pr.  N.  S.  (N.  Y.) 
333;  Curtis  v.  Leavitt,  1  Abb.  Pr, 
(N.  Y.)  274;  Van  Rensselaer  v. 
Emery,  9  How.  Pr.  (N.  Y.)   135. 

A  person  not  familiar  with  the 
business  of  the  receivership,  it 
has  been  held,  ought  not  to  be  ap- 
pointed even  though  he  agrees  to 
be  directed  by  a  person  who 
is  familiar  with  it.  Lupton  v, 
Stephenson,  11  Jr.  Eq.  484. 

4  The  receiver  should  be  a  per- 
son who  is  indifferent  as  between 
the  parties.  Spring  Valley  Water 
Co.  V.  San  Francisco,  225  Fed.  728, 
140  C.  C.  A.  209. 

In  Northern  Brewery  Co.  v. 
Princess  Hotel,  78  Ore.  453,  153 
Pac.  37,  the  court  said: 

"A  receiver  is  a  ministerial  of- 
ficer of  the  court  of  equity  which 
appoints  him.  He  is  presumed  to 
be  indifferent  as  between  the  par- 
ties to  the  suit,  and  holds  the 
property  committed  to  him  in 
trust  for  all  the  parties  interested 
therein,  his  title  and  possession 
being  that  of  the  court.  State  v. 
Norfolk  etc.  R.  Co.,  152  N.  C.  785, 
67  S.  E.  42,  26  L.  R.  A,  (N.  S.) 
710,  21  Ann.  Cas.  692. 

"  'The  general  principle,  very 
well  settled  in  the  books,'  says 
Mr.  Chief  Justice  Winslow  in  Bar- 
telt  V.  Smith,  145  Wis.  31,  129 
N.  W.  782,  Ann.  Cas.  1912A,  1195, 


1197,  'is  that  a  party  to  the  cause 
will  not  ordinarily  be  appointed 
receiver  unless  both  parties  con- 
sent, or  there  are  special  circum- 
stances present  which  make  such 
an  appointment  clearly  for  the 
best  interest  of  all  concerned.  The 
reason  is  that  the  receiver  is  an 
officer  of  court,  whose  buiness  it 
is  to  administer  his  trust  impar- 
tially for  the  benefit  of  all  con- 
cerned, and  hence  he  should  have 
no  special  interests  which  might 
influence  him  in  his  conduct  of  the 
trust  in  matters  where  his  inter- 
ests and  the  interest  of  any  party 
to  the  action  may  clash.' 

"The  plaintiff  herein,  being  a 
corporation,  could  act  only  by  its 
agents,  one  of  whom  was  Paul 
Dauschel,  its  treasurer.  Though 
the  defendants  Anderson,  Paget, 
and  Thacher  consented  to  the  ap- 
pointment of  a  receiver,  it  can  not 
be  said,  from  an  inspection  of  the 
transcript  before  us,  that  they 
acquiesced  in  Dauschel's  selection, 
or  waived  any  objection  they 
might  have  had  against  him  by 
reason  of  his  interest  in  the  sub- 
ject-matter of  the  suit  as  the  plain- 
tiff's representative." 

A  receiver  should  be  an  impar- 
tial and  indifferent  person.  Neither 
a  party  to  a  suit  or  a  trustee, 
whose  business  it  is  to  watch  a 
receiver,  should  be  appointed. 
These  rules,  however,  relax  in  the 
interests  of  all  the  parties,  and 
are,  therefore,  not  without  excep- 
tion. Watson  V.  Cudney,  144  111. 
App.  624. 

A  receiver  should  be  impartial, 
and  it  is  improper  to  appoint  as 
receiver  the  agent  of  the  petition- 


272 


LAW    OF   RECEIVERS. 


not,  in  fact,  go  further  than  hohl  that  the  person  selected 
should  be  impartial  in  his  treatment  of  the  interested 
parties.  If  he  is  an  impartial  person,  it  is  immaterial  what 
particular  relationship  he  sustains  to  the  receivership 
estate  or  parties  thereto,  although  courts  do  not  or- 
dinarily place  themselves  in  the  position  of  being  criti- 
cised for  appointing  persons  who  by  their  status  or  re- 
lationship to  the  parties  or  fund  might  be  presumed  to 
be  biased.  Of  course,  an  officer  of  a  corporation  who  has 
been  guilty  of  mismanagement  or  unfaithful  acts  result- 
ing in  bringing  the  corporation  to  the  condition  in  which 
a  receivership  is  necessary  will  not  be  appointed  a  re- 


ing  creditor,  in  absence  of  cir- 
cumstances showing  his  special 
fitness,  or  the  propriety  of  ap- 
pointing one  so  closely  connected 
with  the  parties  in  interest.  Vir- 
ginia-Carolina Chemical  Co.  v. 
Hunter,  84  S.  C.  214,  66  S.  E.  177. 

A  receiver  should  generally  be 
one  who  is  indifferent  between  the 
parties,  and  subject  to  no  influence 
except  to  conserve  the  property 
for  the  benefit  of  those  finally  en- 
titled thereto.  Graham  v.  Hund- 
ley Dry  Goods  Co.,  (Mo.)  177 
S.  W.  600;  Farmers'  Loan  etc.  Co. 
V.  Northern  Pac.  R.  Co.,  66  Fed. 
169. 

It  has  been  held  that  he  should 
have  no  personal  interest  in  the 
property.  Runyon  v.  Farmers'  & 
M.  Bank,  4  N.  J.  Eq.  ^0;  William- 
son v.  Wilson,  1  Bland.  Ch.  (Md.) 
418;  Ellicott  v.  Warford,  4  Md.  80; 
but  see  Atkins  v.  Wabash,  St.  L. 
&  P.  R.  Co.,  29  Fed.  161;  Tripp  v. 
Chard  B.  Co.,  21  Eng.  L.  &  Eq.  53. 

It  is  a  rule  of  general  applica- 
tion that  a  receiver  should  be  a 
person    wholly    impartial    and    in- 


different toward  all  parties  inter- 
ested in  the  fund  or  property  to 
be  administered,  and,  generally 
speaking,  officers  and  directors  of 
a  corporation  involved  in  insol- 
vency should  not  be  appointed  to 
the  position.  Although  this  rule  is 
not  inflexible,  it  should  be  ob- 
served where  such  officers  or 
directors  have  by  their  bad  man- 
agement contributed  to  the  insol- 
vency. Coy  v.  Title  Guarantee  <?r 
Trust  Co.,  157  Fed.  794. 

A  receiver,  except  in  rare  cases, 
must  be  a  person  who  is  indiffer- 
ent between  the  parties  litigant, 
and  must  so  remain,  giving  neither 
larty  favor  or  advantage.  Leh- 
man V.  Trust  Co.  of  America,  57 
Fla.  473,  49  So.  502;  Holies  v.  Duff, 
54  Barb.  (N.  Y.)  215,  37  How.  Pr. 
'N.  Y.)  162;  Atkins  v.  Wabash, 
St.  L.  &  P.  R.  Co.,  29  Fed.  161; 
In  re  Northumberland  &  D.  Dist. 
Bkg.   Co.,   2  DeG.  &  J.  508. 

The  person  selected  should 
not  have  an  improper  partiality 
toward  one  of  the  parties  to  the 
proceeding.  Blakeway  v.  Blake 
way,  2  L.  J.  Ch.  N.  S.  75. 


WHO    MAY   BE   APPOINTED    RECEIVERS. 


273 


ccivor  of  the  defunct  or  failing  corporation.  A  failure  on 
the  part  of  a  person  to  make  a  success  of  a  business 
enterprise  is  no  more  of  a  recommendation  for  appoint- 
ment as  receiver  than  it  would  be  for  any  other  position 
requiring  business  ability  and  integrity.  On  the  other 
hand,  it  not  infrequently  happens  that  a  business  enter- 
prise finds  itself  in  failing  circumstances  through  no  par- 
ticular incompetency  of  its  managers  and  in  such  circum- 
stances the  managers  may  be  persons  so  familiar  with  its 
affairs  and  needs  as  to  appear  to  the  court  to  be  best 
fitted  to  act  as  a  receiver.  The  best  practice  in  cases 
in  which  an  owner  or  party  interested  in  the  receiver- 
ship is  appointed  as  receiver,  is  to  obtain  the  approval 
of  the  appointment  by  those  whose  interests  might  be 
presumed  to  be  injured  by  the  appointment. 

In  the  consideration  of  the  eligibility  of  specific  persons 
for  the  position  of  receiver  an  important  matter  con- 
sists in  what  are  the  causes  and  objects  of  the  receiver- 
ship. If  the  cause  of  action  is  based  on  acts  of  a  fraudu- 
lent nature  or  a  hostile  claim  of  ownership,  the  object 
of  the  receivership  would  not  be  accomplished  by  ap- 
pointing the  perpetrators  of  the  alleged  wrongs  in  the 
position  of  receiver  of  the  property  or  fund  in  contro- 
versy. If,  on  the  other  hand,  the  object  of  the  proceeding 
is  merely  the  voluntary  dissolution  of  a  partnership  or 
corporation  in  which  it  is  necessary  to  have  an  interim 
holder  of  the  title  and  possession  pending  the  final  judg- 
ment, one  of  the  interested  parties  would  undoubtedly 
make  an  ideal  receiver. 

The  statutes  of  the  various  states  contain,  as  a  general 
rule,  limitations  in  respect  to  the  eligibility  of  various 
classes  of  persons. 


I  Rec— 18 


274 


LAW  OF  RECEIVERS. 


§63.    Eligibility    of   Parties,    Owners,    and   Other   Interested 
Persons. 

The  mere  fact  that  one  is  a  party  to  the  suit^  or  inter- 
ested in  the  business,-  which  is  about  to  be  placed  under 
a  receivership,  is  not  sufficient  to  disqualify  him  from 
being  appointed  receiver. 


1  Downshire  v.  Tyrrell,  Hayes 
354;  Hubbard  v.  Guild,  1  Duer 
(N.  Y.)  662;  Fenn  v.  BoUes,  7  Abb. 
Pr.  (N.  Y.)  202;  Hanover  Fire  Ins. 
Co.  V.  Germanla  Fire  Ins.  Co.,  33 
Hun  (N.  Y.)  539;  Robinson  v.  Tay- 
lor, 42  Fed.  803;  Jeffery  v.  Smith, 
1  Jac.  &  W.  298;  Boyle  v.  Bettws 
Llantuit  Colliery  Co.,  L.  R.  Ch. 
Div.  726;  Hyde  v.  Warden,  L.  R. 
1  Exch.  Div.  399;  Taylor  v.  Eckers- 
ley,  L.  R.  2  Ch.  Div.  302;  In  re 
Lloyd,  L.  R.  12  Ch.  Div.  447. 

Being  a  party  to  the  suit  does 
not  disqualify  a  person  from  being 
appointed  receiver.  People  v.  Illi- 
nois Bldg.  etc.  Assn.,  56  111.  App. 
642. 

In  Pawley  v.  Pawley  (1905),  1 
Ch.  593,  a  defendant  was  appointed 
receiver,  without  compensation. 

In  Davis  v.  Barrett,  13  L.  J.  Ch. 
304,  a  defendant  who  was  a  mort- 
gagee of  the  property  involved 
was  appointed  receiver  over  it. 

A  party  to  the  action  may  pro- 
pose himself  as  receiver.  See, 
Meaden  v.  Sealey,  6  Ha.  620; 
Cookes  V.  Cookes,  2  D.  J.  &  S.  526; 
but,  see,  Davis  v.  Duke  of  Marl- 
borough, 2  Sw.  118. 

But  under  a  statute  which  pro- 
hibits the  appointment  of  any 
"party  or  attorney,  or  other  person 
interested  in  an  action,"  as  re- 
ceiver, one  who  had  been  a  re- 
ceiver under  a  previous  order  of 
appointment  which  had  been  va- 
cated, is  not  ineligible.     Robinson 


V.  Dickey,  143  Ind.  214,  42  N.  E. 
638. 

A  solvent  partner  who  is  a  party 
to  the  suit  may  be  appointed  re- 
ceiver of  the  partnership  property 
without  compensation.  Ex  parte 
Stoveld,  1  Glyn  &  J.  303. 

In  a  suit  to  dissolve  a  partner- 
ship, one  of  the  partners  may  be 
appointed  receiver  even  though 
the  other  partners  do  not  consent 
to  the  appointment  if  the  court 
is  satisfied  that  the  appointment 
is  for  the  best  interests  of  the  es- 
tate. Sargant  v.  Read,  1  Ch.  D. 
600;  Collins  v.  Barker  (1893),  1 
Ch.  578. 

In  Budget  v.  Improved  etc.  Syn- 
dicate, W.  N.  1901,  23,  a  debenture 
holder  in  a  suit  by  him  sought  to 
have  himself  appointed  receiver 
and  the  court  did  so  subject  to  all 
of  the  other  debenture  holders 
consenting  to  the  appointment. 

The  appointment  of  an  improper 
person  as  receiver  does  not  ren- 
der the  appointment  void.  San 
Antonio  etc.  Ry.  Co,  v.  Adams,  11 
Tex.  Civ.  198,  32  S.  W.  733. 

2  An  interest  in  the  business  of 
the  defendant  corporation  does 
not  necessarily  disqualify,  but  a 
lack  of  interest  is  a  strong  recom- 
mendation. Bayne  v.  Brewer  Pot- 
tery Co.,  82  Fed.  391. 

One  who  advanced  the  money  to 
redeem  the  receivership  estate 
from  a  tax  sale  which  was  about 
to    become    absolute,    is    not    dis- 


WHO    MAY   BE   APPOINTED    RECEIVERS. 


\i'o 


But,  on  the  other  hand,  the  courts  also  state  that,  as  a 
general  rule,  a  party  to  the  suit  ought  not  to  be  appointed 
as  receiver  therein.^  And  under  the  English  practice  it 
is  said  that  upon  a  showing  of  great  urgency  the  court 
may  appoint  the  plaintiff  as  receiver  even  ex  parte.^ 

But  where  a  party  to  the  action  has  been  appointed 
receiver,  it  has  been  conditioned  upon  his  acting  without 
compensation.^ 

And  in  accordance  with  this  aversion  of  the  courts  to 
appoint  persons  who  are  interested  in  the  receivership 
fund,  it  has  been  held  that  the  court  should  not  appoint 
as  receiver  a  creditor^  or  other  person  interested  in  the 


qualified  from  appointment  on  ac- 
count of  the  liability  of  the  estate 
to  him.  Roby  v.  Title  Guarantee 
etc.  Co.,  166  111.  336,  46  N.  E.  1110. 

Ownership  of  the  property  in- 
volved in  a  litigation  will  not  ren- 
der the  owner  ineligible  to  ap- 
pointment as  receiver  of  the  in- 
terest of  another  in  the  profits  to 
be  derived  from  the  sale  of  such 
property,  especially  where  the  in- 
terest of  the  owner  is  not  in  con- 
flict with  the  interests  of  the 
creditors  of  such  other  person. 
Jenkins  v.  Purcell,  29  App.  D,  C. 
209,  9  L.  R.  A.   (N.  S.)    1074. 

In  some  circumstances  an  inter- 
ested party  may  be  appointed  re- 
ceiver. Iroquois  Furnace  Co.  v. 
Kimbark,  85  111.  App.  399. 

3  It  is  improper  to  appoint  the 
plaintiff  as  receiver.  .Tordan  v. 
Jordan,  121  Ala.  419,  25  So.  855.     ■ 

As  a  general  rule  a  party  to  the 
suit  will  not  be  appointed  unless 
both  parties  consent  or  there  are 
special  circumstances  which  make 
such  an  appointment  decidedly  for 
the  best  interests  of  the  receiver- 
ship.    Bartelt  v.  Smith,  145  Wis. 


31,     Ann.    Cas.     1912A,    1195,    129 
N.  W.  782. 

A  party  to  the  proceeding  will 
not,  save  under  exceptional  cir- 
cumstances, be  appointed  without 
the  consent  of  all  the  parties. 
In  re  Lloyd,  12  Ch.  D.  451. 

4  Taylor  v.  Eckersley,  2  Ch.  D. 
302;  Hyde  v.  Warden,  1  Exch.  Div. 
309;  Fuggle  v.  Bland,  11  Q.  B.  D. 
711. 

5  Wilson  V.  Greenwood,  1  Sw. 
471;  Blakeney  v.  Dufour,  15  Beav. 
40;  Sargant  v.  Read,  1  Ch.  D.  600; 
In  re  Prytherch,  42  Ch.  D.  590;  In 
re  Golding,  21  L.  R.  Ir.  194. 

6  A  creditor  ought  not,  ordinar- 
ily, be  appointed.  Geyser  Min.  Co. 
V.  Bank  of  Salt  Lake,  16  Utah  163, 
51  Pac.  151. 

One  who  is  deeply  interested  in 
the  estate,  either  as  owner  or 
creditor,  or  who  is  so  closely  con- 
nected with  interests  as  to  be 
open  to  grave  suspicion  of  bias, 
ought  not  to  be  appointed  receiver 
of  an  estate  in  the  custody  of  the 
court.  Decker  Bros.  v.  Berners 
Bay  Min.  &  Mill.  Co.,  2  Alaska  504. 


276 


LAW    OF    RECEIVERS. 


receivership  property^  or  a  partner  in  a  proceeding  to 
\\dnd  up  its  affairs.^  And  where  a  person  stands  charged 
with  some  acts  of  a  fraudulent  or  improper  character  in 
respect  to  the  receivership  property,  it  is  obvious  that  he 
should  not  be  appointed  receiver  over  it.^ 


7  Lupton  V.  Stephenson,  11  Ir. 
Eq.  484. 

An  adverse  party  who  is  bitterly 
opposed  by  the  other  ought  not 
to  be  appointed.  Attorney  General 
V.  Gee,  2  Ves.  &  Ben.  208. 

He  must  not  be  partner  of  plain- 
tiff's solicitor.  Merchants  &  M. 
Nat.  Bank  v.  Kent,  Cir.  Judge,  43 
Mich.  292,  5  N.  W.  627.  Nor  should 
an  officer  of  a  corporation  or  other 
person  intimately  connected  with 
its  management.  Baker  v.  Backus, 
Admr.,  32  111.  79;  Benneson  v.  Bill, 
62  111.  408;  Attorney  General  v. 
Bank  of  Columbia,  1  Paige  (N.  Y.) 
511;  In  re  Eagle  Iron  Works,  8 
Paige  (N.  Y.)  385.  It  was  done, 
however,  in  Gibbes  v.  Greenville  & 
C.  R.  Co.,  15  S.  C.  304,  but  the  pro- 
priety of  the  order  does  not  seem 
to  have  been  seriously  contested, 
but  turned  upon  the  question  as 
to  whether  the  officers  were  in 
fact  receivers;  see,  also,  Buck  v. 
Piedmont  &  A.  L.  Ins.  Co.,  4  Fed. 
849,  4  Hughes  415;  Albany  City 
Bank  v.  Schermerhorn,  Clarke  Ch. 
(N.  Y.)  297;  Re  Fifty-four  First 
Mortgage  Bonds,  15  S.  C.  304,  the 
president  and  directors  of  a  rail- 
road company  were  ordered  to 
continue  In  possession  and  man- 
agement of  a  road,  not  as  officers 
of  the  road,  but  as  officers  of  the 
court. 

One  having  an  interest  in  a 
lease  of  the  property  in  contro- 
versy   should    not    be    appointed. 


Wood  V.  Oregon  Dev.  Co.,  55  Fed. 

901. 

One  who  interpleads  in  the  ac- 
tion attacking  an  assignment  in 
which  a  receiver  is  asked  is  an 
interested  party  under  a  statute 
prohibiting  such  interested  parties 
from  being  appointed.  But  where 
he  has  acted  as  receiver  with  the 
consent  of  all  the  parties,  his  ap- 
pointment will  not  be  disturbed. 
Tait  V.  Carey,  3  Ind.  Terr.  765,  49 
S.  W.  50. 

But  the  sheriff  was  held  not  a 
"person  interested"  within  Rev. 
Civ.  St.  1911,  art.  2129,  so  as  to 
prevent  his  appointment  as  a  re- 
ceiver in  a  divorce  action.  Craw- 
ford V.  Crawford  (Tex.  Civ.),  163 
S.  W.  115. 

s  Todd  V.  Rich,  2  Tenn.  Ch.  107; 
but  see  Miller  v.  Jones,  39  111.  54. 

9  A  person  who  had  been  the  as- 
signee under  a  general  assign- 
ment of  the  property,  which  had 
been  set  aside  on  the  ground  of 
having  been  fraudulent,  is  not 
eligible  for  appointment  of  re- 
ceiver over  the  property,  since  he 
might  be  compelled  to  account  to 
himself.  Eichberg  v.  Wickham,  21 
N.  Y.  Supp.  647. 

Smith  V.  New  York  Consol. 
Stage  Co.,  28  How.  Pr.  (N.  Y.) 
208;  Williamson  v.  Wilson,  1 
Bland.  Ch.  (N.  Y.)  418.  See,  Han- 
over Fire  Ins.  Co.  v.  Germania  F. 
Ins.  Co.,  33  Hun  (N.  Y.)  539; 
Wynne  v.  Lord  Newborough,  15 
Ves.  Jr.  283. 


WHO    MAY    BE    APPOINTED    RECEIVERS. 


•J77 


§  64.    Eligibility  of  Attorneys,  Trustees,  and  the  Like. 

Generally  the  trustee  of  an  estate  will  not  be  appointed 
receiver  over  it  on  the  theory  that  it  is  his  duty  to  watch 
the  proceedings  in  order  to  see  that  the  receiver  performs 
his  dnty.^ 

Although  in  exceptional  circumstances  as  where  he  has 
a  special  knowledge  of  the  estate,  he  has  been  appointed 
upon  condition  of  receiving  no  compensation.- 

The  theory  of  the  rule  in  this  respect  is  that  one  whose 
duty  it  is  to  watch  the  interests  of  a  person  whose  per- 
sonal interests  may  conflict  with  the  duties  of  the  receiver 
should  not  be  placed  in  a  position  where  any  question 
may  arise  as  to  whom  he  owes  a  primary  duty.  And  for 
the  same  reason  it  is  held  that  a  guardian,  executor  or 
next  friend  of  an  infant  is  ineligible  to  be  appointed  re- 
ceiver over  the  estate  under  his  charge.^ 


1  Anon.  V.  Jolland,  S  Ves.  Jr.  72; 
Sykes  v.  Hastings,  11  Ves.  .Jr.  363; 
Sutton  V.  Jones,  15  Ves.  Jr.  587. 

2  Hebbert  v.  .Tenkins,  cited  in 
Sykes  v.  Hastings,  11  Ves.  Jr.  363. 

A  trustee  may  be  appointed  re- 
ceiver for  the  trust  estate  in  the 
sound  discretion  of  the  court,  if 
it  appear  that  the  appointment 
will  be  for  the  best  interest  of  the 
estate.  Patterson  v.  Northern 
Trust  Co.,  230  111.  334, -82  N.  E.  837, 
affirming  judgment,  132  111.  App. 
63. 

The  solicitor  under  a  commis- 
sion of  lunacy  ought  not  be  ap- 
pointed receiver  of  the  estate  of 
the  lunatic.  Ex  parte  Pincke,  2 
Meriv.  452. 

The  position  of  receiver  is  in- 
compatible with  that  of  trustee 
in  bankruptcy.  In  re  Stuyvesant 
Bank,  5  Ben.  566,  Fed.  Cas.  No. 
13581. 

In  Bury  v.  Newport,  23  Beav.  30, 


a  person  who  had  been  receiver  of 
the  estate  of  a  testator  who  ap- 
pointed the  receiver  as  trustee  cf 
his  estate,  was  continued  as  re- 
ceiver with  compensation. 

Where  it  is  deemed  advisable  to 
appoint  a  trustee  as  such  receiver, 
he  will  generally  be  required  to 
act  without  compensation.  In  re 
Bignell  v.  Chapman  (1892),  1  Ch. 
59. 

3  In  Gardner  v.  Blane,  1  Ha.  cS?, 
a  testamentary  guardian  and  exec- 
utor was  appointed  receiver  on 
condition  that  he  act  without  com- 
pensation. 

The  administrator  of  a  deceased 
partner  may  be  appointed  receiver 
over  the  partnership  estate.  Miller 
V.  Jones,   39   111.   54. 

A  court  will  not  appoint  an  exec- 
utor or  trustee  of  an  estate  as 
receiver  over  thf  same  property, 
Sykes  v.  Hastings,  11  Ves.  Jr.  363; 
Sutton  v.  Jones,  15  Ves.  Jr.  584; 


278 


LAW   OP   RECEIVERS. 


As  a  general  rule  an  attorney  of  any  of  tlie  persons  con- 
nected with  the  litigation  is  held  ineligible/  although 
there  are  cases  in  which  such  attorneys  have  been  ap- 
pointed.^   Attorneys  not  connected  with  the  litigation 


Anon.  V.  Jolland,  8  Ves.  Jr.  72; 
unless  the  circumstances  of  the 
case  render  it  necessary  so  to  do. 
Newport  v.  Bury,  23  Beav.  30; 
Sykes  v.  Hastings,  supra;  but  see 
Bolles  V.  Duff,  54  Barb.  (N.  Y.) 
215;  Miller  v.  Jones,  39  111.  54. 

The  duty  of  the  next  friend  of 
an  infant  to  check  the  accounts 
of  a  receiver  makes  him  ineligible 
to  be  appointed  receiver.  Stone 
V.  Wishart,  2  Madd.  64.  See,  also, 
Taylor  v.  Oldham,  Jac.  527,  where 
Lord  Eldon  refused  to  sanction 
the  appointment  of  the  son  of  the 
next  friend. 

4  An  attorney  in  the  cause  should 
not  be  appointed  receiver.  Baker 
V.  Backus,  Adm'r,  32  111.  79;  Em- 
mons v.  Davis  etc.  Pottery  Co.. 
(N.  J.  Ch.),  16  Atl.  157. 

An  attorney  for  a  creditor  of  the 
defendant  should  not  be  appointed, 
since  his  duties  may  conflict  with 
the  interests  of  the  other  parties 
to  the  litigation.  Geyser  Min.  Co. 
V.  Bank  of  Salt  Lake,  16  Utah  163, 
51  Pac.  151;  In  re  T.  L.  Kelly  Dry- 
Goods  Co.,  102  Fed.  747. 

A  member  of  a  firm  of  lawyers 
which  represents  the  complainant 
should  not  be  appointed.  State 
Trust  Co.  v.  National  Land  etc. 
Co.,  72  Fed.  575. 

The  law  partner  of  plaintiff's 
counsel  should  not  be  appointed, 
even  by  consent.  Merchants  etc. 
Bank  v.  Kent,  Circuit  Judge,  43 
Mich.  292,  5  N.  W.  627. 

And  it  has  been  held  that  even 
with  the  consent  of  the  parties, 
the  plaintiff's  solicitor  should  not 


be  appointed,  on  the  ground  that 
it  is  his  duty  to  see  that  the  re- 
ceiver performs  his  duties.  Wat- 
son V.  Arundel,  9  Ir.  Eq.  324. 

Nor  one  of  plaintiff's  attorneys. 
Re  Lloyd,  L.  R.  12  Ch.  Div.  447; 
Garland  v.  Garland,  2  Ves.  Jr.  137; 
not,  however,  if  both  plaintiff 
and  defendant's  attorneys  are  ap- 
pointed. See,  also,  Shannon  v. 
Hanks,  88  Va.  338,  13  S.  E.  437. 

That  a  temporary  receiver  is 
connected  with  the  firm  of  counsel 
for  complainant  in  the  suit  in 
which  he  was  appointed  renders 
him  ineligible  for  the  appointment 
of  permanent  receivers.  State 
Trust  Co.  v.  National  Land  I.  & 
Mfg.  Co.,  72  Fed.  575. 

Under  the  English  practice  it 
has  been  held  that  the  solicitor 
of  a  party  ought  not  be  appointed 
because  it  is  his  duty  to  check 
the  receiver's  accounts.  Garland 
V.  Garland,  2  Ves.  Jr.  137;  Wilson 
V.  Poe,  1  Hog.  322;  Re  Lloyd,  12 
Ch.   D.   449. 

5  Attorneys  of  the  parties  to  the 
litigation  have  been  appointed  and 
appellate  courts  have  refused  to 
regard  such  appointments  as  an 
abuse  of  discretion.  Fisher  v. 
Southern  Loan  &  Trust  Co.,  138 
N.  C.  90,  50  S.  E.  592;  Shannon  v. 
Hanks,  88  Va.  338,  13  S.  E.  437. 

In  suit  by  minority  stockholders 
against  corporation,  charging  mis- 
management and  fraud  of  major- 
ity, it  is  not  necessarily  wrong  to 
appoint  an  attorney  in  the  cause 
receiver,  though  practice  is  not  to 
be  commended,  unless  by  consent. 


WHO    MAY   BE   APPOINTED   RECEIVERS.  279 

have  universally  been  held  competent  for  appointment.^ 
But  the  fact  that  a  person  had  been  acting  as  a  trustee 
of  the  receivership  property  will  not  disqualify  him  from 
being  appointed  where  he  is  not  so  acting  at  the  time  of 
the  appointment."^ 

§  65.   EUgibility  of  Court  or  Other  Officials. 

Upon  the  ground  that  one  of  the  duties  of  a  Master  in 
Chancery  is  to  look  over  and  check  the  accounts  of  a  re- 
ceiver, it  has  been  held,  under  the  English  practice,  that 
he  is  ineligible  to  be  appointed  receiver, ^  and  the  practice 
has  also  been  followed  in  this  country.^  And  a  person 
whose  privileges  are  such  as  not  to  subject  him  to  tlie 
ordinary  process  of  the  courts  by  commitment  as  for  con- 
tempt, such  as  a  peer  of  the  realm  has  been  ineligible.^ 

Clerks  of  court  have  been  appointed  as  receivers,  but 
they  are  not  by  virtue  of  their  ofSces  receivers,^' and 
necessarily  act  as  individuals,  although  a  contrary  view 
would  appear  from  one  of  the  decisions.^  In  some  in- 
stances the  right  of  a  clerk  of  court  to  be  appointed  re- 

Mitchen   V.  Aulander  Realty   Co.,  But  it  has   been  held   that  the 

169  N.  C.  516,  86  S.  E.  358.  appointment  of  a  master  in  chan- 

6  But  there  is  no  objection  other-  eery,  who  is  a  party  to  the  suit 

wise    to    a   solicitor   or   barrister  as   receiver,   is   harmless   error  if 

where    he    is    eligible    to    be    ap-  the  decree  is  otherwise  harmless 

pointed  receiver.     Delia  Camea  v.  Briggs  v.  Reynolds,   176  111    App 

Hay  ward,     M'Clell.     &     Y.     272;  420. 

Wynne    v.    Lord    Newbrough,    15  9A+t^^„„„r. 

17       oo^     TTT.,             „           6,-1..^  3  Attorney-General  v.  Gee    2  V 

Ves.  284;   Wilson  v.  Poe,  1  Hogan  &  b    208 

822;    Garland  v.   Garland,   2   Ves. 

Jr.  137.  4  Hammer   v.    Kaufman,    39    111. 

T  Patterson    v.    Northern    Trust  !J'  ^^""^  ""•  B^-^^don.  84  N.  C.  128; 

Co..  132  111.  App.  208;   judgments  l^f    v.    Odom,    86    N.    C.    432; 

affirmed  82  N.  E.  837,  230  111.  334,  ^^^t^''^  ""■  Carroll,  9  Yerg.  (Tenn.) 

and  231  III.  22,  121  Am,  St.   Rep.'  "^^^' 

299,  82  N.  E.  840.  In  a  South  Carolina  case  it  was 

1  Ex  parte   Fletcher,   6  Ves.   Jr.  ^^^^  improper  to  appoint  a  clerk 

427;  Stone  V.  Wishart,  2  Madd.  63.  ^^   court    as    receiver.      White    v. 

2Benneson  v.   Bill,   62  111.   408;  Britton,  72  S.  C.  175,  51  S.  E.  547. 

Kilgore  V.  Hair,  19  S.  C.  486;  Allen  5  The    court    may    appoint    the 

V.  Cooley,  60  S.  C.  353,  38  S.  E.  622.  clerk  of  court  to  be  receiver    a;  d 


280  LAW   OF   RECEIVERS. 

ceiver  is  eitlier  prohibited  entirely  by  statute  or  only 
allowed  upon  tlie  written  consent  of  all  of  the  parties.*^ 
And  under  the  English  practice  a  receiver-general  who 
had  given  security  to  the  government  was  held  ineligible/ 

§  66.    Effect  of  Relationship  to  Judge  or  Parties. 

The  acts  of  Congress  and  the  statutes  of  the  various 
states  generally  contain  provisions  wdiich  contain  prohi- 
bitions against  persons  holding  certain  relationships 
toward  the  appointing  judge  being  appointed.  These  leg- 
islative enactments  are  salutary  rules  which  are  the  re- 
sults of  the  exercise  of  nepotism  on  the  part  of  some 
courts  to  the  detriment  of  the  litigants.^ 

Where  a  person  who  was  related  to  one  of  the  parties 
and  also  to  one  of  the  creditors  was  an  active  partici- 
pant in  the  controversy  involved  in  the  litigation,  it  was 
held  that  he  w^as  an  improper  person  to  act  as  receiver.^ 
But  unless  some  special  unfitness  or  bias  can  be  shown, 
we  know  of  no  objections  against  the  appointment  of  a 
relative  of  any  of  the  parties  to  the  litigation  in  the  ab- 

his   sureties   on   his    official   bond      would  not,  however,  be  applicable 

will  be  liable.     Waters  v.  Melson,      in  a  case  where  the  receiver  fur- 

112  N    C    89    16  S    E    918.  nishes  a  bond  to  secure  the  funds 

.,..„„      passing  through  his  hands. 
6  A  creditor  is  not  by  the  mere      ^      _^,  "=  ,  . 


fact  of  being  a  creditor  disquali- 


1  Where  no  objection  was  made 
at  the  time  of  the  appointment  of 

fled  from  being  appointed  receiver.  ^  receiver  that  he  was  a  relative 

Barber    v.    International    Co.,    73  ^^  ^^^  j^^g^   ^^^^j   ^^   showing   is 

Conn.   587,  48   Atl.  758;    Moore  v.  ^ade   that   he    is    incompetent  or 

Taylor,  40  Hun   (N.  Y.)    56.  untrustworthy,    or    any    evidence 

7  In  Attorney-General  v.  Day,  2  that  he  is  such  a  relative  except 

Madd.   246,   it  was   held  that  the  an  affidavit  that  the  affiant  is  so 

receiver-general  of  a  county  who  informed  and   believes,   the   court 

in  that  capacity  had  given  security  will    not    consider    the    objection, 

to  the  Crown  to  secure  any  indebt-  State  v.  Farmers'  etc.  Ins.  Co.,  90 

edness  which  might  accrue  to  it,  Neb.    664,    Ann.    Cas.    1913B,    643, 

was    not   a    proper   person    to    be  134  N.  W.  284. 

apiiointed,  since  the  Crown  might  In  this  connection,  see  statutes 

by  its  process  take  all  of  his  prop-  of  the  various  states, 

erty.  2  Williamson  v.  Wilson,  1  Bland. 

The  reasoning  of  the  above  case  (Md.)   418. 


WHO    MAY    BE    APPOINTED    RECEIVERS.  281 

sence  of  statutory  prohibition  or  limitation.  Courts,  bow- 
ever,  in  sucb  cases  sbould  be  astute  to  ascertain  that  sucb 
a  person  is  impartial  and  competent  for  the  trying  du- 
ties w^bicb  may  be  exacted  of  him. 

§  67.  Whether  Candidate  for  Receiver  May  be  a  Non-Resident. 
Ordinarily  a  receiver  should  not  be  appointed  who  re- 
sides outside  of  the  jurisdiction  of  the  appointing  court,^ 
but  he  need  not  necessarily  be  a  resident  of  the  district 
in  which  he  is  appointed.^  It  is  obvious,  however,  that  he 
should  reside  where  he  is  subject  to  the  process  of  the 
court  which  appoints  him. 

An  ancillary  receiver  need  not  be  a  resident  of  the  state 
in  which  he  is  appointed.^ 

§  68.    Eligibility  of  a  Corporation  to  Act  as  Receiver. 

It  is  not  essential  that  a  receiver  be  an  individual.  The 
court  may  appoint  a  corporation  to  act  as  a  receiver  if 
the  corporation  has  power  under  its  charter  to  act  in 
that  capacity.^  This  is  merely  in  accord  with  the  rule 
which  permits  trust  companies  to  act  as  executors  and 
trustees.  The  wisdom  of  permitting  a  corporate  body 
which  can  act  only  through  various  corporate  officers  to 
act  as  an  officer  of  the  court  in  the  capacity  of  a  receiver, 
may  well  be  questioned  on  the  ground  that  only  a  tliink- 
ing  individual  can  properly  interpret  the  orders  and  di- 
rections of  the  court  in  those  instances  where  time  is  not 
available  for  the  advice  of  coimsel. 

1  Chamberlain  v.  Greenleaf,  4  state,  however,  that  if  the  receiver 
Abb.  N.  C.  (N.  Y.)  92;  Watson  v.  resides  at  a  great  distance  from 
Bettman,  88  Fed.  825.  the  property  of  which  he  has  con- 

2  Bayne  v.  Brewer  Pottery  Co.,  trol,  it  may  prove  detrimental  to 
82  Fed.  391.  the  interests  of  the  company." 

In  McGilliard  v.  Donaldsonville  3  Bayne  v.  Brewer  Pottery  Co. 

etc.    Mach.    Works,    104    La.    544,  82  Fed.  391. 

81   Am.  St.   Rep.   145,   29    So.   254,  i  In  re  Knickerbocker  Bank,  19 

in  answer  to  an  argument,  which  Barb.    (N.  Y.)    602;    Roby  v.  Title 

was    not    properly    raised    by    the  Guarantee    etc.    Co.,    166    111.    336, 

record,  the  court  said:     "V/e  will  46  N.  B.  1110. 


282  LA.W   OP   RECEIVERS. 

§  69.    Method  Used  by  the  Court  in  Making  the  Selection. 

The  course  of  practice  which  obtained  with  the  English 
Court  of  Chancery  in  respect  to  the  selection  of  a  receiver 
was  to  refer  the  question  to  a  Master  in  Chancery.  The 
interested  parties  then  appeared  before  the  master  and 
presented  the  various  candidates  and  their  qualifications, 
whereupon  he  made  the  appointment  and  reported  it  to 
the  court.^ 

The  English  practice  was  followed  in  New  York  prior 
to  the  adoption  of  the  code  system  of  procedure  in  that 
state. - 

Where  the  matter  of  appointment  was  referred  to  a 
master  under  the  English  practice  his  judgment  was  con- 
clusive unless  some  substantial  proof  was  given  to  the 
contrar}^=^  and  his  action  was  never  disturbed  except  on 
special  grounds.* 

And  when  the  appointment  was  made  by  the  Master  in 
Chancery,  objections  not  based  on  principles  of  law  were 
not  considered.^ 

The  decision  of  the  trial  court  in  respect  to  the  selec- 
tion of  the  receiver  was  not  disturbed  unless  the  objection 
to  the  appointment  substantially  amounts  to  an  abuse  of 
discretion.^  The  mere  claim  that  the  nominee  rejected  by 
the  master  in  making  his  appointment  was  more  compe- 

1  Thomas  v.  Dawkin,  1  Ves.  Jr.  iams,  6  Yes.  Jr.  459;  Tharpe  v. 
452;    Garland   v.    Garland,   2   Ves.      Tharpe,  12  Ves.  Jr.  317. 

Jr.  137;  Tharpe  v.  Tharpe,  12  Ves.  4  Tharpe  v.  Tharpe,  12  Ves.  Jr. 

317;  Wynne  v.  Lord  Newborough,  320;    Bowersbank    v.    CoUosseau, 

15  Ves.  283.  3  Ves.  Jr.  164;  Creuze  v.  London, 

2  In  re  Eagle  Iron  Works,  8  2  Bro.  C.  C.  256;  Garland  v.  Gar- 
Paige  (N.  Y.)   385.  land,  2  Ves.  Jr.  137;  Anon.,  3  Ves. 

3  Garland  v.  Garland,  2  Ves.  Jr.  Jr.  515;  Wllklns  v.  Williams,  3 
137;  Creuze  V.  London,  2  Bro.  C.  C.  Ves.  Jr.  588;  Thomas  v.  Dawkin, 
253;  Thomas  v.  Dawkin,  1  Ves.  3  Bro.  C.  C.  508;  Re  Eagle  Iron 
Jr.  452;  Anon.,  3  Ves.  Jr.  515;  Wil-  Works,  8  Paige  (N.  Y.)  385. 

kins  V.  Williams,  3  Ves.  Jr.  588;  5  Cookes  v.  Cookes,  2  DeG.  J.  & 

see  Wynne  v.  Lord  Newborough,       S.  530. 

15  Ves.  Jr.   283 ;    Hughes  v.  Will-  6  Perry  v.   Oriental  Hotels   Co., 


WHO    MAY   BE   APPOINTED    RECEIVERS  283 

tent  than  tlie  one  selected  was  held  insufficient  to  induce 
the  court  to  consider  the  matter^ 

In  making  the  selection  of  the  receiver  the  circum- 
stances shown  by  the  pleadings  and  the  interests  of  the 
various  parties  are  naturally  considered.^ 

In  exercising  its  discretion  in  selecting  the  receiver 
the  court  is  open  to  receive  suggestions  and  recommenda- 
tions from  the  litigants  and  parties  interested  in  the  liti- 
gation. Other  things  being  equal  and  the  persons  pro- 
posed by  the  various  parties  to  the  proceeding  being 
unobjectionable,  the  court  will  give  preference  to  the 
suggestion  made  by  the  plaintiff.'* 

A  stranger  to  the  proceeding  is  not  allowed  to  partici- 
pate in  the  selection  of  the  party  to  be  appointed 
receiver. ^*^ 

If  the  litigants  can  agree  upon  a  person  to  be  selected 
by  the  court  as  receiver,  the  court  will,  if  it  deems  the 
person  selected  a  proper  one,  accept  the  selection  so 
made,  and  in  the  event  that  the  litigants  have  made  a 
private  agreement  with  him  in  respect  to  his  compensa- 
tion, may  also  approve  such  a  contract. ^^   Where  the  bill 

L.  R.  5  Ch.  421;  Northard  v.  Proc-  holders'    suit   against   corporation 

tor,  1  Ch.  D.  4.  lies    largely    in    discretion    of   the 

Inasmuch  as  the  appointment  is  court.   Mitchell  v.  Aulander  Realty 

peculiarly  within  the  judicial  dis-  Co.,  169  N.  C.  516,  86  S.  E.  358. 

cretion    of    the    court    appointing,  T  Anonymous,  3  Ves.  515. 

it  is  rarely  that  the  appellate  court  8  Wood  v.  Hitchings,  4  Jur.  858. 

will   interfere   with   the    selection  9  Wilson    v.    Poe,    1    Hog.    322; 

made.     Cookes  v.  Cookes,  2  De  G.  Watkins  v.  Worthington,  2  Bland. 

J.    &    S.    526;    but    see    Perry    v.  (Md.)   509. 

Oriental    Hotel    Co.,    L.    R.    5    Ch.  lo  Attorney  General    v.    Day,    2 

App.   420;    Gardner  v.   Howell,   60  Madd.  246. 

Ga.    11;    Gunby   v.    Thompson,    56  The  proposal  of  a  person  as  a 

Ga.    316;     Crawford    v.    Spurling,  receiver  must  come  from  a  party 

56  Ga.  611;   Robenson  v.  Ross,  40  interested  in  the  litigation.    Bagot 

Ga.  375;   Cohen  v.  Meyers,  42  Ga.  v.  Bagot,  2  Jur.  1063. 

46;    Reid  v.  Reid,  38   Ga.   24;    Re  n  In  Polk  v.  Johnson,  160  Ind. 

Eagle  Iron  Works,  8  Paige  (N.  Y.)  292,  98  Am.  St.  Rep,  274,  66  N.  E. 

385.  752,  the  court  said:     "We  assume 

Selection  of  receiver  in  a  stock-  at  the  outset  that  there  is  no  rea- 


284 


LAW   OF   RECEIVERS. 


prays  for  tlie  appointment 
receiver  and  the  court  appo 

sonable  ground  for  discussion  upon 
the  first  proposition  advanced  by 
appellee,  viz.,  that  the  litigants 
have  no  power  to  select  a  receiver 
for  the  court  by  private  agree- 
ment, even  though  such  agreement 
is  based  upon  their  viev^^s  of  the 
fitness  of  the  one  chosen,  and 
economy  to  the  trust  in  his  ap- 
pointment. We  also  take  it  to  be 
generally  acknowledged  that  the 
appointment  of  the  receiver,  and 
the  fixing  of  his  compensation,  are 
judicial  acts  that  can  not  be  abdi- 
cated by  the  court  to  one  or  both 
the  parties  to  the  suit.  But  while 
it  must  be  conceded  that  the  ulti- 
mate appointments  rest  solely 
with  the  court  to  be  determined 
by  the  exercise  of  his  discretion, 
we  find  no  principle  recognized  by 
the  authorities,  or  supported  by 
sound  reason,  that  forbids  the 
judge  the  freest  access  to  the 
counsels  and  opinions  of  those  in- 
terested in  the  trust,  with  respect 
to  the  proper  selection.  Indeed 
there  are  many  reasons  why  the 
cautious  judge  would  seek  the  ad- 
vice of  others,  in  cases  where  he 
has  imperfect  knowledge  of  the 
fitness  of  available  men,  even  out- 
side the  parties  in  interest.  There 
is  nothing  peculiar  in  the  appoint- 
ment of  a  receiver,  that  his  selec- 
tion must  be  evolved  wholly  from 
the  personal  knowledge  and  obser- 
vations of  the  judge. 

"The  usual  course  of  practice  in 
the  English  Court  of  Chancery  in 
such  matters  was  to  refer  the  se- 
lection to  a  master.  Then  inter- 
ested parties  were  at  liberty  to 
appear  before  the  master  and 
nominate    suitable    persons,    from 


of   a   particular   person   as 
ints  such  person,  it  will  be 

among  whom  the  master  would 
choose  the  one  whose  qualifica- 
tions and  fitness  his  judgment 
most  approved,  and  report  his  se- 
lection to  the  court.  A  similar 
practice  also  prevailed  in  New 
York  prior  to  the  adoption  of  the 
present  Code  of  Procedure.  High 
on  Receivers,  3d  ed.,  §§  63,64. 

"The  same  considerations  that 
induced  the  reference  to  a  master 
under  the  old  practice  are  now 
applicable  to  the  judge,  who  is 
called  upon  to  act  without  refer- 
ence, and  who  will  usually  give 
favorable  consideration  to  one 
who  has  been  agreed  upon  by  the 
parties.  High  on  Receivers  (3d 
ed.),  §65;  Beach  on  Receivers, 
(2d  ed.),  §§30,  31;  Smith  on  Re- 
ceivers 62. 

"But  it  is  argued  that  the  agree- 
ment entered  into  for  the  purpose 
of  influencing  the  appointment 
was  an  unwarrantable  interfer- 
ence with  the  freedom  of  judicial 
action,  and  invalid  for  public  pol- 
icy. It  will  be  borne  in  mind  that 
in  the  appointment  of  a  receiver, 
or  other  such  administrative 
officer,  the  chief  ends  to  be  at- 
tained are  efficiency  and  economy 
in  the  administration  of  the  trust. 
It  ;s  the  officer  and  not  the  mode 
of  selection  that  the  law  regards 
as  important;  and,  outside  those 
prohibited  by  statute,  the  judge, 
in  the  exercise  of  his  sound  discre- 
tion, will  select  from  those  avail- 
able the  one  whom  he  believes, 
from  all  the  circumstances,  will 
give  the  most  beneficial  service. 
And  if  efficiency  and  economy  can 
be  secured  by  private  agreement, 
open  and  fairly  entered  into,  with 


WHO    MAY    BE    APPOINTED    RECEIVERS. 


285 


pi'csumed  that  the  court  made  the  appointment  on  its 
own  judgment.^-  According  to  the  practice  obtaining  in 
the  Irish  Court  of  Chancery,  it  is  not  the  practice  to 
appoint  a  person  as  receiver  who  has  been  agreed  upon 
by  the  parties. ^^ 

The  eligibility  of  one  acting  as  a  receiver  can  not  be/i 
raised  in   a  collateral   action.     The  question  must   be' 
raised  before  the  appointing  court. ^* 

An  objection  to  the  personnel  of  a  receiver  is  made  too 
late  if  not  interposed  until  over  three  years  after  the 
appointment.  Such  an  objection  should  be  made  at  the 
time  of  the  appointment.^^  And  where  one  has  consented 
to  the  appointment  of  a  particular  person,  he  is  estopped 
to  object  that  the  receiver  is  disqualified  by  interest 
within  the  meaning  of  the  statute. ^*^ 


one  who  is  willing  to  perform  the 
work  of  administering  for  consid- 
erations moving  to  him  wholly 
outside  the  trust,  we  perceive  no 
principle  of  law,  or  public  policy, 
that  forbids  the  making  of  such  a 
contract.  The  court  will  closely 
scrutinize  the  bargain,  when 
known  to  him,  and  if  it  seems 
clear  that  the  bargainer  is  quali- 
fied, and  the  contract  free  from 
overreaching  and  will  be  bene- 
ficial to  the  trust,  the  court  may 
properly  respect  the  contract,  and 
make  the  appointment  in  pur- 
suance of  its  terms.  State  v.  John- 
son, 52  Ind.  197;  Ross  v.  Conwell, 
7  Ind.  App.  375,  34  N.  E.  752; 
Bate  V.  Bate,  74  Ky.  (11  Bush) 
G39;  Ephraim  v.  Pacific  Bank,  136 
Cal.  646,  648,  69  Pac.  436;  Steel 
V.  Holladay,  19  Ore.  517,  25  Pac. 
77;  Secor  v.  Sentis,  5  Redf.  Sur. 
(N.  Y.)  570;  Bowker  v.  Pierce,  130 
Mass.  262;  In  re  Hopkins,  32  Hun 
(N.  Y.)  618;  Rote  v.  Warner,  9 
Cliio   C.   D.   536,  540,   17   Ohio  Cir. 


Ct.  Rep.  342,  350;  McCaw  v. 
Blewit,  2  McCord  Eq.  (S.  C.)  90; 
Bassett  v.  Miller,  8  Md.  548;  Dol- 
field  V.  Kroh,  62  Md.  XI;  Koch's 
Estate,  148  Pa.  St.  159,  23  Atl. 
1057;  In  re  Hay's  Estate,  183  Pa. 
St.  296,  38  Atl.  622;  Kerr  on  Re- 
ceivers, 3d  ed.,  185." 

In  this  respect  see,  also,  Han- 
over Fire  Ins.  Co.  v.  Germania 
Fire  Ins.  Co.,  33  Hun  (N.  Y.)   539. 

12  Johns  V.  Johns,  23  Ga.  31. 

13  Leach  v.  Tisdal,  4  Ir.  Ch. 
(N.  S.)   209. 

li  Metropolitan  Nat.  Bank  v. 
Commercial  State  Bank,  104  Iowa 
682,  74  N.  W.  26;  Missouri  Pac. 
Ry.  Co.  v.  Love,  61  Kan.  433,  59 
Pac.  1072. 

15  Patterson  v.  Northern  Trust 
Co.,  132  111.  App.  208;  judgments 
affirmed,  82  N.  E.  837,  230  111.  334, 
and  82  N.  E.  840,  231  111.  22,  121 
Am.  St.  Rep.  299. 

i«  East  Tennessee  Telephone 
Co.  V.  Watson,  147  Ky.  462,  144 
S.  W.  375. 


286  LAW   OF   RECEIVERS. 

The  same  person  will  not  be  appointed  receiver  in  two 
cases  where  the  suits  are  conflicting.^^ 

The  court  may  appoint  several  persons  as  receivers. 
In  fact  it  is  a  common  practice  where  the  property  con- 
sists of  a  large  business  to  appoint  two,  and  sometimes 
in  the  case  of  railway  receiverships,  three  receivers.^** 

As  a  general  rule  the  appointment  of  a  receiver  rests  in 
the  sound  judicial  discretion  of  the  court  so  far  as  the 
person  selected  is  concerned,  under  all  the  circumstances 
of  the  particular  case,^^  but  the  court  will  favorably  con- 
sider the  selection  of  the  parties  in  interest  and  will 
invite  suggestions  and  recommendations. -° 

The  same  rules  which  apply  to  the  appointment  made 
by  a  master  are  equally  applicable  to  a  selection  made  by 
the  court,  and  the  discretion  given  to  the  court  in  the 
selection  is  rarely  interfered  with.-^ 

The  selection  of  receivers  in  classes  of  cases  in  which 
special  qualifications  or  circumstances  are  considered  in 
the  selection,  such  as  in  respect  to  corporations,  public 
utilities,  mortgages,  and  the  like,  will  be  further  con- 
sidered under  their  respective  heads. 

17  Re  City  etc.  Ins.  Co.,  25  W.  R.  19  Smith   v.    New   York   Consol, 

342.  Stage    Co.,    28    How.    Pr.    (N.    Y.) 

islnGay  V.Hudson  River  Elec-      208;     Williamson     v.     Wilson.     1 

Bland.    Ch.    (Md.)    418;    Perry    v. 


trie  Power  Co.,  173  Fed.  1003, 
three  receivers  were  appointed  in 
a  creditor's  bill    to    wind  up  the 


Oriental  Hotels  Co.,  L.  R.  5  Ch. 
App.  420;  Cookes  v.  Cookes,  2 
De  G.  J.  &  S.  526. 


affairs    of   eight   corporations    en-  20  Watkins    v.    W^orthington,    2 

gaged  in  the  production  and  sale  Bland.    Ch.    (Md.)     509;     Hanover 

of  electrical  power  and  gas,  and  ^ive  Ins.  Co.  v.  Germania  F.  Ins. 

which  were   run   as   one   corpora-  qq^  33  Hun  (N.  Y.)   539 

tion.  21  Williamson      v.      W^ilson,      1 

Three    receivers    were   also    ap-  Bland.  Ch.  (Md.)  418;   Shannon  v. 

pointed  in  the  Northern  Pac.  Rail-  Hanks,  88  Va.  338,  13   S.  E.   437; 

road    Co.    receivership.     Farmers'  Cookes  v.  Cookes,  2  De  G.  J.  &  S. 

Loan    &    Trust    Co.    v.    Northern  526;   Perry  v.  Oriental  Hotels  Co., 

Pac.  R.  Co.,  61  Fed.  546.  L.  R.  5  Ch.  App.  420. 


CHAPTER  V. 

TRUST  ESTATES  AND  FIDUCIARY  RELATIONS. 

1.    Trusts  and  Trust  Relations. 
§  70.    General  Principles  Applicable. 

The  jurisdiction  over  trusts,  express  and  implied,  being 
always  one  within  the  domain  of  a  court  of  equity,  it  is 
obvious  that  a  court  of  equity  has  an  inherent  power  to 
displace  a  trustee  by  substituting  a  receiver  whenever 
the  case  is  brought  within  the  general  equitable  princi- 
ples essential  for  the  appointment  of  a  receiver.  Follow- 
ing the  general  rule  applicable  to  all  cases  of  receiver- 
ship, it  is  apparent  that  there  must  be  some  misconduct 
on  the  part  of  the  trustees  or  conditions  of  the  trust  fund 
which  show  danger  of  an  impending  irreparable  loss,  in 
order  to  justify  the  remedy  of  receivership.^ 

Courts  are  reluctant  to  taking  property  out  of  the 
hands  of  a  trustee  under  an  express  trust,  in  whose  fitness 
and  integrity  the  creator  of  the  trust  has  shown  his  con- 
fidence by  placing  the  administration  of  the  trust  in  him, 

1  Latham  v.  Chafee,  7  Fed.  525.  ing:    "It  is  a  well  settled  principle 

Where    nothing   is    shown    indi-  of  law  that  courts  of  equity  have 

eating  a  breach   of  trust   on   the  jurisdiction  of  all  questions  rela- 

part    of    the    trustee    chosen    by  tive  to  the  establishment,  protec- 

agreement,  and  nothing  indicating  tion,    enforcement,    and    preserva- 

danger  to  the  trust  fund,  the  trus-  tion    of   trusts,   on   either    real   or 

tee   will   not  be   enjoined   in   the  personal  property,   and   this   they 

management   of  the   trust   estate,  may   do   upon   the   application   of 

nor    will    a    receiver    be    immedi-  the  person  or  persons  interested, 

ately  appointed.   Gale  v.  Sulloway,  39  Cyc.  588.   A  court  of  equity  has 

62  N.  H.  57.  jurisdiction  in  the  suit  of  a  cestui 

Courts   of  equity  have   jurisdic-  que  trust  to  enforce  the  trust,  or 

tion  over  all  questions  relative  to  change    the    trustee,    and    compel 

the    establishment    and    preserva-  any  person,  who  has  gotten  pos- 

tion  of  trusts  and  may  act  upon  session   of   the   trust   fund    know- 

the  application  of  any  one  inter-  ingly,    to    surrender    it.      Bixler's 

ested.    Holbrook  v.  Fyffe,  164  Ky.  Trustee  v.  Taylor,  3  B.  Men.   (42 

435,  175  S.  W.  977,  the  court  say-  Ky.)  362." 

(287) 


283 


LAW    OF   RECEIVERS. 


and  by  its  order  placing  it  in  the  liands  of  a  receiver,  and 
they  will  not  do  so  upon  slight  grounds.^  In  other  words, 
a  strong  case  must  be  shown  in  order  to  displace  a 
trustee  who  is  willing  to  act  by  the  appointment  of  a 
receiver.=^  The  court  will  not,  of  course,  interfere  by  the 
appointment  of  a  receiver  if  the  plaintiff  may  obtain 
relief  through  an  adequate  remedy  at  \a^v^   Courts  have 


2  For  a  case  in  which  the  allega- 
tions of  the  bill  were  held  insuffl- 
cient  to  warrant  the  court  in 
taking  property  from  the  hands  of 
trustees  and  placing  it  in  the  cus- 
tody of  a  receiver,  see  Pyles  v. 
Riverside  Furniture  Co.,  30  W.  Va. 
123  (145),  2  S.  E.  909. 

In  Rousseau  v.  Call,  169  N.   C. 
173,  85  S.  E.  414,  the  court  said: 
"This,  then,  in  our  opinion,  being 
a  trust  fund  for  a  designated  pur- 
pose,   it    was    clearly    within    the 
power  of  the  court,  exercising  jur- 
isdiction   in    law    and    equity,    to 
appoint    a    receiver    whenever    it 
was   sufficiently   made   to    appear 
that  such  a  course  was  necessary 
to  the  preservation  of  the  fund  or 
a  due  and  proper  execution  of  the 
trust.      5    Pomeroy,   Equity   Juris- 
prudence, §  89;  Kerr  on  Receivers, 
pp.  20,  21;  Alderson  on  Receivers, 
§  474.     True  it  is  that  the  posses- 
sion and  control  of  a  trustee  will 
not   be   disturbed   on   light  or   in- 
sufficient   grounds     (2     Perry    on 
Trusts,     §819),     but,     the     power 
being  conceded  or  existent  beyond 
question,    and    the    court,    in    the 
exercise  of  its  jurisdiction,  having 
entered  judgment  appointing  plain- 
tiff receiver,   its   judgment  is   not 
open     to    collateral     attack,     and, 
even    if    the    order    was    improvi- 
dently   made,  its   propriety  is  not 
open  to  question  on  this  suit." 
Etowah  Min.  Co.  v.  Wills  Valley 


Min.  etc.  Co.,  106  Ala.  492,  17  So. 
522;  Latham  v.  Chafee,  7  Fed. 
525;  Middleton  v.  Dodswell,  13 
Ves.  268;  Barkley  v.  Lord  Reay,  2 
Hare  306;  Poythress  v.  Poythress, 
16  Ga.  406;  Ogden  v.  Kip,  6  Johns. 
Ch.   (N.  Y.)    160. 

The  appointment  of  a  receiver 
and  the  taking  away  through  him 
of  the  control  of  an  old  and  estab- 
lished business  from  the  hands  of 
a  trustee  who  has  had  an  active 
interest  therein  for  years  and  who 
was  acting  under  the  direction  of 
a  court  of  chancery,  without  any 
showing  of  cause  therefor,  and 
without  the  consent  of  the  major- 
ity interest  in  the  trust,  is  im- 
proper. Rich  V.  MuUoney,  121  111. 
App.  503. 

3  Poythress  v.  Poythress,  16  Ga. 
406;  Smith  v.  Smith,  2  Y.  &  C. 
361;  Bainbridge  v.  Blair,  4  L.  J. 
Ch.   (N.  S.)   207. 

4  That  the  holder  of  notes  of  a 
club,  known  to  him  to  be  ultra 
vires,  threatened  to  foreclose  the 
deed  of  trust  securing  them,  held 
no  ground  fftr  a  receiver,  as  the 
invalidity  of  the  notes  could  be 
collaterally  set  up  against  any 
sale.  Price  v.  Bankers'  Trust  Co. 
of  St.  Louis,   (Mo.)   178  S.  W.  745. 

The  allegation  that  in  the  event 
of  the  proposed  sale  by  the  trus- 
tees, defendants  would  collect  the 
attorney's  fees  and  trustee's  fees 
provided    for    in    the    notes    and 


TRUST    ESTATES    AND    FIDUCIARY    RELATIONS.  289 

always  very  jealously  guarded  and  protected  the  rights 
of  the '  beneficiaries  to  a  trust  fund  and  the  trustee  is 
required  to  exercise  the  greatest  care  and  diligence  in 
the  care  and  management  of  the  trust  property.  Receiv- 
erships in  so  far  as  they  are  applicable  to  trust  properties 
and  trustees  usually  occur  in  connection  with  trusts, 
either  express  or  implied,  arising  out  of  the  relation  of 
the  ordinary  express  trusts,  formed  for  the  various  pur- 
poses for  which  such  trusts  have  been  created,  testa- 
mentary executors,  administrators,  guardians  of  infants 
and  insane  persons,  and  other  fiduciary  relations  created 
by  statute  or  agreements  of  the  parties. 

But  the  appointment  of  a  receiver  in  lieu  of  a  receiver 
rests  in  the  sound  judicial  discretion  of  the  court  as  in 
the  appointment  of  receivers  generally.^ 

§  71.    Various  Circumstances  in  Which  Receiver  Appointed  in 
Lieu  of  Trustee. 

A  receiver  may  be  appointed  in  lieu  of  a  trustee 
where  the  trustee  has  misappropriated  or  lost  the  trust 
property,!  or  where  a  trustee  is  guilty  of  misconduct, 

deeds  of  trust,  and  which  were  of  creditors  and  to  appoint  a  re- 
alleged to  be  unreasonable,  clearly  ceiver  for  the  trust  property  to  be 
is  not  an  equitable  ground  for  a  sufficient  must  contain  full  and 
receivership.  Floore  v.  Morgan,  precise  allegations  showing  the 
(Tex.  Civ.)   175  S.  W.  737.  necessity  for  the  removal  and  that 

5  Janeway  v.  Green,  16  Abb.  Pr.  there  is  danger  of  loss  or  misap- 

(N.  Y.)    215,  note.  propriation  of  the  trust  property. 

1  Gildersleeve  v.  Lester,  68  Hun  Baltimore    Bargain    House    v.    St. 

(N.  Y.)  532,  22  N.  Y.  Supp.  1026.  Clair,  58  W.  Va.  565,  52  S.  E.  660; 

Where  a  portion  of  a  trust  fund  Kanawha  Coal  Co.,  v.  Ballard  &  W. 

has  been  lost,  that  loss   is  prima  Coal  Co.,  43  W.  Va.  721,  29  S.  E. 

facie  evidence  of  a  breach  of  duty  514;  Wilson  v.  Maddox,  46  W.  Va. 

on   the   trustees,    sufficient   to   au-  641,  33  S.  E.  775;   Penn  v.  White- 

thorize    the    interference    of    the  heads,  12  Gratt.   (Va.)   74;   Hogg's 

court    by    the    appointment    of    a  Eq.  Proc,   §  745. 

receiver.      Evans    v.    Coventry,    5  It   has    been    said    that   if   from 

D.  M.  &  G.  918.  the  threats  or  acts  of  the  tenant 

A  bill  brought  to  remove  a  trus-  for  Ihe  there  appears  an  inten- 
tee  to  whom  personal  property  tion  of  suffering  the  lease  to  ex- 
has  been  assigned  for  the  benefit  pire  the  court  may  appoint  a  re- 
IRec— 19 


290 


LAW   OF   RECEIVERS. 


waste,  or  other  improper  disposition  of  the  trust  prop- 
erty,2  or  where  he  is  guilty  of  fraud,^  or  where  the  trus- 


ceiver  for  the  estate  to  provide  a 
fund  for  the  renewal.  Bennett  v, 
Colley,  2  M.  &  K.  233. 

2  Evans  v.  Coventry,  5  De  G.  M. 
&  G.  911;  Howard  v.  Papera,  1 
Madd.  142;  Middleton  v.  Dodswell, 
13  Ves.  266. 

Where  a  trustee  is  charged  with 
abusing  his  trust,  a  receiver  may 
be  appointed.  Boyd  v.  Murray,  3 
Johns.  Ch.  (N.  Y.)  48. 

If  it  can  be  satisfactorily  estab- 
lished that  parties  in  a  fiduciary 
position  have  been  guilty  of  a 
breach  of  duty,  there  is  a  suffi- 
cient foundation  for  the  appoint- 
ment of  a  receiver.  Evans  v. 
Coventry,  5  D.  M.  &  G.  918;  Bay- 
lies V.  Baylies,  1  Coll.  537;  Brenan 
v.  Preston,  2  D.  M.  &  G.  839; 
Bainbrigge  v.  Blair,  3  Beav.  421; 
Brooker  v.  Brooker,  3  Sm.  &  G. 
475;  Nothard  v.  Proctor,  1  Ch.  D. 
4;  Hamilton  v,  Gridlestone,  W.  N., 
1876,  202. 

Where  there  has  been  negli- 
gence or  improper  conduct  on  the 
part  of  a  trustee,  and  the  fund  is 
in  danger,  the  appointment  of  a 
receiver  is  a  matter  of  right. 
Jenkins  v.  Jenkins,  1  Paige  (N.  Y.) 
243. 

Where  a  trustee  is  guilty  of  a 
breach  of  trust  and  is  insolvent, 
he  may  be  displaced  by  a  receiver. 
Van  Epps  v.  Van  Epps,  9  Paige 
(N.  Y.)  237. 

Where  there  is  a  trust  fund  in 
danger  of  being  wasted  or  mis- 
applied, a  court  of  equity  will  in- 
terfere, upon  the  application  of 
any  of  the  creditors,  either  in  his 
own  behalf  or  in  behalf  of  himself 
and  the  other  creditors,  and  by  the 
appointment  of  a  receiver,   or  in 


some    other    mode,    grant    relief. 
Jones  V.  Dougherty,  10  Ga.  273. 

A  suit  by  a  beneficiary  against 
the  trustees,  in  which  the  com- 
plaint alleges  delinquencies  on  the 
part  of  the  defendants  as  fiduci- 
aries, is  one  in  which  the  appoint- 
ment of  a  receiver  may  be  asked 
as  ancillary  to  the  suit,  provided 
such  appointment  may  subserve 
the  purpose  of  it.  Hartnett  v.  St. 
Louis  Min.  &  Mill.  Co.,  51  Mont. 
395,  153  Pac.  437. 

Where  a  trust  fund  is  in  danger 
of  misapplication  or  waste,  chan- 
cery will  interfere  at  the  instance 
of  those  interested,  and  appoint 
a  receiver,  or  in  some  other  mode 
prevent  the  destruction  of  the 
fund.  And  this  rule  applies  to 
executors  and  administrators  as 
well  as  other  trustees.  Calhoun 
V,  King,  5  Ala.  523. 

To  warrant  a  court  of  equity  in 
granting  an  injunction  and  re- 
ceiver in  a  suit  for  maladministra- 
tion of  trust  funds,  there  must  be 
proof  that  the  funds  have  been 
Invested  in  some  tangible  prop- 
erty, on  which  complainant  can 
equitably  claim  a  line.  If  moneys 
have  been  so  expended  that  they 
can  not  be  traced  or  identified, 
there  is  no  opportunity  for  these 
remedies  to  attach.  Allen  v.  Freed- 
man's  Savings  &  Trust  Co.,  14  Fla. 
418. 

But  in  the  absence  of  misman- 
agement or  incompetency,  a  re- 
ceiver will  not  be  appointed  if  the 
trustee  has  suflicient  power.  Bux- 
ton v.  Monkhouse,  Coop.  Ch.  41; 
Barkley  v.  Reay,  2  Hare  308. 

3  Vernon  v.  Kinzie,  2  U.  C. 
Jur.  40. 


TRUST   ESTATES   AND    FIDUCIARY    RELATIONS. 


291 


tee  lias  failed  to  obey  an  order  to  pay  over  money  due 
from  him  in  respect  to  an  alleged  breach  of  trust.-'  ) 

A  receiver  may  be  appointed  where  it  is  necessary  to 
prevent  a  transfer  of  property  held  in  trust.^ 

A  receiver  may  be  appointed  where  an  action  is  pend- 
ing to  determine  the  distributive  shares  of  the  benefi- 
ciaries.^ 

Where  disputes  and  dissensions  arise  among  trustees, 
who  are  to  collect  the  rents  of  property  for  beneficiaries, 
as  to  the  management  of  the  property  resulting  in  a 
failure  to  collect  them,  the  beneficiaries  may  have  a 
leceiver  to  collect  the  rents. '^ 

A.  mere  denial  of  holding  property  in  trust  does  not 
render  the  appointment  of  a  receiver  necessary  where 


It  is  not  cause  for  the  appoint- 
ment of  a  receiver  that  trustees 
for  sale  have  let  a  purchaser  into 
possession  before  they  received 
the  purchase-money,  since  the 
court  w^ill  not  necessarily  infer 
this  to  be  misconduct.  Browell 
V.  Reed,  1  Ha.  434. 

A  receiver  was  appointed  of  the 
rents  and  profits  of  an  estate  for 
the  purpose  of  accumulating  a 
fund,  where  the  tenant  for  life 
had  fraudulently  obtained  a  sura 
of  stock  to  which  the  trustees  of 
the  settlement  were  entitled. 
Woodyatt  v.  Gresley,  8  Sim.  180. 

4  Coney  v.  Bennett,  54  L.  J.  Ch. 
1130;  Leathes  v.  Leathes,  Weekly 
Notes,  1882,  71;  VV^hiteley  v.  Lea- 
royd,  56  L.  T.  846. 

5  Lutt  V.  Grimont,  17  111.  App. 
308. 

6  Carson  v.  Combe,  86  Fed.  202, 
29  C.  C.  A.  660. 

Thus,  where  coupon  bonds  or 
other  property  not  ear-marked 
with  the  trust  are   placed   in  the 


hands  of  a  de  facto  trustee  or 
custodian,  by  the  agreement  of  the 
beneficiaries,  and  they  become  dis- 
satisfied and  file  a  bill  for  account- 
ing and  distribution,  and  where 
there  is  protracted  litigation  be- 
tween the  parties  in  interest,  and 
the  trustee,  though  denying  any 
danger  to  the  trust  fund,  is  anx- 
ious to  be  relieved  from  a  trouble- 
some and  thankless  duty,  the  court 
may  appoint  a  receiver.  Fidelity 
Ins.  &  T.  Co,  v.  Huber,  13  Phila. 
(Pa.)  52. 
7  Wilson  V.  Wilson,  2  Keen  249. 
A  receiver  will  also  be  appointed 
where  the  co-trustees  can  not 
act  through  disagreement  among 
themselves.  Bagot  v.  Bagot,  10 
L.  J.  Ch.  N.  S.  116;  and  also,  where 
the  trustees  who  were  to  manage 
a  business  and  were  themselves 
not  qualified  to  do  so,  but  could 
not  agree  in  appointing  some  per- 
son as  manager,  a  receiver  was 
appointed.  Hart  v.  Denham,  W.  N., 
1871,  2. 


292 


LAW   OF   RECEIVERS. 


there  is  no  apprehension  of  loss  and  the  defendant  is 
financially  responsible.^ 

It  is  always  essential  that  there  be  a  danger  of  loss  of 
the  trust  property  in  order  to  render  the  appointment 
of  a  receiver  proper.^ 

Where  a  trust  fund  is  created  by  persons  subscribing 
money  for  a  designated  purpose  the  court  may  appoint  a 
receiver  to  preserve  the  fund  or  execute  the  trust.^° 

In  other  words,  if  there  is  danger  of  the  trust  property 
being  lost  by  reason  of  a  failure  of  any  of  the  parties 
connected  with  the  trust  taking  necessary  or  proper  steps 
for  its  protection,  a  receiver  may  be  appointed  for  that 
purpose.^^ 


8  Hamburgh  Mfg.  Co.  v.  Edsall, 
7  N.  J.  Eq.  298. 

In  Sheppard  v.  Oxenford,  1  K.  & 
J.  492,  where  a  man,  who  had  ac- 
cepted and  held  moneys  for  par- 
ticular persons,  certain  trusts,  af- 
terwards denied  the  legality  of  the 
trusts  on  which  he  held  the  mon- 
eys, the  court  appointed  a  receiver. 
A  receiver  will  not  be  appointed 
on  the  application  of  one  who 
claims  to  hold  the  fund  in  absolute 
ownership  instead  of  in  trust. 
Richards  v.  Barrett,  5  111.  App.  (5 
Bradw.)    510. 

But  it  has  also  been  held  that 
where  a  trustee  repudiates  the 
trust  it  is  proper  to  put  the  prop- 
erty in  the  hands  of  a  receiver. 
McCandless  v.  Warner,  26  W.  Va. 
754. 

9  Richards  v.  Barrett,  5  111.  App. 
(5  Bradw.)    510. 

In  an  application  to  discharge 
a  trustee,  and  for  the  appointment 
of  a  receiver  for  the  trust  estate, 
it  must  be  made  to  appear  that 
the  property  is  in  danger  and  that 
the  trustee  is  irresponsible.  Haines 


v.  Carpenter,  Fed.  Cas.  No.  5905 
(1  Woods  262);  affirmed  (1875) 
91  U.  S.  254,  23  L.  Ed.  345. 

A  receiver  may  be  appointed  to 
preserve  a  trust  estate  and  pre- 
vent its  diversion  from  the  owner. 
Knight  V.  Knight,  75  Ga.  380. 

10  Rousseau  v.  Call,  169  N.  C. 
173,  85  S.  E.  414. 

A  receiver  will  also  be  appointed 
when  the  property  of  a  debtor  has 
been  vested  in  trustees  for  the 
benefit  of  his  creditors,  and  the 
appointment  is  necessary  for  the 
protection  of  the  property.  Water- 
low  V.  Sharp,  W.  N.,  1867,  64. 

A  receiver  may  be  appointed 
where  property  has  been  devised 
to  a  wife  upon  her  promise  to  dis- 
pose of  it  in  a  certain  way  which 
she  fails  to  do.  Podmore  v.  Gun- 
ning, 5  Sim.  435. 

11  In  a  case  where  the  trust  fund 
is  not  in  danger,  the  court  will 
refuse  to  appoint.  Richards  v.  Bar- 
rett, 5  111.  App.  510.  It  is  the  peril 
of  the  trust  fund  alone  that  moves 
a  court  to  dispossess  a  trustee 
from    the    exercise    of    his    legal 


TRUST    ESTATES    AND    FIDUCIARY    RELATIONS. 


293 


In  a  suit  to  compel  a  trustee  to  account  for  trust  funds, 
which  he  shouhl  pay  over  to  the  beneficiary,  and  which 


rights  over  the  trust  fund,  and  un- 
less such  peril  is  shown  by  spe- 
cific allegations,  supported  by 
clear  proof,  the  court  will  not  in- 
terfere. Fort  Payne  Furnace  Co. 
V.  Fort  Payne  Coal  &  I.  Co.,  96  Ala. 
472,  38  Am.  St.  Rep.  109,  11  So. 
439;  Sims  v.  Adams,  78  Ala.  395; 
Simmons  Hardware  Co.  v.  Waibel, 

I  S.  D.   488,  36  Am.   St.   Rep.   755, 

II  L.  R.  A.  267,  47  N.  W.  814;  Phe- 
lan  V.  Eaton,  3  Vict.  Rep.  13. 

Where  a  trustee  omits  to  act 
when  required  to  do  so,  or  is  want- 
ing in  necessary  care  and  dili- 
gence in  the  due  execution  of  his 
trust  which  he  has  undertaken,  a 
court  of  equity  will  interfere  by 
the  appointment  of  a  receiver. 
Jones  V.  Dougherty,  10  Ga.  273. 

The  manifest  abuse  of  a  trust 
by  an  habitual  and  prospective 
course  of  dealing,  bringing  the 
property  into  danger,  is  sufficient 
ground  for  the  appointment  of  a 
receiver.  Chase's  Case,  1  Bland. 
(Md.)   206,  17  Am.  Dec.  277. 

Where  the  trustee  loans  part  of 
the  trust  fund  to  a  banking  firm 
of  which  he  is  a  member  and  the 
firm  shortly  afterwards  becomes 
insolvent,  a  receiver  may  be  ap- 
pointed. North  Carolina  R.  Co.  v. 
Wilson,  81  N.  C.  223. 

Where  a  seller  sold  building  ma- 
terial to  a  trustee  who  used  it  in 
improving  the  trust  property  and 
the  seller  did  not  know  that  the 
property  was  held  in  trust,  a  re- 
ceiver was  appointed  to  apply  the 
portion  of  the  rents  due  to  the 
improvements  to  the  debt.  Malone 
V.  Bruce,   60  Ga.   152. 

Where,  through  a  trustee's  act. 


serious  loss  of  trust  funds  is  likely 
to  occur,  the  court  may  appoint  a 
receiver;  hence,  where  a  trustee 
paid  over  half  of  the  trust  fund 
to  an  irresponsible  person,  who 
agreed  to  maintain  the  cestui, 
which  the  trustee  was  bound  to  do, 
the  court  should  appoint  a  re- 
ceiver. Holbrook  v.  FVffe,  164  Ky, 
435,  175  S.  W.  977,  the  court  say- 
ing: "Wherever,  through  the  trus- 
tee's acts  or  misconduct,  waste  or 
other  serious  loss  is  likely  to  arise, 
the  court  may  order  the  trust 
funds  placed  in  the  hands  of  a 
receiver.  The  appointment  of  a 
receiver,  however,  is  a  matter 
within  the  sound  discretion  of  the 
court,  and  before  exercising  it  the 
court  will  take  in  consideration  all 
of  the  circumstances  of  the  case. 

"It  seems  that  in  this  case  Hol- 
brook had  paid  $300 — one-half  of 
the  fund — to  a  financially  irrespon- 
sible party,  without  requiring  any 
security  for  the  performance  of 
what  he  obligated  himself  to  do, 
and  we  are  not  able  to  say  that 
the  court  in  any  wise  abused  its 
discretion  by  removing  the  trustee 
and  requiring  the  funds  turned 
over  to  the  receiver  of  the  court, 
and  authorizing  him  to  collect 
them." 

Where  land  is  left  in  trust  to 
one  person  to  pay  the  income 
thereof  to  another  for  life,  with 
remainder  to  the  heirs  and  assigns 
of  the  beneficiary  forever,  and  the 
trustee  dies,  the  court  may,  in  an 
action  of  foreclosure  by  one  to 
whom  the  beneficiary  has  mort- 
gaged the  property,  appoint  a  re- 
ceiver, to  protect  the  interests  of 
all  parties,  if  no  proper  person  can 


294 


LAW   OF  RECEIVERS, 


he  retains  because  of  an  alleged  claim  against  the  bene- 
ficiary for  breach  of  contract,  it  is  proper  to  appoint  a 
receiver  to  take  charge  of  the  funcl.^^ 

But  it  is  not  sufficient  ground  for  the  appointment  of  a 
receiver  that  one  of  several  trustees  is  inactive  or  has 
disclaimed/^  although  where  there  were  two  trustees  and 
one  having  died,  the  survivor  refused  to  act,  the  benefi- 
ciaries may  have  a  receiver  appointed.^^  And  where 
there  are  three  trustees  and  two  of  them  chose  to  act 
separately  and  take  title  to  property  in  their  own  names, 
omitting  the  name  of  the  third  trustee,  the  beneficiaries 
may  have  a  receiver  appointed.^^ 

And  where  the  purposes  of  a  trust  agreement  have 
failed  because  of  the  trust  being  void,  a  certificate  holder 


be  found  to  take  the  trust.     Wil- 
son V.  Russ,  17  Fla.  691. 

If  a  tenant  for  life  of  leaseholds, 
■who  is  regarded  as  a  trustee  for 
the  remainderman,  be  bound  to  re- 
new, and  by  his  threats  or  acts 
manifest  an  intention  not  to  re- 
new the  lease,  the  remainderman 
may  file  a  bill,  and  have  a  receiver 
appointed  for  the  purpose  of  pro- 
viding the  renewal  fine  out  of  the 
rents  and  profits  of  the  estate,  and 
if  the  period  of  renewal  has  al- 
ready expired,  a  receiver  may  be 
appointed  on  proof  of  the  tenants 
for  life  default.  Bennett  v.  Colley, 
5  Sim.  192;   s.  c,  2  M.  &  K.  233. 

Where  property  is  bequeathed 
in  trust  for  the  purpose  of  hav- 
ing the  income  applied  to  certain 
beneficiaries,  but  without  power 
in  the  trustees  to  sell  or  mortgage, 
if  the  trustee  fails  to  pay  the  taxes 
and  as  a  consequence  it  will  be 
sold  on  a  tax  sale,  a  receiver  may 
be  appointed  to  mortgage  it  to 
raise  money  to  redeem  it  from  the 
sale.  Burroughs  v.  Gaither,  66 
Md.  171,  7  Atl.  243. 


Where  the  income  of  property 
belongs  to  a  mother  and  the  prop- 
erty itself  to  her  children,  but  the 
trustee,  with  the  approval  of  the 
mother,  incurs  debts  partly  for  the 
betterment  of  the  property  and 
partly  for  the  benefit  of  the 
mother,  a  receiver  may  be  ap- 
pointed for  the  purpose  of  apply- 
ing the  income  to  the  payment  of 
the  debts.  Robert  v.  Tift,  60  Ga. 
566. 

For  a  somewhat  similar  case, 
see  Woodyatt  v.  Gresley,  8  Sim. 
180. 

i2Hagenbeck  v.  Hagenbeck  Zo- 
ological Arena  Co.,  59  Fed.  14. 

13  Browell  v.  Reed,  1  Ha.  434. 
A  disclaimer  of  the  trust  by  one 

of  several  trustees  does  not  in  law 
affect  the  estate  of  the  others,  and 
in  such  circumstances  the  trust  is 
vested  exclusively  in  those  who 
have  not  disclaimed.  Small  v.  Mar- 
wood,  9  B.  &  C.  300;  Townsor  v. 
Tickell,  3  B.  &  Aid.  31. 

14  Palmer  v.  Wright,  10  Beav. 
237. 

15  Swale  V.  Swale,  22  Beav.  584. 


TRUST   ESTATES   AND   FIDUCIARY  RELATIONS.  295 

in  such  trust  has  a  right  to  demand  that  the  affairs  should 
be  wound  up,  and  his  interest  protected,  and  in  such  a 
case  it  is  proper  for  the  court  to  appoint  a  receiver,  upon 
the  application  of  the  certificate  holder,  although  the 
property  may  be  in  the  hands  of  parties  of  the  highest 
standing  for  business  capacity  and  integrity  of  char- 
acter.^^ 

But  a  receiver  will  not  be  appointed  over  a  trust  estate 
merely  because  the  estate  has  depreciated  and  the  incum- 
brances have  increased  unless  it  be  shown  that  such  con- 
dition was  caused  by  the  bad  management  of  the  trustee. ^^ 

c/  A  receiver  may  be  appointed  where  it  appears  that 
the  trustees  have  an  undue  leaning  or  bias  towards  one 
of  the  contending  parties.^* 

If  a  trustee  is  insolvent  and  there  is  a  probability  of 
the  property  claimed  as  part  of  the  trust  fund  being 
fraudulently  disposed  of  before  the  termination  of  the 
litigation,  a  receiver  will  be  appointed  on  a  showing  of 
a  probable  recovery  by  the  plaintiff.  ^^ 

Likewise  w^here  it  is  shown  that  defendant  holding  a 
fund  as  agent  in  trust  for  plaintiff  was  insolvent,  so  that 
no  judgment  against  him  could  be  collected  on  execution, 
the  court,  at  plaintiff's  instance,  should  have  appointed  a 
receiver.^^ 

o  And  where  there  is  imminent  danger  of  the  trustee, 
who  is  insolvent,  disposing  of  the  trust  property  before 
a  receiver  could  be  appointed  if  he  had  notice  of  the 
application,  the  court  may  even  appoint  a  receiver 
ex  parte.^'^ 

16  Cameron  v.  Havemeyer,  25  519;  Gawthrope  v.  Gawthrope, 
Abb.  N.  C.   (N.  Y.)    438,  12  N.  Y.      W.  N.,  1878,  91. 

Supp.  126.  20  Driskill  v.  Boyd,   (Tex.  Civ.) 

17  Barkley  v.  Lord  Reay,  2  Hare      181  S.  W.  715. 

3gg  21  Culver  v.  Guyer,  129  Ala.  602, 

18  Earl  Talbot  v.  Hope  Scott,  4      29  So.  779. 

K   &  J    139  But  it  is  not  sufficient  cause  for 

19  Ellett  v.   Newman,   92   N.   C.      the  appointment  of  a  receiver  that 


296 


LAW    OF    RECEIVERS. 


But  where  the  trustee  is  willing  to  give  security,  the 
appointment  of  a  receiver  will  be  refused.-- 

A  receiver,  however,  will  not  be  appointed  where  com- 
plainant's debt  had  at  first  been  charged  against  the 
trustee  indi\ddually  and  not  as  trustee,  even  if  the  trustee 
is  personally  insolvent.-^ 

A  receiver  will  not  be  appointed  to  take  charge  of  a 
trust  fund,  merely  because  the  trustee  has  mixed  such 
fund  with  his  own  funds,  where  there  is  no  pretense  that 
the  fund  is  thereby  endangered,-^  but  a  receiver  will  be 
appointed  if  the  trust  funds  are  thereby  endangered."^ 

Inasmuch  as  some  time  necessarily  elapses  betw^een  the 
institution  of  proceedings  for  the  removal  of  a  trustee 
and  the  appointment  of  his  successor,  and  as  interests 
of  the  beneficiaries  might  be  prejudiced,  receivers  are 
sometimes  appointed  to  manage  the  trust  estate  mean- 
while,-^ but  a  strong  showing  of  necessity  must  be  shown 
in  such  circumstances.-^^ 


the  trustees  or  executors  are  poor 
or  in  mean  circumstances.  Anon., 
12  Ves.  4;  Howard  v.  Papera,  1 
Madd.  142. 

22  Branch  v.  Ward,  114  N.  C.  148, 
19  S.  E.  104. 

In  a  suit  to  enforce  plaintiff's 
rights  to  a  trust  fund,  the  court 
refused  to  appoint  a  receiver  upon 
condition  that  the  defendant  fur- 
nish a  bond  conditioned  to  account 
to  the  plaintiff  for  all  property 
which  had  come  into  his  posses- 
sion. Baker  v.  Bartol,  7  Cal.  551; 
Mead  v.  Orrery,  3  Atk.  235. 

2?.  Hatcher  v.  Massey,  66  Ga.  66. 

24  Orphan  Asylum  Society  v. 
McCartee,  1  Hopk.  Ch.  (N.  Y.)  429. 
See,  also,  Goodyear  v.  Betts,  7 
How.  Pr.    (N.  Y.)    187. 

25  A  special  receiver  of  the  as- 
sets of  an  insolvent  firm,  assigned 
to    a    trustee    for    the    benefit    of 


creditors,  may  be  appointed  and 
required  to  duly  administer  the 
same  under  the  directions  of  a 
court  of  equity,  where  it  is  made 
to  appear  that  such  trustee  is  vio- 
lating his  duty  to  keep  the  trust 
property  distinct  from  his  individ- 
ual funds  and  safely  deposit  the 
same  in  some  bank  or  other  like 
place  for  safe-keeping,  to  the  in- 
jury or  great  risk  of  injury  to  the 
beneficiaries,  or  that  he  is  wasting 
or  misappropriating  such  fund  or  a 
material  part  thereof,  or  that  there 
is  danger  of  such  misappropria- 
tion. Wagner  v.  Coen,  41  W.  Va. 
351,  23  S.  E.  735. 

20  Calhoun  v.  King,  5  Ala.  523; 
Edie  v.  Applegate,  14  Iowa  273; 
Janeway  v.  Green,  16  Abb.  Pr. 
(N.  Y.)  215  n;  Beverley  v.  Brooke, 
4  Graft.   (Va.)   187,  208. 

27  The  court  will  not  appoint  a 


TRUST    ESTATES    AND    FIDUCIARY   RELATIONS.  297 

Wliere  there  is  but  one  trustee  and  he  departs  from 
the  jurisdiction  of  the  court,  a  receiver  may  be  appointed 
over  the  estate,-^  but  where  there  are  several  trustees 
and  merely  one  resides  out  of  such  jurisdiction,  it  mil  not 
be  deemed  necessary  to  appoint  a  receiver,-^  although 
one  may  be  appointed  where  the  other  trustees  are  not 
active  in  the  trust.^° 

Inasmuch  as  the  beneficiaries  or  parties  beneficially 
interested  in  an  estate  are  in  equity  the  owners  of  it, 
should  they  concur  in  an  application  for  a  receiver  and 
the  trustee  consent,  it  is  the  practice  for  the  court  to 
make  the  appointment,  provided  that  the  usual  bond  is 
furnished.^^ 

Courts,  if  they  prefer,  may  order  an  immediate  sale  of 
the  property  held  in  trust,  instead  of  appointing  a  re- 
ceiver to  manage  it.^^ 

It  has  been  held  that  a  receiver  will  not  be  appointed  at 
the  instance  of  a  beneficiary  who  has  but  a  very  small 
interest  in  the  profits  growing  out  of  a  contract.^^ 

receiver  appointed  for  a  trust  es-  30  And  a  receiver  has  been  or- 

tate    wliile    chancery    proceedings  dered  when  four  trustees  had  been 

are  pending  for  the  removal  of  a  named  in  a  will  and  one  died,  and 

trustee  unless  a  very  strong  case  another  was  abroad,  and  the  third 

is  made  out.     Poythress  v.  Poyth-  had     scarcely    interfered     in     the 

ress,  16  Ga.  406.  trust,  and  the  fourth  submitted  to 

28  Noad  V.  Backhouse,  2  Y.  &  C.  a  receiver  by  his  answer.  Tidd  v. 
Ch.   Cas.    529;    Dickens   v.   Harris,  Lister,  5  Mad.  429. 

14    L.    T.    98;    Taylor   v.    Allen,    2  3i  Brodie  v.   Barry,  3  Mer.   695. 

Atk,  213;    Smith  v.  Smith,  10  Ha.  See,  also,  Bartley  v.  Bartley,  9  Jur. 

App.  71.  224;  Bromwell  v.  Reid,  1  Hare  434. 

Where  a  trustee  who  has  been  But  the  usual  recognizances  will 

ordered  to  pay  certain   money  in  not  be  dispensed  with.     Manners 

court    on    account    of    an    alleged  v.    Furze,    11    Beav.    30;    Tylee    v. 

breach    of-  trust   removes    beyond  Tylee,  17  Beav.  583. 

the    jurisdiction    of    the    court    so  32  Alemany     v.     Wensinger,     40 

that  the  order  can  not  be  enforced  Cal.  288. 

by  attachment,  it  is  proper  to  ap-  3.3  Webb  v.  Van  Zandt,  16  Abb. 

point  a  receiver  over  his  property.  Pr.  (N.  Y.)  314,  note. 

In  re  Coney,  29  Ch.  D.  993.  A  receiver  will  not  be  appointed 

29  Westby  v.  Westby,  2  Coop.  where  a  contract  is  held  by  a  trus- 
C.  C.  210.  tee  for  the  benefit  of  several  per- 


4 


298  LAW   OF   RECEIVERS. 

Where  there  are  conflicting  claimants  of  a  trust  fund 
who  are  prosecuting  separate  suits  in  the  same  court,  and 
a  receiver  is  appointed  in  one  suit,  his  appointment  will 
inure  to  the  benefit  of  the  plaintiff  in  the  other  suit,  if 
upon  the  adjudication  it  is  ascertained  that  the  plaintiff 
in  the  latter  suit  has  a  superior  right  to  the  trust  fund.^^ 

And  where  a  receiver  of  trust  property  has  been  ap- 
pointed, it  is  proper  for  the  court  to  continue  him  on  the 
expiration  of  the  trust,  if  the  persons  who  are  entitled  to 
the  possession  as  tenants  in  common  disagree  among 
themselves,  and  there  is  no  prospect  that  they  can  act 
harmoniously.^^ 

So,  also,  since  a  receiver  is  appointed  for  the  benefit 
of  all  the  parties  interested,  a  receiver  so  appointed  will 
not  be  discharged  merely  on  the  application  of  the  party 
at  whose  instance  the  appointment  was  made.^^  Where 
a  receiver  is  appointed  over  a  trust  fund,  the  order  of 
appointment  is  not  subject  to  collateral  attack  in  an 
action  by  the  receiver  to  recover  the  trust  fund.^'^ 

§  72.    Receivership  in  Case  of  Trustee  Ex-Maleficio. 

Where  a  person  is  charged  mth  being  a  trustee  ex- 
male/icio  because  of  ha\T.ng  fraudulently  collected  moneys 
from  different  persons  under  false  representations  and 
it  is  charged  that  all  such  funds  are  commingled  and  the 
total  fund  is  insufficient  to  satisfy  the  claims  of  the  bene- 
ficiaries, a  receiver  may  be  appointed  over  the  fund  even 
though  the  involuntary  trustee  denies  the  charge.^ 

sons,    on    the    application    of    a  34  Beverley  v.  Brooke,  4  Gratt. 

beneficiary,  having  but  a  small  in-  (Va.)  187. 

terest   in    the    profits,    where    the  35  Ball  v.  Tompkins,  41  Fed.  486. 

appointment  would  operate  to  de-  36  Bainbrigge  v.   Blair,   3   Beav. 

prive    the    contractors    of    money  423   (per  Lord  Langdale). 

sufficient  to  perform  the  contract,  37  Rousseau    v.   Call,    169    N.    C. 

and     the    trustee     is     pecuniarily  173,  85   S.  E.   414. 

responsible    and    not    guilty    of    a  i  In  Cook  v.  Flagg,  233  Fed.  426, 

breach    of    duty    involving    moral  the     defendant    was     charged     as 

turpitude.    Devlin  v.  Hope,  16  Abb.  being  a  trustee   ex  maleficio  and 

Pr.  (N.  Y.)  314.  the  appointment  of  a  receiver  was 


TRUST   ESTATES    AND    FIDUCIARY   RELATIONS. 


290 


sought.  The  sufficiency  of  the  bill 
was  raised  by  demurrer  and  the 
Circuit  Court  of  Appeals  through 
Judge  Mayer  said: 

"The  substance  of  the  bill  is 
that  Flagg,  not  a  member  of  the 
stock  exchange,  devised  a  fraudu- 
lent scheme  for  speculating  in 
stocks;  that  on  the  faith  of  his 
representations  plaintiff  and  many 
others  intrusted  him  with  their 
money  to  the  extent  of  an  esti- 
mated aggregate  of  $1,100,000; 
that  Flagg  never  had  any  real 
transactions  in  the  purchase  or 
sale  of  stocks;  that  the  amount  ob- 
tained by  Flagg  from  plaintiff  at 
different  dates  and  by  virtue  of 
the  fraudulent  representations  ag- 
gregated $10,020,  only  $2800  of 
which  was  paid  over  to  plaintiff, 
and  then  as  pretended  profits, 
when  there  were  no  profits;  that 
all  the  representations  made  by 
Flagg  were  false,  and  known  by 
him  to  be  false;  that  the  money 
obtained  from  others  than  plain- 
tiff was  so  obtained  on  similar 
representations;  that  the  funds  are 
mingled;  and  that  some  $200,000 
in  Flagg's  control  will  fall  short 
of  satisfying  the  aggregate  claims 
of  $1,100,000.  The  relief  prayed 
for  is  an  injunction,  the  appoint- 
ment of  a  receiver,  an  ascertain- 
ment of  the  claims  to  the  fund, 
and  an  appropriate  distribution. 

"In  a  letter  to  Mr.  Goodwin, 
Assistant  Attorney-General,  dated 
August  25,  1909  (referred  to  in  one 
of  the  moving  affidavits),  Flagg,  in 
explaining  his  method  of  doing 
business,  in  order  to  satisfy  the 
officials  that  he  was  not  using  the 
mails  unlawfully,  stated: 

"  'Every  dollar  of  the  securities 
and  the  cash  deposited  with  Mr. 
Flagg  by  all  the  customers  belong 


to  them,  and  not  to  Mr.  Flagg. 
Mr.  Flagg  is  merely  a  broker,  and 
is  handling  his  customers'  funds, 
and  is  charged  with  the  handling 
of  cash  and  securities  as  a  fidu- 
ciary.' 

"In  opposition  to  the  motion, 
Flagg  filed  an  answer  and  an  afll- 
davit,  setting  forth  that  his  trans- 
actions with  Cook  and  others  were 
legitimate,  and  vigorously  taking 
issue  with  the  condemnatory  alle- 
gations of  the  moving  papers. 

"We  think  the  bill  states  a  cause 
of  action  in  equity  in  that  Flagg 
became  Cook's  trustee  ex  male- 
ficio.  Pomeroy's  Equity  Jurispru- 
dence (3d  ed.),  §  1053;  In  re  Berry, 
147  Fed.  208,  77  C.  C.  A.  434; 
United  States  v.  Carter,  172  Fed.  1, 
96  C.  C.  A.  587,  affirmed  217  U.  S. 
286,  30  Sup.  Ct.  515,  54  L.  Ed.  769, 
19  Ann.  Cas.  594;  Marshall  v. 
de  Cordova,  26  App.  Div.  615,  50 
N.  Y.  Supp.  294.  There  is  a  trust 
fund  ex  maleficio  participation  in 
which  by  many  people  similarly 
situated  is  necessary  in  order  to 
have  a  just  distribution.  While  the 
fund  is  created  in  a  different  way 
from  that  in  Guffanti  v.  National 
Surety  Co.,  196  N.  Y.  452,  90  N.  E. 
174,  134  Am.  St.  Rep.  848,  the  ulti- 
mate principle  is  the  same. 

"There  being  a  cause  of  action 
in  equity,  the  next  question  is 
whether  the  court  abused  its  dis- 
cretion in  appointing  a  receiver. 
The  mere  denial  by  a  defendant  of 
what  is  alleged  against  him  by  a 
plaintiff,  is  not  enough  to  justify 
the  court  in  refusing  to  extend  ita 
protective  arm. 

"Here  was  a  situation  where  the 
fund  in  hand  was  far  less  than 
necessary  to  satisfy  the  total  of 
claims  which  could  be  made.  The 
defendant  had  been  convicted  of  a 


300  LAW   OF   RECEIVERS. 

§  73.    Receivership  in  Case  of  Trustee  Ex-Officio. 

Where  a  trust  has  been  created  by  an  act  of  the  legis- 
lature and  the  chief  executive  officers  of  the  state  are 
intrusted  mth  the  management  of  the  trust  fund,  it  must 
be  a  very  strong  case  which  would  induce  a  court  to  take 
the  property  out  of  the  hands  of  such  trustees  ex-officio 
and  place  those  duties  in  the  hands  of  a  receiver  ap- 
pointed by  it.  If  such  trustees  are  guilty  of  breach  of 
duty  they  can  be  enjoined  and  they  can  be  made  person- 
ally responsible,  while  the  trust  fund  can  be  follow^ed  in 
the  hands  of  persons  improperly  obtaining  it.  But  the 
courts  are  bound  to  show  great  respect  to  a  co-ordinate 
branch  of  the  court  and  for  that  reason  vnll  endeavor  to 
secure  the  rights  of  the  beneficiaries  in  such  a  fund  in 
some  manner  other  than  by  removing  the  official  person- 
ages to  whose  administration  it  has  been  intrusted,  and 
especially  where  no  charges  of  incapacity  or  want  of 
integrity  have  been  made  against  the  trustees.  Another 
point  to  be  considered  in  such  circumstances  is  the  fact 
that  the  officials  who  are  to  act  as  such  trustees  are  con- 
crime  against  the  United  States  tious  disposition  of  which  could 
for  using  the  mails  to  invite  just  and  can  be  had  without  difficulty, 
such    transactions    as    that    with      if  defendant  himself  is  diligent. 

"It  seems  to  us  that  the  District 


plaintiff.  It  was  alleged  that  he 
was  financially  irresponsible  and 
that  there  was  no  reason  to  doubt 
that  allegation  and  no  affidavit  of 


Judge  was  right,  and,  had  he  de- 
nied the  motion,  grave  injustice 
might  have  been  visited  upon 
those  who  claim  to  have  been  de- 


any    disinterested    person   to    the  f^auded.      It    will    be    understood 

contrary.    If  no  injunction  issued,  ^j^^t  we  do  not  pass  on  the  merits 

defendant     could     do     w  h  a  t    he  of  the  issues  which  are  now  being 

pleased  with  the  fund,  and  at  the  tried,    including    the    complicated 

end    of   a   litigation    plaintiff    and  transactions  in  dispute  arising  out 

those     similarly     situated     might  of  the  system,  which  defendant  ur- 

have  their  labor  for  their  pains.  gently  contends  are  legitimate.  We 

On  the   other  hand,   if  defendant  are   considering   solely    the   order 

succeeded    on   the   trial,    the   sole  here  under  review  on  the  papers 

injury  to  him  would  be  the  delay  as  they  were  presented  to  the  DIs- 

caused  by  the  lawsuit,  the  expcdi-  trict  Court." 


TRUST   ESTATES    AND    FIDUCIARY    RELATIONS.  301 

stantly  being  changed  by  the  suffrages  of  the  people.^ 
But  a  receiver  was  appointed  over  a  fund  of  which  a  city 
was  a  compulsory  trustee  in  a  famous  case  in  the  federal 
courts  arising  in  New  Orleans. ^ 

§  74.    Receivership  Over  Trustee  of  Persons  Interested  in  Public 
Contract. 

Where  a  trustee  has  been  appointed  to  receive  the 
money  due  on  a  contract  for  the  performance  of  certain 
public  work  and  distribute  it  to  the  various  parties  inter- 
ested, a  receiver  will  not  be  appointed  to  take  charge  of 
the  contract  where  it  is  not  shown  that  the  trustee  is 
guilty  of  any  misconduct  and  the  petition  for  the  appoint- 
ment of  a  receiver  is  from  only  one  of  the  several  parties 
interested  in  the  contract,  and  it  appears  that  the  ap- 
pointment of  the  receiver  may  destroy  the  value  of  the 
contract.^ 

§  75.    Receivership    Over   Trustees   Who   Are   Charged   With 
Fraud. 

The  appointment  of  a  receiver  in  equitable  proceed- 
ings instituted  for  the  purpose  of  setting  aside  assign- 
ments made  for  the  benefit  of  creditors  where  fraud  is 
alleged  and  shown  in  the  transaction,  is  frequent,  but  in 
such   case   there   must  be   proof   of   insolvency   of   the 

1  Vose   V.   Reed,    1   Woods    647,  text  to  appoint  a  receiver  over  the 

Fed.  Cas.  No.  17011.  lands    and    thereby    displace    the 

In  the  above  case  certain  public  official  trustees, 

lands  had  been  vested  by  an  act  2  Where  a  city  was  the  compul- 

of  the  legislature  in  the  governor  sory    trustee    of  a   fund    and    was 

and   other   state   officials   as   trus-  neither   a   debtor   nor   creditor   in 

tees,  for  the  purpose  of  creating  respect    to    the    fund,    and    a    re- 

an  internal  improvement  fund  and  ceiver  is  appointed  over  the  fund, 

to  serve  as  a  guaranty  of  certain  the  city  is  not  subject  to  suit  in 

railroad  bonds.    The  trustees  were  controversies    relating    to    it,    but 

directed  to  fix  the  price  at  which  such  litigation  should  be  directed 

the   land   was   to   be    sold    and   to  against    the    receiver.      Wilder   v. 

make   provisions   for  its   drainage  New  Orleans,  67  Fed.  567. 

and  settlement.    The  court  refused  i  Devlin   v.    Hope,    16   Abb.    Pr. 

for  the   reasons   set   forth  in   the  (N.  Y.)   314. 


302 


LAW   OF    RECEIVERS. 


assignee  and  sucli  a  state  of  facts  shown  as  renders  it 
probable  that  the  property  will  be  disposed  of  in  fraud 
of  creditors'  rights/  but  if  it  be  shown  that  the  assignee 
is  solvent  and  the  fraud  is  denied  by  the  answer  a  re- 
ceiver will  not  be  appointed  pending  the  litigation.'-  This 
doctrine  is  based  upon  the  principle  that  courts  are,  at 
best,  slow  to  interfere  with  the  possession  of  a  trustee 
apparently  in  the  lawful  custody  of  property  charged 
Avith  a  trust,  in  a  matter  of  assignment  recognized  by  law, 
and  where  the  assignor  has  a  right  to  dispose  of  his  prop- 
erty in  such  manner  as  shall  seem  to  him  best,  subject 
only  to  the  rights  of  bona  fide  creditors  therein. 

Where  a  trustee  has  conveyed  property  in  which  a 
beneficiary  claims  an  interest  and  the  beneficiary  seeks 
to  set  the  conveyance  aside  as  a  fraud  upon  the  benefi- 
ciaries, the  court  may  appoint  a  receiver  and  require  the 
defendants  to  convey  the  property  to  him.^ 


1  Ellett  V.  Newman,  92  N.  C.  519. 
In  this  case  an  action  was  brought 
to  set  aside  an  assignment  alleged 
to  be  fraudulent  and  void  as  to 
creditors  when  it  appeared  that 
there  was  reasonable  ground  to 
apprehend  that  the  goods  involved 
in  the  action  might  be  disposed  of 
fraudulently  before  the  case  could 
be  tried  upon  its  merits,  and  thus 
render  a  judgment  ineffectual.  The 
court  said:  "The  authority  of  the 
court  to  preserve  property,  the 
subject  of  litigation,  pending  the 
action,  until  final  judgment,  and 
then  to  apply  it  as  justice  may  re- 
quire, is  too  manifest  to  admit  of 
question,  and  such  authority 
should  be  exercised  when  it  ap- 
pears that  there  is  reasonable 
ground  to  believe  that  the  plain- 
tiff may  recover,  and  the  interfer- 
ence of  the  court  is  necessary  to 
protect  the   property   in   question 


pending  the  controversy."  Citing 
Parker  v.  Grammar,  62  N.  C.  28; 
CraycrofC  v.  Morehead,  67  N.C.  422; 
Morris  v.  Willard,  84  N.  C.  293;  Lev- 
enson  v.  Elson,  88  N.  C.  182. 

2  Levenson  v.   Elson,   88   N.   C. 
182. 

3  Gunn  v.  Blair,  9  Wis.  352. 
Inasmuch  as  the  appointment  of 

a  receiver  rests  in  the  sound  dis- 
cretion of  the  court,  such  an  ap- 
pointment will  not  be  disturbed 
on  appeal,  when  made  on  a  bill 
by  a  creditor  charging  that  the 
defendant  debtors  had  conveyed 
their  property,  including  a  large 
mercantile  establishment,  on  a 
trust  for  the  purpose  of  defraud- 
ing their  creditors,  as  was  known 
to  the  trustee,  which  allegations 
were  not  denied  by  either  the 
debtors  or  the  trustee.  Lyle  v. 
Commercial  Nat.  Bank,  25  S.  E. 
547,  93  Va.  487. 


TRUST    ESTATES    AND    FIDUCIARY    RELATIONS.  303 

But  in  the  case  of  creditors  assailing  a  conveyance  of 
a  debtor  as  in  fraud  of  creditors,  there  must  be  a  showing 
of  either  fraud  or  insolvency.^ 

Where  the  defendant  is  able  to  respond  to  any  judg- 
ment which  may  be  rendered  against  him,  a  receiver  will 
be  refused  in  a  suit  to  set  aside  a  conveyance  on  the 
ground  of  fraud.^ 

Thus  where  it  is  sought  to  set  aside  an  assignment  by 
a  debtor  to  a  trustee  for  the  benefit  of  his  creditors  on 
the  ground  of  fraud,  a  receiver  will  not  be  appointed  over 
the  property  pending  the  litigation  where  the  fraud  is 
denied  and  the  trustee  is  financially  able  to  respond  to 
any  judgment  which  may  be  recovered  against  him.*^ 

A  receiver  may,  however,  be  appointed  in  a  suit  to 
recover  a  fund  in  the  hands  of  a  financially  responsible 
defendant  w^ho  is  charged  with  fraudulent  conduct  in 
respect  to  it  and  who  is  attempting  to  dispose  of  his 
property  in  the  jurisdiction  of  the  appointing  court. '^ 

In  a  suit  by  the  seller  to  recover  goods  fraudulently 
purchased,  a  receiver  may  be  appointed.^  But  where  the 
property  over  which  a  receiver  is  sought  was  acquired 
through  fraud  by  the  corporation  of  which  the  plaintiff 
was  a  shareholder  and  with  his  knowledge  and  that  he 
acquiesced  in  the  fraud  for  several  years,  a  receiver  will 
be  denied.^ 

§  76.    Effect  of  Appointment  of  Receiver  on  the  Trust  Property. 

If  property  is  held  by  a  person  or  corporation  in  trust 
and  a  receiver  is  appointed  over  the  property  of  such 
person  or  corporation,  the  trust  property  nevertheless 
continues  to  be  impressed  with  the  trust  relationship. 

4  Stillwell  V.  Savannah  Grocery  ^  Bird  v.  Lanphear,  92  Hun  567, 
Co.,  88  Ga.  100,  13  S.  E.  963.  36  N.  Y.  Supp.  1069. 

5  Turnipseed  v.  Kentucky  Wa-  8  Martin  v.  Burgwyn,  88  Ga.  78, 
gon  Co.,  97  Ga.  258,  23  S.  E.  84.  13    S.    E.   958. 

6  Levenson  v.  Elson,  88  N.  C.  9  Hager  v.  Stevens,  6  N.  J.  Eq. 
182.  374. 


304  LAW    OF    RECEIVERS. 

This  is,  of  course,  on  the  ground  that  the  receiver  takes 
the  property  of  the  defendant  subject  to  all  existing  liens 
and  equities.^  Where  a  trust  fund  passes  into  the  hands 
of  a  receiver,  the  beneficiaries  are  always  entitled  to  fol- 
low it  if  the  fund  can  be  identified.  The  rule  in  this 
respect  was  stated  by  the  federal  court  in  the  following 
language  :^ 

''While  the  right  to  follow  misapplied  moneys  as  trust 
funds  into  the  hands  of  a  receiver  has  been  extended  in 
modern  decisions,  there  has  never  been  in  the  federal 
courts  a  departure  from  the  principle  that  there  must  be 
some  identification  of  the  property  followed  with  the 
trust  funds.  Some  of  the  latest  cases  say  that  it  is  suffi- 
cient to  show  that  the  property  in  the  possession  of  the 
receiver  has  been  increased  or  augmented  by  the  trust 
funds.  But  that  is  only  a  different  way  of  stating  the 
earlier  rule.  It  can  not  be  shown  that  property  in  the 
hands  of  a  receiver  has  been  increased  by  trust  funds 
unless  it  is  shown  that  they  were  converted  into  or  com- 

1  Where  certain  accounts  are  set  places  securities  with  a  state  offi- 
aside  and  collected  by  the  book-  cial  in  trust  to  secure  any  judg- 
keeper    of    the    debtor  under   an      ments     which     may     be     secured 

against  it,  such  official  will  not  be 


agreement  that  the  accounts  are 
to  be  used  to  reimburse  a  bank  for 
advances,  they  are  impressed  with 


required  to  turn  them  over  to  its 
ancillary  receiver.     Kelsey  v.  Re- 
public Sav.  etc.  Assn.,  110  Fed.  40. 
an  equitable  trust  in  favor  of  the  ^^^^  ^^^^  .^  ^^^^^  ^^^^  ^^^  p^^^ 

bank  as  against  the  receiver  of  the  ^^  ^  receiver  so  that  he  may  sell 

debtor.     Atlantic  Trust  Co.  v.  Car-  ^^^  ^^^^^^     Jackson  v.  Horton,  126 

bondale  Coal  Co.,  99  Iowa  234,  68  ^^^  ^^^^  ^i  N.  E.  490;  Bold  v.  Dean, 

N-  W-   ^^'^-  48  N.  J.  Eq.  193,  21  Atl.  618. 

A  trustee  is  not  subject  to  be  j^^^^  gg  where  a  note  is  given  to 
compelled  to  surrender  the  col-  ^  company  for  a  particular  pur- 
lateral  held  by  him  to  receivers  of  pogg^  ^  receiver  of  such  company 
the  insolvent  debtor  until  the  debt  stands  in  no  better  position  than 
is  paid,  but  after  default  to  be  en-  ^he  company  and  can  treat  such 
titled  to  administer  the  trust  as  ^ote  only  as  the  company  could 
against  the  receivers.  Brackett  v.  have  done.  Bell  v.  Shibley,  33 
Middlesex  Banking  Co.,  89  Conn.  Barb.  (N.  Y.)  610. 
645,  95  Atl.  12.  2  American  Can  Co.  v.  Williams. 

Where     a     foreign     corporation  178  Fed.  420,  101  C.  C.  A.  634. 


TRUST    ESTATES    AND    FIDUCIARY    RELATIONS.  305 

mingled  mth  it.  If  the  plaintiff's  contention  be  well 
founded,  and  to  follow  misappropriated  moneys  it  is  only 
necessary  to  show  that  a  receiver  has,  and  that  the  trus- 
tees had,  assets,  the  rule  is  simply  that  a  demand  for 
such  moneys  is  a  preferred  claim  against  any  substantial 
estate.  To  adopt  this  view  is  to  do  away  with  all  the 
equitable  principles  out  of  which  the  right  to  follow  trust 
funds  grew." 

If  a  receiver  taking  possession  of  trust  funds  receives 
any  profit  or  benefit  therefrom  he  will  be  liable  for  the 
same  to  the  beneficiaries.^  And  where  a  receiver  makes 
an  unauthorized  disposition  of  a  trust  fund  to  a  person 
cognizant  of  the  breach  of  it,  who  invests  the  money,  the 
person  becomes  a  trustee  in  iuvitum  of  such  fund.^  And 
where  a  receiver  intermingles  a  trust  fund  with  the  prop- 
erty of  the  estate,  the  beneficiaries  are  entitled  to  a  pref- 
erence over  general  creditors.  The  reason  for  this  rule 
was  stated  as  follows  :^ 

"The  foundation  of  the  right  on  the  part  of  the  owner 
of  a  trust  fund  to  a  preference  over  general  creditors  in 
payment  out  of  a  fund  or  estate  that  has  passed  to  the 
assignee  or  receiver  of  an  insolvent  person  or  corporation 
is  that  the  trust  fund  has  been  wrongfully  confused  or 
intermingled  with  the  property  of  the  insolvent,  or  has 
been  used  to  increase  the  value  of  the  property,  thereby 
increasing  the  amount  or  value  of  the  funds  or  estate 

3  Hooper  v.  Winston,  24  111.  353;  A  receiver  is  liable  for  a  trust 

Battaile   v.   Fisher,   36   Miss.   321;  fund  in  the  hands  of  the  party  for 

Adair    Coiinty    v.    Ownby,    75    Mo.  whom  he  is  receiver.    Reynolds  v. 

282;  In  re  Commonwealth  Fire  Ins.  Aetna  Life  Ins.  Co.,  28  App.  Div. 

Co.,  32  Hun  (N.  Y.)  78;  Utica  Ins.  g^^^^  ^^  ^    Y.  Supp.  446. 

Co.    V.    Lynch,    11    Paige    (N.    Y.)  ^  ooldthwaite  v.  Ellison,  99  Ala. 
520;   Manning  v.  Manning's  Ex'rs, 

1  Johns.  Ch.  (N.  Y.)  527;  Hinckley  ^97,  12  So.  812. 

V.  Oilman,  C.  &  S.  R.  Co.,  100  U.  S.  ^  Beard  v.  Independent  Dist.  of 

153.  25  L.  Ed.  591;  Potts  v.  Leigh-  Pella    City,    88    Fed.    375,    379,    31 

ton,   15  Ves.   Jr.   273;    Baldwin   v.  C.  C.  A.  502. 
Crawford,  2  Chamb.  Ch.   (Out.)   9. 
I  Rec. — 20 


3Qg  LAW   OF   RECEIVERS. 

passing  into  possession  of  the  assignee  or  receiver;  tliat, 
if  this  intermingling  had  not  taken  place,  the  fund  pass- 
ing to  the  receiver  would  have  been  so  much  less;  that 
the  creditors  have  only  the  right  to  subject  the  property 
of  the  debtor  to  the  payment  of  their  claims,  and  there- 
fore the  creditors  can  not  complain  if  the  total  fund 
coming  into  the  hands  of  the  receiver  is  reduced  by  tlie 
amount  necessary  to  make  good  to  the  owner  of  the  trust 
fund  the  sum  which  was  wrongfully  used  in  augmenting 
the  fund  or  property  passing  to  the  receiver.  Unless  it 
appears  that  the  fund  or  estate  coming  into  possession 
of  the  receiver  has  been  augmented  or  benefited  by  the 
wrongful  use  of  the  trust  fund,  no  reason  exists  for  giving 
the  owner  of  the  trust  fund  a  preference  over  the  general 
creditors. ' ' 

In  respect  to  questions  whether  a  receiver  is  or  is  not 
liable  to  claimants  of  a  trust  fund,  a  frequent  point  of 
controversy  is  whether  a  trust  fund  actually  exists.  In 
other  words,  it  is  often  questionable  whether  the  trans- 
action constitutes  a  trust  at  all,  either  express  or 
implied.^ 

6  Contracts  by  which  a  mercan-  from  the  sale  of  his  own  goods,  he 
tile  company  agreed  to  receive  becomes  a  general  creditor  of  the 
goods  of  the  other  parties  into  its  auctioneer,  and  a  receiver  of  the 
store  for  sale  and  to  account  for  auctioneer  is  entitled  to  take 
the  proceeds,  construed  may  be  of  charge  of  the  fund.  Levy  v.  Cava- 
such  a  character  as  not  to  raise  an  nagh,  2  Bosw.  (N.  Y.)  100. 
implied  trust  or  to  give  the  owners  Where  a  receiver  has  an  account 
of  the  goods  any  greater  rights  as  receiver  and  also  a  personal 
than  other  creditors  as  against  account  in  the  same  bank,  and 
the  funds  in  the  hands  of  receivers  an  attachment  execution  issues 
of  the  company.  Isaac  McLean  against  the  moneys  in  his  per- 
sons Co.  V.  William  S.  Butler  &  sonal  account,  and  it  appears  that 
Co.,  208  Fed.  730.  he  had  deposited  two  checks  be- 
Where  an  auctioneer,  who  habit-  longing  to  the  receivership  in  his 
ually  deposits  the  proceeds  of  his  personal  account,  but  it  also  ap- 
sales  to  his  own  credit  in  the  bank  pears  that  the  amount  of  the  first 
in  which  he  does  business  and  a  check  had  been  withdrawn  prior 
customer  who  knows  of  this  cus-  to  the  attachment,  and  there  is 
torn  permits  him  to  deposit  funds  evidence    that   the    second    check 


TRUST    ESTATES    AND    FIDUCIARY    RELATIONS. 


307 


Where  a  debtor  has  deposited  collateral  with  a  trustee 
as  security  for  payment  of  his  debt,  the  trustee  can  not 
be  compelled  to  surrender  the  collateral  to  receivers  of 
the  insolvent  debtor  until  the  debt  is  paid,  and  after  de- 
fault, if  the  trust  be  one  to  apply  the  proceeds  of  the  col- 
lateral for  the  benefit  of  the  secured  creditor,  the  trustee 
is  entitled  to  administer  the  trust  as  against  the  receivers 
of  the  insolvent  debtor.'^ 


had  been  deposited  in  the  personal 
account  to  reimburse  him  for  ad- 
vances previously  made  to  the  re- 
ceivership, the  attachment  will 
hold  all  of  the  moneys  in  the  re- 
ceiver's personal  account.  The 
doctrine  of  following  trust  funds 
wrongfully  converted  by  a  trustee 
is  not  applicable  to  the  facts  of 
such  a  case.  North  American  Sav- 
ings Co.  V.  Ulrich,  42  Pa.  Super. 
Ct.  624. 

Where  the  principal  debtor  as- 
signed its  property  to  a  trustee  for 
the  benefit  of  its  creditors,  but  the 
trustee  did  not  take  actual  posses- 
sion thereof,  and  a  receiver  was 
appointed  at  the  suit  of  a  surety 
who  did  take  possession  and  dis- 
puted the  assets,  and  it  appeared 
that  the  holder  of  a  note  had  no 
part  in  the  assignment  nor  as- 
sented thereto,  the  surety  can  not 
claim  discharge  on  the  ground  that 
the  property  assigned  was  suffi- 
cient in  value  to  pay  all  of  the 
principal's  debts.  Manufacturers' 
Nat.  Bank  v.  Chabot  &  Richard 
Co.,  114  Me.  514,  96  Atl.  836. 

Where  no  title  passed  to  a  buyer 
in  a  conditional  sale  contract  be- 
cause of  failure  to  pay  price  prior 
to  bankruptcy,  no  title  passed  to 
trustee.  Southern  Hardware  & 
Supply  Co.  v.  Clark,  201  Fed.  1, 
119  C.  C.  A.  339;  Andre  v.  Mur- 
ray, 179  Ind.  576,  101  N.  E.  81. 


T  Brackett  v.  Middlesex  Banking 
Co.,  89  Conn.  645,  95  Atl.  12. 

In  so  holding,  the  court  in  the 
above  case,  speaking  through  Jus- 
tice Wheeler,  said: 

"The  authorities  are  in  practical 
agreement  in  this  doctrine  and  in 
its  application.  In  Cooke  v.  War- 
ner, 56  Conn.  234,  14  Atl.  798,  an 
insurance  company  had  voluntarily 
deposited  with  the  State  Treasurer 
securities  in  trust  for  its  policy 
holders.  The  company  became  in- 
solvent, and  receivers  were  ap- 
pointed. In  a  suit  brought  by  the 
receivers  claiming  these  securities, 
we  held  that  this  fund  was  a  trust 
fund  which  would  not  be  taken  by 
the  receivers  from  the  trustee. 
Matter  of  Home  Provident  Safety 
Fund  Assn.,  129  N.  Y.  288,  29  N.  E. 
323;  Matter  of  Binghamton  Gen. 
Elec.  Co.,  143  N.  Y.  261,  38  N.  E. 
297;  Ruggles  v.  Chapman,  59  N.  Y. 
163,  165;  Risk  v.  Kansas  Trust  & 
B.  Co.  (C.  C),  58  Fed.  45;  Fidelity 
Ins.  T.  &  S.  D.  Co.  V.  Roanoke  Iron 
Co.  (C.  C),  81  Fed.  439;  Real  Es- 
tate Trust  Co.  V.  New  England  L, 
&.  T.  Co.  (C.  C),  93  Fed.  701; 
Brady  v.  Furlow,  22  Ga.  613.  This 
rule  rests  upon  the  inviolability 
of  contracts. 

The  appellee  contends  that  the 
trust  companies  as  the  holders  of 
the  mere  legal  title,  hold  the  col- 
lateral subject  to  the  order  of  the 


308 


LAW   OF    RECEIVERS. 


§  77.    Whether  Trustees  Can  Declare  Default  in  Collateral  Trust 

Agreement  After  Receivership. 

Where  a  trust  agreement  is  made  as  security  for  the 

payment  of  a  debt  and  a  receiver  is  appointed  over  the 

property  of  the  debtor,  such  appointment  does  not  pre- 


court  as  to  what  is  for  the  best 
interests  of  (1)  the  debenture 
holders,  and  (2)  the  general  cred- 
itors. This  conflicts  with  the  rule 
universally  laid  down  that  pledged 
collateral  can  not  be  taken  out  of 
the  hands  of  the  pledgee  by  the 
court,  and  if  the  pledge  be  upon 
trust  to  collect  the  collateral  after 
default  and  apply  the  proceeds  to 
the  secured  debt,  the  trustee  is 
entitled  to  administer  the  trust  as 
against  the  receiver  of  the  debtor. 
The  appellee  further  contends  that 
the  order  appealed  from  neither 
interferes  with  the  vested  rights 
of  the  trustees  in  this  fund,  nor 
with  their  possession,  since  it 
merely  provides  the  means  of 
liquidating  it  and  then  places  it  in 
the  hands  of  the  trustees  for  the 
benefit  of  the  debenture  holders/ 
Let  us  see  first  some  of  the  things 
the  trustees  agreed  to  do  under 
the  trust  agreements.    .    .    . 

"When  the  receivers  compro- 
mise claims  and  pay  their  own  ex- 
penses and  services  out  of  the 
collected  collateral,  the  collateral 
is  deposited  in  ways  contrary  to 
the  trust.  Whether  or  not  this 
course  will  benefit  these  funds  is  of 
no  pertinency.  The  sole  question 
is,  Does  it  breach  the  contract  be- 
tween banking  company  and  trust 
companies?  If  a  court  may  in  this 
case  take  property  held  in  trust 
out  of  the  hands  of  the  trustees, 
administer  it  through  a  receiver, 


and  turn  the  net  proceeds  back  to 
the  trustees,  it  may  do  this  in 
every  instance  where  property  is 
placed  in  the  hands  of  a  trustee 
to  secure  a  debt.  And  it  would 
seem  to  follow  that  every  agree- 
ment of  lien  or  pledge  may  be 
similarly  breached  with  impunity. 
The  order,  in  our  judgment,  im- 
pairs the  contract  created  by  the 
trusts.  It  is  also  questionable, 
whether,  so  far  as  the  absent  and 
unwarned  debenture  holders  are 
concerned,  this  constituted  'due 
process.' 

"In  one  part  of  their  brief  the 
appellees  say  the  authority  of  the 
trustees  under  the  trust  agreement 
ceased  upon  the  naming  of  the  re- 
ceivers, and  their  authority  can 
be  only  such  as  the  court  may  now 
give  them.  This  method  of  abol- 
ishing a  trust  is,  we  think,  so  new 
as  never  to  have  received  judicial 
approval.  A  court  of  equity  has 
control  of  trusts  and  trustees;  it 
may,  for  cause,  displace  a  trustee 
appointed  by  contract  or  other- 
wise, and  name  another  in  his 
stead.  It  may  not  order  a  re- 
ceiver to  act  as  and  for  a  trustee. 

"When  the  trustee  is  carrying 
out  the  trust  it  may  not  limit  the 
exercise  by  the  trustee  of  his 
powers  under  his  trust  agreement; 
it  may  restrain  an  abuse  of  his 
power,  but  it  can  not  control  the 
exercise  of  the  legal  discretion 
vested  in  him  under  the  trust 
agreement." 


TRUST    ESTATES    AND    FIDUCIARY    RELATIONS. 


309 


vent  the  trustees  from  declaring  on  a  default  wliicli 
occurs  subsequent  to  the  receivership,  since  it  is  imma- 
terial whether  the  debtor  is  a  going  concern  or  under  a 
receiver  because  of  insolvency  at  the  time  of  the  default. 
The  receiver  can  not  by  virtue  of  the  receivership  obtain 
any  greater  rights  under  the  trust  agreement  than  the 
debtor  itself  could  have  had  if  it  had  not  been  placed 
under  a  receiver.^ 


1  In  Brackett  v.  Middlesex  Bank- 
ing Co.,  89  Conn.  645,  95  Atl.  12, 
the  agreements  under  which  mort- 
gages were  placed  by  a  banking 
company  in  trust  as  security  pro- 
vided that  on  default  the  trustees 
could  sell  the  collateral  and  pro- 
vided that  no  such  sale  should  be 
made  at  less  than  the  face  value 
of  the  collateral  with  accrued  in- 
terest, except  on  consent  of  the 
banking  company,  its  successors, 
or  assigns,  and  that  the  trustee 
should  not  be  liable  for  any  act 
or  omission,  except  for  bad  faith 
in  executing  the  trust. 

It  was  contended  that  the  trus- 
tees could  not  declare  a  default 
under  the  agreement  while  the 
property  of  the  debtor  was  under 
a  receiver,  but  the  court  in  answer 
to  the  arguments  on  that  point 
said: 

"The  receivers  further  contend 
that,  although  the  trust  agree- 
ments provide  for  a  default  in  the 
payment  of  principal  and  interest 
and  a  sale  thereafter,  the  default 
in  contemplation  was  one  which 
occurred  while  the  Banking  Com- 
pany was  a  going  concern  and  not 
one  occurring  after  insolvency. 
They  find  support  for  this  claim 
in  the  terms  of  the   agreements: 

"  'But  no  sale  thereof  shall  be 
made  at  a  less  rate  than  the  face 
value  with  accrued  interest  of  said 


collateral,  except  upon  the  written 
consent  of  said  banking  company, 
its  successors  and  assigns.' 

"And  in  the  provision  that  'Ja 
trustee — 

"  'shall  not  in  any  case  be  l.able 
for  any  act  or  omission,  except 
for  bad  faith,  in  the  execution  of 
its    trust.' 

"From  these  provisions  the  re- 
ceivers insist  that  the  right  to  sell 
or  collect  this  collateral  never 
arose,  since  the  def.^ult  never  had 
arisen  prior  to  the  receivership, 
and  no  right  to  sell  had  then  ma- 
tured, and  the  receivership  sus- 
pended the  contract  between  the 
banking  and  trust  companies.  If 
it  be  true  that  under  the  trust 
agreements  this  collateral  was 
placed  in  the  hands  of  the  trustees 
without  furnishing  them  the 
means  of  protecting  the  debenture 
holders  by  collection  of  the  col- 
lateral upon  the  insolvency  of  the 
debtors,  perhaps  a  court  of  equity 
may  give  the  trustees  power  to 
collect.  But  it  could  only  act  upon 
application  to  the  court  to  secure 
its  aid  in  administering  the  trust. 
No  such  application  was  before 
the  court.  Taking  the  collateral 
from  the  trustees  and  turning  it 
over  to  the  receivers  to  collect 
is  a  very  different  procedure  from 
that  of  invoking  the  court  of 
equity  to  assist  the  trustee  to  ad- 


310 


LAW   OF   RECEIVERS. 


§78.    Whether   Receivership    Deprives    Trustees    of   Availing 
Themselves  of  Their  Ordinary  Remedies. 

A  court  of  equity  has  no  power  to  direct  that  a  receiver 
act  as  and  for  a  trustee.  While  such  a  court  has  power 
to  restrain  a  trustee  from  abusing  his  powers  it  can  not 
control  the  exercise  of  the  discretion  vested  in  him  by 
the  trust  agreement.^  The  general  rule  is  that  a  receiver 
takes  property  subject  to  all  equities  and  liens  existing 


minister  his  trust.     The  right  of 
the  trustee  to  collect  after  insol- 
vency was  not,  upon  this  theory, 
suspended;    it  never  arose.     But 
we  think  the  agreements  are  not 
susceptible  of  this  construction.  It 
would   be   singular   if  a   business 
of  such  magnitude  and  age  should 
make  the  trust  agreements,  upon 
the  faith  of  which  its  bonds  were 
sold,    incapable    of   affording    pro- 
tection to  their  holders  in  the  com- 
mon   contingency    of    insolvency. 
The    nature   of   the    business   and 
the   salability   of  these   bonds   re- 
quired such  a  provision.     So  long 
as  the  banking  company  met  its 
financial  obligations,  there  was  no 
reason    why   it   should   not  retain 
the  record  title  to  the  collateral 
and  collect  the  income.     When  it 
was  in  default,  either  as  a  going 
concern  or  an  insolvent  concern, 
it  was  imperative,  in  the  interect 
of  the  debenture  holder,  that  the 
trustees  should  have  the  power  to 
collect  both  the  income  and  prin- 
cipal  of  the   collateral.     .Then   it 
was  arose  the  necessity  for  having 
the    right    to   record    the    assign- 
ments and  to  compel  the  banking 
company  to  deliver  the  abstracts 
of  title  and  other  papers  relating 
to  the  collateral.    The  agreements 
give  this  power  and  do  not  limit 


the  default  to  that  of  a  going  con- 
cern; with  these  broad  provisions 
there  was  no  occasion  to  specify 
whether  the  default  referred  to 
was  that  of  a  going  or  an  insolvent 
concern.    .    .   . 

"Two  cases  are  the  main  reli- 
ance of  the  receivers.  The  first 
(Miles  V.  New  South  Bldg.  &  L. 
Assn.  [C.  C],  95  Fed.  919)  does 
hold  that  receivers,  under  circum- 
stances such  as  are  present  in  this 
case,  may,  by  order  of  court,  take 
possession  of  collateral  held  by  a 
trustee  and  collect  the  collateral 
and  hold  the  same  as  a  separate 
fund  subject  to  the  trust  under 
which  the  trustee  held.  We  think 
this  case  is  against  authority,  and 
certainly  against  settled  principle. 
The  second  (Girard  Trust  Co.  v. 
McKinley-Lanning  Loan  &  T.  Co. 
[C.  C],  135  Fed.  180)  held  the 
trust  agreement  gave  the  trustee 
no  power  to  administer  the  assets 
in  case  of  general  insolvency,  bas- 
ing this  construction  chiefly  upon 
the  facts  that  the  agreement  of 
trust  made  no  provision  for  pay- 
ment to  the  trustee  for  its  ser- 
vices in  administering  the  trust 
after  insolvency.  In  this  case 
there  is  provision  for  paying  the 
trustee." 

1  Brackett  v.  Middlesex  Banking 
Co.,  89  Conn.  645,  95  Atl.  12. 


TRUST   ESTATES   AND   FIDUCIARY   RELATIONS.  311 

at  tlie  time  of  his  appointment.  From  this  rule  it  is 
apparent  that  the  contractual  rights  of  the  trustees  anc? 
beneficiaries  can  not  be  impaired  by  the  receiver.  But 
there  is  a  nice  distinction  between  the  obligations  of  the 
contract,  which  are  secured  inviolate  by  the  constitutional 
provisions  protecting  such  contractual  obligations  and 
the  remedies  to  enforce  such  obligations.  There  is  often 
much  confusion  in  distinguishing  between  matters  which 
go  to  the  essence  of  the  contract  and  matters  which 
merely  go  to  the  remedy.  And  there  is  a  like  confusion 
in  distinguishing  between  laws  which  abolish  the  remedy 
and  laws  which  merely  substitute  another  remedy  of  an 
adequate  character.  It  is  not  within  the  domain  of  our 
subject  to  go  into  the  various  distinctions  in  respect  to 
these  constitutional  questions. 

It  is  obvious  that  the  obligation  of  a  contract  which 
can  not  be  impaired  by  the  Legislature  also  can  not  be 
impaired  by  the  courts.^  The  Legislature  is  required  to 
have  some  method  of  procedure  reasonably  adequate  to 
afford  relief.^ 

The  impairment  of  the  obligation  of  a  contract  forbid- 
den by  the  constitution  includes  all  cases  where  the  sub- 
stitution of  a  different  remedy  is  of  one  in  substance 
more  difficult,  more  burdensome  and  uncertain  than  the 
one  repealed  and  which  appreciably  lessens  the  value  of 
the  contract.^ 

The  rule  applicable  to  bankruptcy  cases  is  also  appli- 
cable to  receiverships  in  this  respect,  and  in  a  recent  case^ 
the  court,  in  setting  forth  the  rule,  said : 

''It  is  always  onerous  to  a  lienor  to  have  his  general 
right  to  enforce  his  valid  liens  interfered  with,  and  this 
should  not  be  done  to  his  serious  substantial  injury  except 

2  Galey  v.  Guffey,  248  Pa.  523,  4  City  of  Cleveland,  Tenn.,  v. 
94  Atl.  238.                                                 United    States,    166    Fed.    677,    93 

3  Bost  V.   Cabarrus   County,   152       C.  C.  A.  274. 

N.  C.  531,  67  S.  E.  1066.  5  In  re  Morse,  210  Fed.  900. 


312  LAW    OF    RECEIVERS. 

in  rare  instances.  On  the  other  hand,  the  mortgaged 
property  of  a  bankrupt  should  not  be  sacrificed  by  hasty 
sales  or  under  such  circumstances  that  the  rights  therein, 
if  any,  of  general  creditors  are  destroyed  or  seriously 
impaired. ' ' 

We  have  no  doubt  that  a  receivership  court  would  have 
the  right  to  enjoin  the  enforcement  of  a  lien  or  trust,  if 
the  elements  of  fraud  or  oppression  entered  into  the  man- 
ner of  such  enforcement,^  and  especially  where  equities 
existed  in  favor  of  the  debtor  whom  the  receiver  repre- 
sented.  In  fact,  the  jurisdiction  to  interfere  in  the  mat- 
ter at  all  would  be  dependent  upon  an  equity  or  right 
existing  in  favor  of  the  receiver.  The  long-continued 
restraining  of  the  remedy  provided  for  in  the  contract 
might,  however,  amount  to  such  a  deprivation  of  any 
remedy  whatever  as  would  violate  the  constitutional 
rights  of  the  trustees  and  beneficiaries. 

The  stipulation  in  a  deed  of  trust  which  provides  for 
the  time,  conditions,  and  terms  of  a  sale  of  the  property 
upon  a  failure  of  the  grantor  to  pay  the  debt  is  of  the 
essence  of  the  obligation  of  the  contract,  and  an  act  of  the 
Legislature  wdiich  stays  the  collection  of  debts  for  a  lim- 
ited period  and  wdiicli  forbids  sales  under  deeds  of  trust 
is  unconstitutional.'^ 

Where  the  contract  parties  agree  on  the  remedy  it  has 
been  held  that  the  remedy  becomes  a  part  of  the  contract 
and  can  not  be  affected  by  any  subsequent  statute  without 

6  In  re  Jersey  Island  Packing  proposed  sale  was  concealed  from 
Co.,  138  Fed.  625,  2  L.  R.  A.  (N.  S.)  the  parties  interested  in  seeing 
560,  71  C.  C.  A.  75,  a  bankruptcy  that  the  property  brought  the  best 
case,  in  which  a  sale  by  trustees  price  possible  at  such  a  sale.  The 
under  a  deed  of  trust  was  re-  court,  however,  admitted  that  it 
strained.  The  purpose  of  the  could  not  interfere  with  the  pro- 
restraining  order  was  to  conserve  posed  sale  unless  an  "equally  effi- 
the  grantors'  equity  for  the  benefit  cient  and  adequate  remedy  is  sub- 
of  unsecured  creditors.  There  were  stituted." 

elements  of  fraud  in  the  proposed  7  Taylor    v.     Stearns,   18    Gratt. 

sale  by   the   trustees  in   that  the  (Va.)   214. 


TRUST    ESTATES    AND    FIDUCIARY    RELATIONS.  313 

Jtn  impairment  of  the  obligation  thereof.  Hence,  in  snch 
circumstances,  secured  creditors  of  an  individual  whose 
estate  has  been  placed  in  the  hands  of  a  receiver  can  not 
be  enjoined  from  adopting  and  applying  such  legal  reme- 
dies as  are  allowed  them  by  their  contract  at  the  times 
permitted  by  the  contract.^ 

But  when  parties  undertake  to  fix  the  remedies  by 
which  their  obligations  are  to  be  enforced,  they  do  so 
subject  to  the  paramount  right  of  the  state  to  determine 
as  to  the  policy  which  the  general  good  requires  to  be 
done,  since  no  vested  right  in  any  particular  remedy.^ 
The  right  to  change  the  remedy  is,  however,  subject  to 
the  limitation  that  the  Legislature  can  not  take  away  the 
whole  remedy  or  impose  such  burdens  or  restrictions  on 
it  as  materially  impair  the  value  and  benefit  of  the 
contract.  ^^ 

After  the  appointment  of  a  receiver  over  the  property, 
if  a  trustee  or  lien  holder  desires  to  commence  legal  pro- 
ceedings in  respect  to  the  property,  it  will  be  necessary 
to  obtain  leave  of  the  receivership  court  under  the  general 
practice  prevailing  in  regard  to  matters  within  the  juris- 
diction of  such  courts.^^ 

The  principles  of  this  section  are  necessarily  applied 
in  foreclosure  proceedings  under  mortgages  and  other 

8  Galey  v.  Guffey,  248  Pa.  523,  ings  shall  be  conducted  and  those 
94  Atl    238  forms    can    not    be    controlled    by 

cna      any  stipulation  of  the  parties;  for 

9  Rprnheimer    v.    Converse,    2Ub  ^        ^  ^    ^i,   4. 

J  tsernneuuei  ^  '  ^  example,    an    agreement    that    an 

U.  S.  516,  51  L.  Ed.  1163,  27  Sup.  ^^^.^^  ^^  covenant  may  be  main- 

Ct.  755;  Henley  v.  Myers,  76  Kan.  ^^.^^^  ^^  a' contract  by  parol,  or 

723,  736,  17   L.  R.  A.   (N.  S.)   779,  ^^^^  ^^^  distinct  causes  of  action 

93  Pac.  168,  173  (affirmed  215  U.  S.  ^^^y  ^^  inserted  in  one  count." 

373     54    L.    Ed.    240.    30    Sup.    Ct.  lo  Tennessee  v.  Sneed,  96  U.  S. 

148) ;  Conkey  V.  Hart,  14  N.  Y.  22.  69,    24    L.    Ed.     610;     South    Fork 

In  Handy  v    Chatfield,  23  Wend.  Canal    Co.    v.    Gordon,    73    U.    S. 

(N    Y)    35,  the  court  said:    "It  is  (6  Wall.)   561,  18  L.  Ed.  894. 

the    business    of    the    legislature  n  The  necessity  to  obtain  leave 

and    the    courts    to    regulate    the  of  court   will   be   discussed   under 

forms  in   which  judicial   proceed-  the  chapter  devoted  to  Courts. 


314  LAW   OF   RECEIVERS. 

liens  and  in  sales  under  deeds  of  trust,  and  the  cases 
dealing   A\itli   those   topics   will   be   found   under   their 
respective  heads. 
§  79.    Right  of  Trustee  to  Bind  His  Beneficiaries  by  His  Acts. 

Where  an  application  for  a  receiver  for  a  corporation 
is  made  by  the  trustee  in  a  trust  deed  to  secure  the  hold- 
ers of  the  bonds,  a  bondholder,  being  a  beneficiary  under 
the  trust,  is  bound  by  the  bona  fide  acts  of  the  trustee,  so 
long  as  he  does  not  appear  in  the  proceeding  individ- 
ually.^ 

2.  Estates  of  Decedents. 

§  80.    General  Principles  Applicable. 

Although  a  court  of  chancery  has  an  undoubted  right 
to  appoint  a  receiver  over  the  estate  of  a  decedent  and 
thereby  displace  an  executor  or  administrator,  it  will  not 
do  so  except  in  cases  where  there  appears  to  be  a  very 
urgent  necessity  in  order  to  preserve  and  protect  the 
property  from  injury  or  loss  or  where  there  is  no  one 
legally  competent  to  administer  the  estate,  or  where 
those  charged  with  such  duty  are  violating  their  trust. 

The  reason  for  this  rule  is  in  the  principle  that  where 
the  law  has  created  an  office  and  charged  the  occupant 
with  the  duties  appertaining  thereto,  no  court  will  will- 
ingly step  in  and,  through  its  officers,  assume  the 
functions  of  the  legally  constituted  authorities,  and  par- 
ticularly so  where  another  court  is  given  jurisdiction  to 
adequately  and  completely  protect  the  interests  of  all 
parties  concerned,  as  in  the  administration  of  estates. 
The  probate  courts,  and  those  of  similar  jurisdiction,  are 
usually  clothed  mth  ample  and  complete  power  in  this 
regard. 

And  w^here  the  executor  or  administrator  is  guilty  of 
misconduct  or  \dolating  his  trust,  the  statutory  provisions 

1  Title  Ins.  &  Trust  Co.  v.  California  Development  Co.,  171  Cal.  227, 
152  Pac.  564. 


TRUST   ESTATES   AND   FIDUCIARY    RELATIONS.  315 

in  most  of  the  states  contain  ample  provisions  for  liis 
removal  and  the  appointment  of  a  suitable  successor.  A 
survey  of  the  cases  bearing  on  the  question  will  show 
that  most  of  the  decisions  on  the  subject  are  early  ones 
and  rendered  under  different  conditions  than  exist  at  the 
present  time.  In  our  opinion  the  only  circumstances  in 
Avhich  a  receiver  is  properly  appointed  over  the  estates 
of  decedents  are  pending  the  taking  of  possession  by  an 
executor  or  administrator  or  pending  the  proceedings 
necessary  to  remove  unfaithful  officials  and  appoint  their 
successors,  and  even  in  such  circumstances,  it  will  gener- 
ally be  found  that  modern  statutes  provide  for  ex  parte 
administrators  to  protect  the  estate  until  permanent  offi- 
cers can  be  appointed  by  the  probate  courts.  Hence  the 
question  to  be  investigated  upon  an  application  for  the 
appointment  of  a  receiver  over  an  estate  of  a  decedent 
is  whether  there  is  an  adequate  statutory  provision  exist- 
ing in  the  particular  state  to  remedy  the  evil  wdiicli  is 
set  forth  as  the  ground  for  the  appointment  of  a 
receiver. 

§  81.    Receivership  Pending^  Institution  of  Probate  Proceedings. 

As  was  suggested  in  the  preceding  section,  courts  of 
equity  will  under  exceptional  circumstances  appoint  a 
receiver  in  lieu  of  an  executor  or  administrator  where 
there  is  a  strong  showing  of  an  abuse  of  trust  but  they 
are  reluctant  to  act  and  do  so  with  extreme  caution.^  The 
theory  upon  relief  by  way  of  the  appointment  of  a  re- 
ceiver is  given  for  the  purpose  of  preventing  a  prob- 
able injury  or  loss  to  the  estate,  although  past  wrongs 
may  be  considered  in  determining  the  probability  of 
future  ones.-  For  these  reasons  it  is  obvious  that  a  very 

1  Dougherty    v.    McDougald,    10  64  Miss.  717,  2  So.  240;  Haines  v. 

Ga.  121;  Harrup  v.  Winslet,  37  Ga.  Carpenter,  1  Woods  262,  Fed.  Cas. 

655;   Powell  v.  Quinn,  49  Ga.  523;  No.   5905;    Middleton  v.  Dodswell, 

West   V.   Mercer,    130   Ga.   357,   60  13    Ves.    266;    Steele   v.    Cobham, 

S.  E.  859;  Stairley  v.  Rabe,  McMiil.  L.  R.  1  Ch.  App.  325. 

Eq.  (S.  C.)  22;  Shannon  v.  Davis,  2  A  receiver  will  not  be  appointed 


316 


LAW   OF   RECEIVERS. 


strong  case  must  be  sliown  in  order  to  take  tlie  assets  of 
an  estate  out  of  the  hands  of  an  executor  or  administrator 
and  place  them  in  that  of  a  receiver.  The  court  adminis- 
tering the  estate  in  probate  has  jurisdiction  to  discharge 
the  administrator  and  appoint  a  new  one  and  compel  such 
officials  to  account  to  the  court  in  respect  to  their  stew- 
ardship. Hence  there  must  be  a  showing  of  an  immediate 
danger  of  waste  or  of  a  wrong  wdiich  the  court  acting  in 
its  probate  capacity  is  incapable  of  effectually  remedying 
or  preventing.  And  whatever  charges  are  made  in  such 
a  case  must  be  made  with  certainty.^ 

In  all  cases,  however,  the  appointment  of  a  receiver 
rests  in  the  sound  judicial  discretion  of  the  court,  under 
all  the  circumstances  of  the  case.^ 

The  general  rule  is  that  a  receiver  of  the  assets  of  a 
decedent  will  be  appointed  in  equity  if  it  appears  from 
all  the  circumstances  that  there  is  no  executor  or  admin- 


over  an  estate  in  the  hands  of  an 
administrator  on  account  of  mis- 
conduct of  the  decedent  during 
his  lifetime  where  no  charges  of 
waste  or  misconduct  are  made 
against  the  administrator.  Perrin 
V.  Lepper,  56  Mich.  351,  23  N.  W. 
39. 

3  Powell  V.  Quinn,  49  Ga.  523; 
Wannel^er  v.  Hitchcock,  38  Fed. 
383. 

A  receiver  is  not  granted  over 
an  estate,  where  no  grounds  are 
shown  why  an  administrator  could 
not  be  appointed  immediately. 
Jones  V.  Frost,  3  Madd.  1. 

4  In  Ladd  v.  Harvey,  21  N.H.  514, 
the  court  say:  "Where  there  is 
some  evil  actually  existing,  or 
some  evidence  of  danger  to  the 
property  upon  the  filing  of  the 
answer,  a  receiver  will  be  ap- 
pointed. Hugonin  v.  Basely,  13 
Ves.  Jr.  105.    So,  where  before  an- 


swer there  is  evidence  that  the 
pro]ierty  is  in  danger  from 
insolvency  actually  existing  or  ex- 
pected. Middleton  v.  Dodswell,  13 
Ves.  Jr.  266.  And  a  receiver 
will  be  appointed  before  answer 
where  justice  requires  it.  Duck- 
worth V.  Trafford,  18  Ves.  Jr.  283. 
The  exercise  of  the  power  to  ap- 
point a  receiver  must  depend  upon 
sound  discretion,  and  be  a  case 
in  which  it  must  appear  fit  and 
reasonable  that  some  indifferent 
person  under  approved  security 
should  receive  and  distribute  the 
issues  and  profits  for  the  greater 
securities  of  all  the  parties  con- 
cerned. Verplank  v.  Caines,  1 
Johns.  Ch.  (N.  Y.)  57.  A  receiver 
is  proper  if  the  fund  is  in  danger, 
and  this  principle  reconciles  the 
cases  found  in  the  books.  Orphan 
Asylum  Society  v.  McCartee,  1 
Hopk.  Ch.   (N.  Y.)   429,  435." 


TRUST    ESTATES    AND    FIDUCIAKY   RELATIONS.  317 

isLi-alor  in  existence,  where  there  is  imminent  danger  of 
the  property  of  the  decedent  being  taken  from  the  state, 
leaving  no  other  property  liable  to  pay  creditors,  and  the 
person  in  possession  is  insolvent  or  a  nonresident. 

In  such  a  case  it  is  essential  that  the  plaintiff  should 
show,  first,  either  a  clear  legal  right  in  himself  to  the 
property  in  controversy,  or  that  he  has  some  lien  upon 
it,  or  that  it  constitutes  a  special  fund  out  of  which  he  is 
entitled  to  satisfaction,  and,  secondly,  it  must  appear  that 
the  property  was  obtained  by  the  defendant  through 
fraud,  or  that  the  property  itself  or  the  income  from  it  is 
in  danger  of  loss  from  negligence,  waste,  misconduct,  or 
insolvency.^ 

Under  the  practice  obtaining  in  the  English  Court  of 
Chancery,  receivers  were  appointed  by  it  pending  pro- 
ceedings in  the  ecclesiastical  court  for  the  probate  of  a 
will  or  the  administration  of  an  estate.  The  ground  for 
the  interposition  of  the  court  of  equity  was  the  fact  tliat 
there  was  no  one  legally  entitled  to  administer  the  estate 
and  the  receivership  proceeding  was  employed  for  the 
purpose  of  preserving  the  estate  pending  the  litigation.^ 
It  was  necessary,  however,  that  the  property  of  the 
estate  was  in  danger  of  loss."^ 

5  Flagler  v.  Blunt,  32  N.  J.  Eq.  W.  R.  724,  22  L.  T.  646;  In  re 
51g.  Goods   of   Pryse    (1904),   P.    301; 

It  would  appoint  a  receiver  if  it  Overington  v.  Ward,  34  Beav.  175. 

appeared   from   all   circumstances  Before  the  grant  of  administra- 

of  the  case  that  there  was  no  exec-  tion,  a  receiver  and  manager  may 

utor  or  administrator  in  existence  be  appointed  to  carry  on  the  busi- 

with  the  right  and  power  to  act  ness  of  an  intestate.     Blackett  v. 

as     such,     notwithstanding     that  Blackett,    19    W.   R.    559;     In    re 

there  was  no  ground  laid  for  in-  Wright,  32  Sol.  J.  721. 

terference  in   respect  of  any  im-  Pending  the  probate  of  a  will 

proper    conduct    of    the    parties,  the  court  will  appoint  a  receiver, 

Watkins  v.  Brent.  1  M.  &  C.  97.  but  the  appointment  of  receivers 

6  Watkins  v.  Brent,  1  Myl.  &  Cr.  elsewhere  than  in  the  probate 
97,  Marr  v.  Littlewood,  2  Myl.  &  division  is  discouraged.  In  re 
Cr.'  454;  Parkin  v.  Seddons.  L.  R.  16  Parker,  54  L.  J.  Ch.  N.  S    694 

Eq.    34;    Grimston   v.    Turner,    18  7  Evans  v.  Coventry,  5  D.  M.  &  G. 


318  LAW   OF    RECEIVERS. 

In  England  upon  the  abolition  of  the  ecclesiastical 
courts  by  the  establishment  of  the  courts  of  probate,  the 
act^  authorized  that  court,  pending  any  proceeding  re- 
specting the  validity  of  a  will,  the  revocation  of  a  probate 
or  administration,  to  appoint  an  administrator  with  the 
powers  of  a  general  administrator  other  than  that  of 
distribution. 

Since  the  enactment  of  the  act  establishing  the  court 
of  probate,  the  English  chancery  courts  do  not  appear  to 
be  called  upon  as  frequently  to  appoint  receivers,  and  in 
one  case^  the  court  referred  to  the  jurisdiction  conferred 
by  the  act  and  refused  to  appoint  a  receiver  in  a  case 
where  an  administrator  had  been  appointed  on  the 
ground  that  such  an  appointment  would  tend  to  create 
an  apparent  conflict  between  the  two  courts  which  would 
be  an  unwise  thing  to  do.  But  where  the  court  has  not 
exercised  its  power  to  appoint  an  administrator  pendente 
lite,  the  equity  court  will  intervene  in  by  the  appointment 
of  a  receiver  in  a  proper  case.^^   The  court  of  equity  will 

917;    Knight  v.   Duplessis,    1   Ves.  constitute  a  lis  pendens.    Salter  v. 

324;    Richards  v.   Chave,    12   Ves.  Salter  (1896),  P.  291. 
462.  Where,  pending  litigation,  a  re- 

s  Court  of  Probate  Act  1857  (20  ceiver  had  been  appointed  by  the 

&  21  Vict.,  ch.  77).  Court  of  Chancery,  with  authority 

9  Veret  v.  Duprez,  L.  R.  6  Eq.  to  collect  the  outstanding  personal 
329;  see,  also,  Hitchen  v.  Birks,  estate  until  administration,  and 
L.  R.  10  Eq.  471.  with   liberty  to   apply    for  letters 

10  Parkin  v.  Seddons,  L.  R.  16  of  administration,  a  general  grant 
Eq.  34.  of  administration  was  made  to  the 

If  an  administrator  ad  litem  has  receiver.     In  re  Mayer  L.  R.  3  P. 

not  been  appointed  by  the  probate  &  M.  39;   In  re  Moore    (1892),  P. 

division,     the     chancery     division  145. 

will,  as  a  matter  of  course,  appoint  As  soon  as  the  chancery  court 

a  receiver.      Cf.   in  the   Goods   of  finds  some  one  appointed  by  the 

Pryse   (1904),  P.  301.  probate  court  as  an  administrator. 

There  must  be  a  lis  pendens  to  even  although  he  is  only  appointed 

justify  the  making  of  an  order  for  pendente  lite,  it  will  discharge  the 

a  receiver  before  grant  of  probate  order  for  a  receiver  and  will  allow 

or  administration,  and  entering  a  the    administrator    to    administer 

caveat,  the  fact  that  it  has  been  the  estate,  but  it  will  exercise  a  su- 

warned  by  the  executor,  docs  not  pervisory  jurisdiction  in  the  mat- 


TRUST   ESTATES   AND   FIDUCIARY  RELATIONS.  319 

not,  however,  usurp  the  probate  jurisdiction  of  the  regu- 
lar probate  courts.^^ 

The  same  general  principles  applied  by  the  English 
courts  are  applied  by  the  courts  of  our  own  country  sub 
ject  to  the  statutory  provisions  existing  in  the  different 
states.  The  essential  point  in  all  applications  for  receiv- 
ers in  such  circumstances  is  that  there  must  be  a  danger 
of  loss  of  assets  belonging  to  the  estate  which  can  be 
guarded  against  by  the  appointment  of  a  receiver.  In 
proper  cases  under  the  general  principles  applicable  to 
the  law  of  receiverships,  our  courts  appoint  receivers 
pending  the  probate  of  a  will  or  the  issuance  of  letters  of 
administration,!^  i^jut  such  jurisdiction  is  merely  concur- 
rent and  the  plaintiff  will  be  bound  by  prior  decisions  m 
the  cause.!^ 
§  82.    Receivership  Pending  Will  Contest. 

Where  by  reason  of  a  contest  in  the  court  of  pro- 
bate there  is  no  proper  person  to  receive  the  estate,  a 

ter      Per  Lord  Penzance,  L.  R.  1      testator's    estate,    where    the    cir- 

Rr  M    "'33  cumstances  require  it,  until  a  legal 

^  ■    '     ■  ..,.*„„„       personal     representative     is     ap- 

11  A  receiver  pendente  lite  can      ^^.^^^^^  ^^  ^^^.^^  ^^  p^^^^^^  ^^^ 

not  be  appointed  of  the  estate  of  a  ^^^^   ^^   administer  the   estate   is 

testator,  where  a  caveat  has  been  jj,j.ggyiar.    Overington  v.  Ward,  34 

entered  and  warned,  and  appear-  g^^^^  -j^^g.  ^^     Nothard  v.  Proctor, 

ance  has  been  entered,  but  no  writ  ^  ^-^  -q  4 

has  been  issued.    Salter  v.  Salter,  ^^a  court  of  equity  may  call  in 

65  L.  J.  P.  D.  &  A.  N.  S.  117  (1898),  ^^^  ^gg^^-g  ^j  .^e  estate  from  the 

P.  291,  75  L.  T.  N.  S.  7.  personal  representative,  and  place 

Even  though  a  receiver  has  been  them  in  a  receiver's  hands.    Dav^s 

appointed  during  a  litigation  in  a  y.  Chapman,  83  Va.  67,  5  Am.  St. 

proper   court,   the    court   will   not  Rep.  251,  1  S.  E.  472;  Robinson  v. 

order  the  person  named  as  exec-  Taylor,  42  Fed.  803;  Underground 

utor  to  pay  into  court  money  into  Electric  Rys.   Co.  v.   Owsley,   176 

his  hands  belonging  to  the  testa.  ped.  26,  99  C.  C.  A.  500. 
tor's  estate  received  previously  to  13  Johnson  v.  Waters,  111  U.  S. 

the  appointment  of   the   receiver.  640,  28  L.  Ed.  547,  4  Sup.  Ct.  619; 

Reed  V.   Harris,   7   Sim.    639,    Ed-  Arrowsmith  v.  Gleason,  129  U.  S. 

wards  v.  Edwards,  10  Ha.  App.  63.  86,  32  L.   Ed.  630,  9   Sup.  Ct.  237. 

Although  the  court  will  also  ap-  But    see    McCauley    v.    McCauley, 

point  a  proper  person  to  protect  a  202  Fed.  280. 


320 


LAW   OF   RECEIVERS. 


receiver  may  be  appointed.^  And  where  a  bill  is  filed  by 
a  devisee  to  try  the  validity  of  a  will  as  to  real  estate  the 
court  will,  under  special  circumstances,  appoint  a  re- 


ceiver.^ 

1  It  is  not  an  unlawful  interfer- 
ence for  an  executor  to  take 
possession  of  testator's  property 
pending  probate  of  his  will  and  to 
remove  it  to  another  place  for 
safe-keeping;  and,  in  the  absence 
of  allegations  of  incompetency, 
dishonesty,  or  insolvency,  or  of 
wasting  assets,  such  acts  furnish 
no  ground  for  the  appointment  of 
a  receiver  at  the  suit  of  a  creditor. 
Dickinson  v.  Powers,  140  App.  Div. 
105,  125  N.  Y   Supp.  949. 

Rendall  v  Kendall,  1  Hare  152. 
In  Wood  V.  Hutchings,  2  Beav.  289, 
an  appeal  was  pending  in  the  privy 
council  from  the  ecclesiastical 
court,  and  the  power  of  the  admin- 
istrator pendente  lite  had  been 
suspended  by  an  inhibition  from 
the  appeal  court  and  there  was  no 
one,  pending  the  litigation,  to  care 
for  the  estate. 

An  action  for  a  receiver,  pend- 
ing a  litigation  as  to  probate, 
ought  not  to  seek  discovery  in 
reference  to  the  merits  of  the  liti- 
gation; for  the  plaintiff  can  not 
by  one  action  obtain  specific  relief, 
and  also  discover  on  a  matter  dis- 
tinct from  that  specific  relief.  But 
the  mere  fact  of  discovery  being 
sought  in  an  action  will  not  pre- 
vent the  appointment  of  a  receiver, 
where  there  is  a  clear  title  to  re- 
lief. Wood  V.  Hutchings,  3  Beav. 
504. 

Where  an  executor,  by  agreeing 
with  h's  exponents  that  the  ques- 
tion as  to  the  validity  of  the  sup- 
posed testamentary  papers  should 
be  tried  in  a  suit  to  recall  probate. 


had  treated  himself  as  not  being 
complete  executor,  a  receiver  was 
appointed.  Watkins  v.  Brent,  1 
M.  &  C.  97. 

If  the  question  be  whether  the 
party  claiming  to  be  the  executor 
is  so  de  jure  or  not,  a  receiver  will 
be  appointed.  Rendall  v  Rendall, 
1  Ha.  155. 

2  Middleton  v,  Sherburne,  4 
Younge  &  C.  358.  But  not  in  the 
absence  of  an  allegation  of  the  in- 
solvency of  those  in  possession  of 
the  land.  Bryan  v  Morlr-g,  94 
N   C.  694. 

Receivers  have  been  appointed 
where  there  were  contests  over 
the  probate  of  different  wills.  See 
Montgomery  v,  Clark,  2  Atk.  378; 
Marr  v.  Littlewood,  2  Myl.  &  C. 
454;  Jones  v.  Goodrich,  10  Sim. 
327;  Watkins  v.  Brent,  1  Myl.  &  C. 
97;  Whitworth  v.  Whyddon,  2 
Macn.  &  G.  52;  Vodmore  v.  Gun- 
ning, 5  Sim.  485. 

A  receiver  will  not  be  appointed 
on  application  of  a  devisee  under 
a  contested  will  except  in  a  clear 
case  of  right  of  recovery  and 
where  there  is  danger  of  loss. 
Clark  V.  Dew,  1  Russ.  &  M.  103. 

Where  there  are  concurrent  ac- 
tions in  the  chancery  division  of 
the  High  Court  of  Justice  and  in 
an  inferior  com-t  which  has  juris- 
diction in  the  subject-matter,  the 
chancery  court  ma3%  in  special  cir- 
cumstances, appoint  a  receiver  in 
the  chancery  action.  Northard  v. 
Proctor,  1  Ch.  D.  4. 

Where,  pending  a  contest  in  the 
ecclesiastical  court  as  to  the  valid- 


TRUST   ESTATES    AND    FIDUCIARY    RELATIONS.  321 

Wliere  different  executors  were  contesting  the  right  to 
probate  the  estate,  a  receiver  was  appointed  pendente 
lite.'' 

And  where  there  is  a  showing  of  fraud  on  the  part  of 
the  persons  contesting  a  will  and  it  appears  that  the 
object  of  the  contest  is  the  delay  of  the  probate  of  the  will, 
the  court  of  equity  will  appoint  a  receiver,  notwithstand- 
ing that  the  ecclesiastical  court  in  which  the  contest  was 
l)ending  could  have  appointed  an  administrator  pendente 
lite^ 

But  the  court  is  reluctant  to  appoint  a  receiver  and 
thereby  interfere  with  the  person  in  possession  under  a 
will  where  the  property  is  of  small  value. ^ 

Where  an  administrator  of  a  life  estate  has  been  ap- 
pointed and  has  partially  administered  the  estate,  a 
receiver  will  not  be  appointed,  however  proper  it  might 
have  been  to  do  so  in  the  first  instance.^ 

But  where  a  large  amount  of  vacant  land  formed  part 
of  a  decedent's  estate,  the  court  properly  appointed  a  re- 
ceiver to  rent  the  land,  pending  an  action  by  the  executor 
to  construe  the  will,  to  allot  dower  to  the  widow,  and  to 
settle  the  estate. ''^ 

Although  where  a  devise  under  a  will  is  presumptively 
valid,  a  receiver  will  not  be  appointed  where  no  danger  of 
loss  or  insolvency  on  the  part  of  the  persons  in  possession 
is  shown.^ 

ity  of  two  wills,  the  plaintiff  Sled  4  Atkinson  v.   Henshaw,  2  Ves. 

a   bill    for   a   receivership   of   the  &  Beav.  85. 

testatrix's  estate,  and  to  set  aside  5  Whitworth     v.     Whyddon,      2 

an  assignment  made  by  her  to  the  Macn.  &  G.  52. 

defendant,  the  court  refused  to  ap-  6  Shannon  v.  Davis,  64  Miss.  717, 

point  a  receiver   to   the   property  2  So.  240. 

comprised  in  the  assignment,  that  7  Clay  v.  Anderson,  141  Ky.  455, 

being    claimed    by   the    defendant  132  S.  W.  1039. 

independently  of  either  will.  Jones  s  In  Richter  v.  Lindemann,  166 

V.  Goodrich,  10  Sim.  327.  App.  Div.  33,  152  N.  Y.  Supp.  784, 

".  Anderson  v.  Guichard,  9  Hare  the  suit  was  by  an  heir  for  par- 

27^>.  tition  of  the  estate  on  the  ground 
I  Rec— 21 


322  LAW   OF    RECEIVERS. 

In  a  suit  to  annul  probate,  the  court  upon  the  applica- 
tion of  the  acting  executor  appointed  a  receiver  where  it 
was  shown  that  the  opposing  party  had  notified  the  cred- 
itors of  the  estate  not  to  pay  the  acting  executor,  since 
such  acts  on  his  part  tended  to  hinder  the  collection  and 
preservation  of  the  estate.*^ 

Where  there  is  a  contest  between  parties  interested  in 
an  estate,  growing  out  of  the  validity  of  a  will,  and  a 
receiver  has  been  appointed  prior  to  the  appointment  of 
an  administrator  pendente  lite,  and  the  contest  is  likely 
to  be  protracted,  it  is  proper  to  order  the  receiver  to 
turn  over  to  the  administrator  pendente  lite  the  personal 
and  real  estate  belonging  to  the  testate.  This  is  based 
upon  the  fact  that  the  orphans'  court  appointing  the 
administrator  is  the  proper  court  for  the  adjudication  of 
the  matters  in  dispute,  and  the  jurisdiction  of  the  chan- 
cery court  was  temporary  and  for  the  purpose  of  pre- 
serving the  property  until  such  time  as  the  proper  court 
appointed  a  person  with  full  power  to  protect  and  pre- 
serve the  property.^** 

§  83.   Whether  Receivership  After  Judgment  in  Will  Contest. 

Under  the  provisions  of  the  New  York  statute  relating 
to  the  contest  for  the  revocation  of  a  will  and  confining 
the  issue  to  whether  the  writing  produced  is  or  is  not  the 
last  will  of  the  testator,  it  has  been  held  that  the  court 

that   certain   devises   by   the   will  9  Marr   v.    Littlewood,    2    M.    & 

and  deeds  placed  in  escrow  as  pro-      C.  454. 

vided  in  the  will  were  invalid  and  ^^  ^  court  of  chancery  can  not  ap- 

a  receiver  was  sought.    The  court      P^^^^^  a  receiver  after  the  granting 

of  letters  pendente  lite  by  the  or- 
phan's court,  and  if  such  receiver 

has  been  appointed  prior  thereto, 
presumptively  valid  and  that  the      j^j^  ^^^^^^  ^^^^^  ^^t^,  ^^^  g,^^^^ 

court  in  such  circumstances  would  ^nd  he  will  be  discharged  and 
not  disturb  the  possession  of  the  directed  to  deliver  over  the  prop- 
parties  where  no  danger  of  loss  erty  to  such  administrator.  In  re 
or  insolvency  was  shown.  Colvins  Estate,  3  Md.  Ch.  278. 


refused  to  make  the  appointment 
on  the  ground  that  the  devise  was 


TRUST    ESTATES   AND    FIDUCIARY    RELATIONS. 


323 


can  not  appoint  a  receiver  after  final  judgment  to  pre- 
serve the  real  property  pending  an  appeal.  The  title  to 
the  property  in  such  a  case  passes  to  the  heirs  at  law 
and  possession  must  be  recovered  in  the  proper  form  of 
action  for  the  recovery  of  the  possession  of  real  prop- 
erty.^ 

§84.    Receivership    Where    Executor    or    Administrator    Is 
Charged  With  Fraud,  Mismanagement,  or  Waste. 

There  must  be  a  strong  case  made  for  the  appointment 
in  order  to  justify  a  court  in  interfering  in  the  matter  of 
trustees  who  have  been  appointed,  or  authorized  to  act 
under  the  orders  of  another  court  of  competent  jurisdic- 
tion, and  especially  so  in  the  case  of  executors  who  are 
presumed  to  have  been  appointed  by  reason  of  some  pecu- 
liar fitness  or  confidence  reposed  in  them  by  the  testator.^ 


1  Johnson  v.  Cochrane,  91  Hun 
163,  36  N.  Y.  Supp.  287. 

1  Haggarty  v.  Pittman,  1  Paige 
(N.  Y.)  298,  19  Am.  Dec.  434; 
Burt  V.  Burt,  41  N.  Y.  46;  Bev- 
erley V.  Brooke,  4  Gratt.  (Va.) 
1S7,  208;  Bainbridge  v.  Blair,  4 
L.  J.  Ch.  N.  S.  207:  Smith  v. 
Smith,  2  Younge  &  C.  361;  Mid- 
dleton  V.  Dodswell,  18  Ves.  Jr.  286. 

In  Shannon  v.  Davis,  64  Miss. 
717,  2  So.  240,  it  is  held  that  where 
an  administrator  has  been  ap- 
pointed and  has  partially  admin- 
istered the  estate,  a  receiver  is 
improper,  though  it  might  have 
been  proper  to  appoint  in  the  flrst 
Instance.  In  Perrin  v.  Lepper,  56 
Mich.  351,  23  N.  W.  39,  it  was  held 
that  in  the  absence  of  proof  of 
waste  on  the  part  of  the  adminis- 
trator, or  danger  to  the  estate,  the 
appointment  would  not  be  made. 
Cooley,  J.,  says:  "Receivers  are 
not  appointed  by  way  of  punish- 
ment of  parties,  and  especially  of 


dead  parties,  for  their  miscon- 
duct." The  court,  however,  will 
not  hesitate  where  the  adminis- 
trator is  seeking  to  administer 
property  the  title  to  which  appears 
to  be  in  another.  Hill  v.  Arnold, 
79  Ga.  367,  4  S.  E.  751;  cf.  Stairley 
V.  Rabe,  McMull.  Eq.  22;  Middle 
ton  V.  Dodswell,  18  Ves.  Jr.  68.  And 
see  Rendall  v.  Rendall,  1  Hare  152, 
where  the  vice  chancellor  reviews 
the  English  doctrine  upon  this 
subject.  And  in  Haines  v.  Carpen- 
ter, 1  Woods  262,  Fed.  Cas.  No. 
5905,  the  court  refused  to  enter- 
tain a  bill  to  appoint  a  receiver 
upon  the  ground  that  the  executor 
had  qualified  and  given  bond  for 
the  discharge  of  his  trust  and  had 
taken  possession  of  the  estate  un- 
der the  provisions  of  the  will  of 
the  testator,  where  the  allegations 
were  made  on  information  and  be- 
lief. The  court  says:  "The  prop- 
erty is  in  gremio  legis;  the  juris- 
diction   of   the    parish    court   has 


324  LAW    OF    RECEIVERS. 

Eemedies  in  cases  in  which  fraud  is  charged  being  par- 
ticularly within  the  protection  of  courts  of  equity,  a  re- 
ceiver will  be  appointed  where  an  executor  or  adminis- 
trator is  charged  with  such  fraud  and  danger  of  loss  to 
the  estate  is  imminent,^ 

But  if  fraud  is  charged  against  an  administrator  for 
the  purpose  of  displacing  him  with  a  receiver,  such 
charges  must  be  alleged  with  certainty  and  specifically 
set  forth. ^ 

In  such  cases  the  rule  was  stated  by  the  New  York 
court^  in  the  following  language : 

''The  court  looks  to  the  security  and  preservation  of 
the  property,  and  ought  not  to  interfere  pending  the  liti- 
gation when  the  plaintiff's  right  is  not  perfectly  clear 
and  the  property  itself,  or  the  income  arising  from  it,  is 
not  shown  to  be  in  danger ;  and  it  is  acknowledged  to  be 
the  rule  in  several  of  the  English  cases  that  there  must 
be  some  evil  actually  existing,  or  some  evidence  of  danger 
to  the  property  or  a  strong  special  case  of  fraud  in  tlie 

attached  to  the  assets;  they  are  in  against  trustees,  but  the  principle 
the  hands  of  a  trustee  who  is  re-  is  applicable  to  executors  and  ad- 
quired  to  account  only  to  the  court  ministrators  as  well.  See,  also, 
which    appointed    him,    and    this  Hugonin  v.  Basely,  13  Ves.  Jr.  105; 

,    ,  „,„     +^   +„i,^   t-v,^      Middleton  v.  Dodswell,  18  Ves.  Jr. 

court  has   no   power   to  taKo  the  ' 

286;  Lloyd  v.  Passingham,  16  Ves. 

Jr.  69.  In  another  case  in  the  Irish 
chancery  court  it  has  been  ob- 
served that  such  an  interference 
is,  to  a  certain  extent,  giving  re- 
lief—in fact,  depriving  defendants 
of  a  present  use  and  enjoynaent  of 
the  estate  and,  so  far,  a  decision 
pro    tempore    against   them;    and, 

2  Rutherford  v.  Douglas,  1  Sim.  therefore,  without  some  strong 
&  St.  lln;  Watkins  v.  Brent,  1  necessity,  the  court  ought  not  to 
M.  &  C.  102;  Dimes  v.  Steinberg.  ^^  ^^^  ^^^  ^^  ^.^^^^^  ^^^  existing 
2  Sm.  &  G.  75;  Vernon  v.  Kinzie,  possession  until,  from  a  view  of 
2  U.  C.  Jur.  40.  ^^^  whole  case  and  by  a  regular 

3  Powell  V.  Quinn,  49  Ga.  523.  adjudication,  it  can  pass  upon  the 

4  Willis  V.  Corlies,  2  Edw.  Ch.  right.  Houlditch  v.  Lord  Donegal, 
(N.    Y.)    281.      This    was    a    case      1  Beatty  402,  16  Ves.  Jr.  59. 


assets  from  the  possession  of  that 
trustee  and  compel  him  to  account 
here."  In  Wanneker  v.  Hitchcock, 
38  Fed.  383,  it  was  held  that  where 
the  probate  court  had  full  power 
to  protect  the  interests  of  all  par- 
ties a  receiver  would  not  be  ap- 
pointed. 


TRUST    ESTATES    AND    FIDUCIARY    RELATIONS.  325 

defendant  clearly  proved  to  induce  the  court  in  this  stage 
of  the  cause  to  take  the  property  under  its  care," 

And  speaking  upon  the  general  subject  of  the  appoint- 
ment of  receivers  in  cases  where  fraud  is  alleged  as  the 
ground  for  such  appointment  Lord  Eldon  in  Lloyd  v. 
Passingham^  said  the  court  must  not  only  be  satisfied 
of  the  existence  of  the  fraud  but  must  be  morally  sure 
that  upon  the  hearing  of  the  cause  the  party  would,  under 
those  circumstances,  be  turned  out  of  possession,  but  it 
must  see  some  danger  to  the  intermediate  rents  and 
profits. 

Where  it  appears  that  the  conduct  of  an  administrator 
is  such  as  to  hinder  and  delay  the  collection  of  the  assets 
of  an  estate,  a  court  of  chancery  has  power,  and  it  is  its 
duty,  to  appoint  an  administrator  to  collect  and  hold  the 
assets,  and,  ha\dng  acquired  jurisdiction  for  that  pur- 
pose, it  may  retain  it  for  the  purpose  of  finally  settling 
the  estate,^ 

And  likewise  where  the  executor  or  administrator  is 
guilty  of  such  misconduct  as  jeopardizes  the  safety  of  the 
estate,  receivers  have  been  appointed  over  the  estate  for 
the  purpose  of  preserving  and  safeguarding  it.'^ 

5  In  this  respect  see,  also:  Clark  assets  in  the  hands  of  an  executor 
V.  Ridgely,  1  Md.  Ch.  70;  Handle  V.  or  administrator  there  must  be 
Carter,  62  Ala.  95;  Ex  parte  Wal-  actual  misconduct  or  fraud,  and 
ker,  25  Ala.  81;  Hitchen  v.  Birks,  immediate  danger  of  loss.  Randle 
L.  R.  10  Eq.  471.  v.  Carter,  62  Ala.  95,  and  Ex  parte 

6  Du   Val    V.    Marshall,    30   Ark.  Walker,  25  Ala.  81. 

230.  A  receiver  should  not  be  ap- 
Where  it  is  shown  that  the  exec-  pointed  to  take  the  assets  out  of 
utor  is  guilty  of  misconduct,  and  the  hands  of  legally  appointed 
was  not  a  safe  custodian  and  was  representatives  of  a  decedent,  ex- 
Insolvent  and  the  estate  is  insc^-  cept  in  cases  of  manifest  danger 
vent,  a  receiver  will  be  appointed.  of  loss  or  destruction  to  the  as- 
In  such  case  it  is  not  necessary  sets.  West  v.  Mercer,  130  Ga.  357, 
to  establish  an  exhaustion  of  legal  60  S.  E.  859. 

remedies.    Harmon  v.  Wagener,  33  Where,  in  an  action  to  establish 

S.  C.  487,  12  S.  E.  98.  an  equitable  claim  against  an  es- 

7  To  justify  the  appointment  of  tate,  it  did  not  appear  that  the 
a  receiver  to  take  the  custody  of  administrators     were      guilty      of 


326 


LAW   OF   RECEIVERS. 


waste  or  mismanagement,  a  re- 
ceiver should  not  be  appointed 
over  tlie  estate.  Crawford  v.  Wil- 
son, 139  Ga.  654,  44  L.  R.  A.  (N.  S.) 
773,  78   S.  E.  30. 

The  advance  by  the  executors 
to  the  widow  of  less  than  half  of 
the  cash  on  hand,  which  was  prima 
facie  a  community  fund,  does  not 
authorize  the  appointment  of  a  re- 
ceiver pending  an  action  by  the 
heirs  to  recover  their  alleged  in- 
terest in  the  estate,  and  for  par- 
tition, upon  the  ground  of  mis- 
application of  the  funds  and  re- 
fusal to  allow  the  plaintiffs  free 
access  to  the  books  of  deceased, 
where  the  widow's  interest  in  the 
estate  is  apparently  largely  in  ex- 
cess of  the  amount  paid  her,  and 
she  was  otherwise  without  means 
of  support.  Harris  v.  Hicks,  13 
Tex.  Civ.  134,  34  S.  W.  983. 

Where  decedent's  real  property, 
worth  $100,000,  was  claimed  by 
the  state  as  having  escheated  and 
also  claimed  by  defendant  under 
an  alleged  will  and  by  another 
claiming  to  be  decedent's  only  heir 
at  law,  and  the  lands  having  been 
sold  for  municipal  taxes,  the  rents 
were  being  collected  by  the  pur- 
chasers at  the  tax  sale,  a  mort- 
gagor having  also  filed  foreclosure 
proceedings,  defendant  as  adminis- 
tratrix having  in  no  way  at- 
tempted to  protect  the  property, 
and  it  appearing  that  the  conflict- 
ing claims  will  produce  prolonged 
litigation,  a  receiver  was  properly 
appointed  to  protect  the  property. 
McCarter  v.  Clavin,  72  N.  J.  Eq, 
642,  66  Atl.  599. 

In  Harmon  v.  Wagener,  33  S.  C. 
487,  12  S.  E.  98,  a  suit  was  insti- 
tuted by  the  executor  for  the  sale 
of  land  and  to  marshal  assets  and 
to  enjoin  creditors  from  suing  at 


law,  in  which  general  creditors 
Intervened,  and  asked  to  have  a 
receiver  appointed  on  the  ground 
that  the  executor  was  guilty  of 
misconduct  in  his  management  of 
the  estate,  and  was  not  a  safe 
custodian  thereof,  and  was  insol- 
vent. It  was  also  held  that  the 
judgment  and  execution  returned 
in  such  case  was  unnecessary,  for 
the  reason  that  the  principle  has 
no  application  in  a  suit  to  marshal 
assets,  or  in  a  suit  to  compel  an 
administrator  or  executor  to  ac- 
count. Cf.  Pelzer  v.  Hughes,  27 
S.  C.  408,  3  S.  E.  781;  Austin  v. 
Morris,  23  S.  C.  393,  408.  In  Mid- 
dleton  V.  Dodswell,  13  Ves.  Jr.  266, 
Lord  Erskine  said:  "But  if  a  mani- 
fest abuse  of  the  trust  by  wasting 
the  property  appears,  which  does 
appear  in  this  instance,  not  from 
a  single  act  but  an  habitual  and 
prospective  course  of  dealing, 
bringing  the  property  into  danger, 
can  it  be  said  that  this  court  ia 
not  to  treat  an  executor  as  any 
other  trustee?  And  an  executor 
may  say  that  unless  he  is  proved 
to  be  insolvent,  the  court  is  to 
overlook  the  misapplication  and 
refuse  a  receiver."  In  this  case 
the  application  was  before  answer. 
The  marriage  of  an  executrix  to  a 
second  husband  in  necessitous  cir- 
cumstances where  there  were  in- 
fant children  by  the  first  marriage 
was  held  sufficient  ground  for  the 
appointment  of  a  receiver  in  Dillon 
V.  Lady  Mount  Cashell,  4  Bro.  P.  C. 
306;  Lake  v.  De  Lambert,  4  Ves. 
Jr.  593.  In  Stairley  v.  Rabe,  Mc- 
Mul.  Eq.  (S.  C.)  22,  it  appeared 
that  the  executrix  had  managed 
the  estate  judiciously,  but  subse- 
quently married  a  second  husband 
possessing  no  qualifications  for  the 
management  of  such  an  estate,  but 


TRUST  ESTATES  AND  FIDUCIABT  RELATIONS. 


327 


The  charges  of  mismanagement  and  misconduct  which 
form  the  basis  of  the  ground  for  the  appointment  of  a 
receiver  in  lieu  of  an  executor  or  administrator  must  not 
be  made  merely  upon  information  and  belief.^ 

Where,  however,  the  executor  admits  that  he  has 
wasted  and  misappropriated  the  trust  funds  but  refuses 
to  give  the  details  thereof  and  has  also  allowed  his  co- 
executor  to  do  the  same,  the  court  very  properly  appoints 
a  receiver.^ 


was  young,  of  limited  means,  and 
without  experience  and  with  little 
aptitude  for  any  occupation.  Cf. 
Jenkins  v.  Jenkins,  1  Paige  (N.  Y.) 
243;  Gildersleeve  v.  Lester,  68 
Hun  (N.  Y.)  532,  22  N.  Y.  Supp. 
1026. 

Where  there  is  a  waste  and  mis- 
appropriation of  the  funds  of  an 
estate,  a  receiver  will  be  ap- 
pointed. In  re  Wells,  L.  R.  45  Ch. 
Div.  569. 

In  re  Fowler,  L.  R.  16  Ch.  Div. 

723.  "It  is  made  the  duty,"  says 
the  chancellor,  "of  trustees  of 
leasehold  property  to  keep  it  free 
from  forfeiture  out  of  the  rents, 
if  no  other  fund  is  applicable." 

A  receiver  was  appointed  be- 
cause of  the  misconduct  of  one  of 
three  executors  and  devisees  in 
trust,  the  other  two  consenting  to 
the  appointment.  Middleton  v. 
Dodswell,  13  Ves.  268. 

The  will  of  a  testator  was  pro- 
bated in  Chicago  as  his  place  of 
domicile,  and  a  general  executor 
was  appointed.  Decedent  owned 
property  in  New  York  City  of  the 
value  of  some  $3,000,000,  including 
a  valuable  residence  and  art  col- 
lection, but  the  executor  took  no 
steps  for  ancillary  administration 
there  for  three  years,  and  in  the 
meantime  the  property  was  in  pos- 


session of  the  widow,  who  asserted 
an  adverse  claim  to  a  large  part 
of  the  estate.  The  art  collection 
was  not  only  given  no  care,  but 
taxes  amounting  to  $200,000  were 
left  unpaid,  and  a  mortgage  on  a 
part  of  the  real  estate  was  allowed 
to  be  foreclosed  for  non-payment 
of  interest.  When  the  executor 
applied  for  appointment  as  ancil- 
lary administrator,  his  application 
was  contested  by  the  widow,  who 
procured  an  injunction  in  Chicago 
restraining  him  from  proceeding 
therewith.  The  estate  was  largely 
indebted,  and  a  foreign  creditor 
whose  claim  for  a  large  amount 
had  been  allowed  filed  a  bill  in 
equity  in  the  federal  court  in  New 
York  on  behalf  of  itself  and  all 
other  creditors,  praying  the  ap- 
pointment of  a  receiver,  that  the 
court  administer  the  property 
there,  and  for  general  relief.  The 
court  held  that  the  fact  that  a  part 
of  the  property  was  in  the  posses- 
sion of  the  widow  under  an  ad- 
verse claim  thereto  was  not 
ground  for  denying  a  receiver. 
Underground  Electric  Rys.  Co.  v. 
Owsley,  176  Fed.  26,  99  C.  C.  A. 
500. 

8  Haines  v.  Carpenter,  1  Woods 
262,  Fed.  Cas.  No.  5905. 

9  Price's     Executrix    v.    Price's 
Executors,  23  N.  J.  Eq.  428. 


328  LAW    OF    RECEIVERS. 

But  where  the  charges  in  respect  to  misconduct  and 
insolvency  on  the  part  of  the  executor  are  fully  denied, 
it  has  been  held  that  a  receiver  should  not  be  appointed.^*^ 

The  charges  of  misconduct  must  be  of  a  serious  charac- 
ter and  tend  to  endanger  the  safety  of  the  estate.^^  xV 
receiver  will  not  be  appointed  where  the  alleged  cause 
of  complaint  occurred  during  the  lifetime  of  the  intestate, 
and  where  there  is  no  allegation  of  mismanagement 
against  the  administrator.^^ 

§85.    Effect  Where  Mismanagement   Based  on  Account  Ap- 
proved by  Probate  Court. 

Where  an  executor  has  rendered  his  accounts  to  the 
probate  court  and  that  court  has  passed  upon  them,  a 
court  of  equity  will  not  re-examine  them  in  order  to  sus- 
tain a  charge  of  waste  and  mismanagement  against  the 
executor.  In  such  a  case  the  probate  court  has  jurisdic- 
tion of  the  examination  of  the  accuracy  of  such  accounts 

10  Fairbairn  v.  Fisher,  57  N.  C.  ment  of  a  receiver.  The  court 
3C)o  held    that    the     question    of    the 

11  That  one  of  three  executors  legality  of  the  devise  was  resting 
of  an  estate  without  bond  has  been  in  equilibrio,  and  could  not  be  con- 
seen  a  few  times  playing  cards  for  sidered  in  the  motion ;  that  the 
money  is  not  sufficient  cause  for  mixing  of  the  trust  funds  with  his 
the  appointment  of  a  receiver  own  was  of  itself  no  ground  for 
pending  an  action  by  the  heirs  to  the  appointment;  that  in  the  ab- 
recover  their  alleged  interest  in  sence  of  danger  this  was  no  breach 
the  estate,  and  for  partition,  where  of  duty;  and  that  there  was  no 
a  large  number  of  business  and  case  in  which  the  court  appointed 
professional  men  in  the  commu-  a  receiver  merely  because  the 
nity  where  such  executor  lives  measure  could  do  no  harm,  and 
affirm  his  integrity  of  character  still  less  where  the  trustee  was 
and  his  entire  fitness  for  the  trust.  such  under  the  appointment  of  a 
Harris  v.  Hicks,  13  Tex.  Civ.  134,  testator. 

34  S  W.  983.  ^-  Perrin  v.  Lepper,  56  Mich.  351, 
Orphan  Asylum  Society  v.  Mc-  23  N.  W.  39.  There  was  no  show- 
Cartee,  1  Hopk.  Ch.  (N.  Y.)  429.  ing  whatever  that  the  property 
In  this  case  a  bill  was  filed  by  a  was  being  wasted  by  the  corn- 
legatee  under  a  will  against  trus-  plainant  administrator,  or  that  the 
tees  to  obtain  the  benefit  of  the  estate  was  unsafe  in  his  hands, 
devise,  and  also  for  the  appoint-  and  a  receiver  was  refused. 


TRUST    ESTATES    AND   FIDUCIAEY   RELATIONS.  329 

and  another  court  will  not  base  its  action  upon  alleged 
errors  therein.^ 

§  86.    Mere   Disagreement   Between  Several  Executors   as   to 
Management. 

A  mere  disagreement  between  two  executors  in  respect 
to  the  proper  management  of  the  estate  is  not  sufficient 
ground  for  the  appointment  of  a  receiver  of  the  property 
of  the  estate.^ 

§87.    Receivership   on  Failure  to   Obey  Orders   of  Court  or 
Directions  in  the  Will. 

A  receiver  may  be  appointed  where  a  trustee  fails  to 
pay  money  due  from  him  pursuant  to  an  order  of  court.  ^ 

In  one  case  a  receiver  was  appointed  on  account  of 
laches  of  the  heirs  who  had  been  substituted  as  trustees 
to  execute  a  devise  to  charity.- 

Where  a  will  empowers  and  authorizes  a  devisee  to 
take  any  and  all  proper  and  necessary  steps  to  enforce 
payment  of  an  annuity  to  her,  the  appointment  of  a 
receiver  to  collect  the  rents,  issues,  and  profits  and  apply 
them  to  the  pajanent  of  the  annuity,  is  a  matter  within 
the  discretion  of  the  court.^ 

To  authorize  the  court  to  appoint  a  receiver,  it  is  suffi- 
cient that  the  executor  has  not  done  what  he  could  to  get 
in  the  personal  estate  of  the  testator,  that  he  has  left  a 
considerable  portion  of  it  outstanding  on  improper  secur- 
ities, and  that  he  has  not  raised  a  certain  sum,  as  directed 

1  Simmons  v.  Henderson,  Freem.  and    based    as    to    general    power 

Ch.  (Miss.)  493.  under  the  Judicature  Act  of  1873, 

1  Fairbairn   v.   Fislier,   57   N.   C.  §  25,   sub.   8.     See,   also,  Whiteley 

390.  V.  Learoyd,  56  L.  T.  846. 

1  In  re  Coney,  L.  R.  29  Ch.  Div.  2  Attorney    General    v.    Bowyer, 

993.     In  this  case  the  trustee  had  3  Ves.  Jr.  714. 
absconded;    and    it    was    decided  3  Gee  v.  Gee,   107   111.   App.   313 

upon  the  authority  of  Leathes  v.  (judgment   affirmed,    204    111.    588, 

Leathes,  Weekly  Notes,  1882,  p.  71,  68  N.  E.  515). 


330  LAW   OF   RECEIVERS. 

by  the  testator's  will,  for  the  maintenance  and  education 
of  an  infant  legatee.^ 

But  where  trustees  have  a  discretion  in  regard  to  the 
doing  or  not  doing  of  a  particular  thing,  as  in  the  pay- 
ment of  interest,  it  is  improper  for  the  court  to  make 
an  order  w^hich  will  take  from  the  trustees  this  discretion. 
Thus,  where  trustees  under  a  will  w^ere  directed  to  set 
apart  and  invest  a  sum  of  money,  and  were  authorized 
in  their  absolute  discretion  from  time  to  time,  and  at  such 
time  or  times  as  they  should  think  proper,  to  pay  or  apply 
the  whole  or  any  part  of  the  income  to  or  for  the  benefit 
of  the  judgment  debtor,  in  such  a  manner  and  in  all  re- 
spects as  they  should  think  proper,  the  money  will  not 
be  ordered  paid  to  the  receiver.^ 

§  88.    Effect  of  Insolvent  Character  of  Executor  or  Adminis- 
trator. 

The  court  wdll  not  appoint  a  receiver  in  lieu  of  an 
executor  or  administrator  where  the  only  ground  of  com- 
plaint alleged  is  the  poverty  or  financial  irresponsibility 
of  the  person  acting  in  this  relationship.  There  must  be 
some  danger  of  loss  to  the  estate  from  some  acts  on  the 
part  of  such  executor  or  administrator  for  which  he  will 
not  be  able  to  answer  by  reason  of  his  insolvency.^    In 

4  Richards  v.  Perkins,  3  Y.  &  not  appear  to  be  any  change  for 
C.  307.  the  worse,  at  least  in  the  property 

5  Queen  v.  Lincolnshire  &  Dixon  or  credit  of  the  executor,  since  the 
County  Judge,  L.  R.  20  Q.  B.  Div.  death  of  the  testator  or  even  the 
167.  making  of  his  will;  the  mere  pov- 

1  In    North   Carolina   R.    Co.   v.  erty  of  the  executor  does  not  au- 

Wilson,  81  N.  C.  223,  the  trustee  thorize  the  court  against  the  will 

loaned  part  of  the  funds  to  a  firm  of  the  testator  to  remove  him  by 

of  which  he  was  a  member,  which  placing    a    receiver    in    his    place, 

subsequently    failed;    and    it   was  There  must  be   in  addition   some 

held  that  the  trustee's  insolvency  maladministration,  or  some  danger 

and   unsuccessful  management  of  of    loss    from    the    misconduct    or 

his  own  business  might  be  consid-  negligence    of    the    executor,     for 

ered  in  passing  upon  the  question.  which  he  will  not  be  able  to  an- 

In  Fairbairn  v.  Fisher,  57  N.  C.  swer  by  reason  of  his  insolvency." 

390,  the  court  says:   "There  does  Howard  v.  Papera,  1  Madd.   142; 


TRUST   ESTATES    AND    FIDUCIARY   RELATIONS. 


331 


other  Avords,  even  if  the  estate  be  in  clanger  it  must  be 
also  shown  that  the  party  in  possession  is  irresponsible 


Gladdon  v.  Stoneman,  1  Madd.  143, 
note;  Johns  v.  Johns,  23  Ga.  31; 
Anonymous,  12  Ves.  Jr.  4. 

Where  the  executor  who  is  in- 
solvent and  carrying  on  the  busi- 
ness of  the  testator  pursuant  to 
his  directions,  and  there  is  suffi- 
cient property  to  pay  the  debts  of 
the  estate,  refuses  to  pay  debts 
or  use  the  assets  for  that  purpose, 
a  receiver  will  be  appointed  on 
the  application  of  a  creditor.  Wil- 
lis V.  Sharp,  46  Hun   (N.  Y.)   540. 

Nor  will  the  fact  that  it  appears 
that  the  executrix  is  a  person  of 
little  or  no  fortune  be  sufficient  in 
the  absence  of  proof  of  misman- 
agement; nor  is  the  fact  of  a  dis- 
pute in  another  court  concerning 
the  probate  sufficient.  Knight  v. 
Duplessis,  1  Ves.  Sr.  324.  In  How- 
ard V.  Papera,  1  Madd.  142  (Am. 
ed.,  p.  86),  the  vice  chancellor 
says:  "No  misapplication  or  abuse 
of  trust  is  made  out  against  this 
executrix,  and  it  would  be  too 
much  to  take  the  administration 
of  this  testator's  property  out  of 
her  hands  merely  because  she  is 
poor,  a  circumstance  known  to  her 
husband,  the  testator,  when  he  ap- 
pointed her  executrix."  Cf.  Glad- 
don V.  Stoneman,  note  to  last  case 
cited;  Jenkins  v.  Jenkins,  1  Paige 
(N.  Y.)  243;  Price's  Ex'x  v.  Price's 
Ex'rs,  23  N.  J.  Eq.  428. 

In  Anonymous,  12  Ves.  Jr.  4,  the 
question  before  the  court  was  upon 
the  sole  ground  that  the  executrix 
had  no  property  other  than  an  an- 
nuity of  £20  given  her  by  the  tes- 
tator, and  that  therefore  a  receiver 
should  be  appointed,  and  Sir  Wil- 
liam   Grant    says:    "There    is   no 


doubt  that  in  several  instances,  as, 
if  the  executor  has  wasted  the  ef- 
fects, or  in  other  respects  has  mis- 
conducted himself,  this  court  will 
Interfere.  But  has  the  court  ever 
taken  the  disposition  out  of  the 
hands  of  the  executor  on  account 
of  his  mean  circumstances — for  it 
comes  to  that?  You  must  prove 
the  unfitness  of  the  person.  In 
this  case  the  only  ground  is  that 
she  is  not  a  person  of  property. 
...  If  any  misconduct,  waste,  or 
improper  disposition  of  the  assets 
were  shown  the  court  would  in- 
stantly interfere."  Cf.  Gray  v. 
Gaither,  74  N.  C.  237. 

In  a  bill  by  a  ward  charging 
waste  and  insolvency  on  the  part 
of  an  administrator,  a  receiver  may 
be  appointed.  Ware  v.  Ware,  42 
Ga.  408.  In  Gray  v.  Gaither,  74 
N.  C.  237,  an  executor  converted 
his  land  and  personal  estate  into 
notes  and  money,  and  the  court 
held  the  estate  to  be  insecure.  It 
was  also  held  that  though  the  trus- 
tee was  insolvent,  if  the  testator 
knew  of  that  fact  it  would  not  be 
ground  for  removal. 

Where  it  does  not  appear  that 
real  and  personal  property  of  the 
decedent  will  be  insufficient  to  pay 
the  decedent's  debts,  the  court  will 
not  appoint  a  receiver  of  the  rents 
and  profits  of  the  real  estate.  Mc- 
Kaig  V.  James,  66  Md.  583,  8  Atl. 
663. 

If  a  sole  executor  or  trustee  be- 
comes bankrupt,  there  is  a  case 
for  the  appointment  of  a  receiver. 
In  re  Johnson,  L.  R.  1  Ch.  325;  In 
re  Hopkins,  19  Ch.  D.  61. 

If  a  testator  has  selected  an  in- 
solvent   debtor   as    his    executor, 


332 


LAW   OF    RECEIVERS. 


or  that  his  bond  is  insufficient.-  Although  it  is  not  ordi- 
narily deemed  sufficient  ground  for  the  appointment  of  a 
receiver  in  lieu  of  an  executor  that  he  is  in  poor  or  mean 
circumstances,  still  the  court  will  do  so  where  in  addition 
to  such  circumstances  it  is  shown  that  he  is  of  bad  charac- 
ter and  intoxicated  habits.^  And  a  receiver  was  ap- 
pointed in  one  case  where  the  executor  who  was  insolvent 
had  not  only  mismanaged  the  estate  but  was  about  to 
leave  the  country.^ 

It  is  held  that  an  actual  adjudication  of  bankruptcy  of 
the  executor  or  administrator  presents  a  strong  circum- 
stance for  his  displacement  by  the  appointment  of  a  re- 
ceiver, although  such  an  appointment  will  be  made  with- 
out prejudice  to  an  application  by  the  heirs  or  next  of 
kin.^ 


with  full  knowledge  of  his  insol- 
vency, the  court  will  not  on  the 
mere  fact  of  such  insolvency  inter- 
fere by  appointing  a  receiver. 
Gladdon  v.  Stoneman,  1  Madd. 
143n;  Stainton  v.  Carron,  Co.,  18 
Beav.  146,  161. 

But  in  such  a  case,  the  court  may 
interfere  on  behalf  of  creditors  if 
the  estate  is  not  more  than  suffi- 
cient to  cover  their  claims.  Old- 
field  V.  Cobbett,  4  L.  J.  Ch.  N.  S. 
272. 

In  such  circumstances  it  will 
not  be  inferred  from  the  circum- 
stances of  the  will  having  been 
made  some  time  before  the  insol- 
vency, and  not  altered  afterwards, 
that  the  testator  had  a  deliberate 
intention  to  intrust  the  manage- 
ment of  his  estate  to  an  insolvent 
executor.  Langley  v.  Ha-  ke,  5 
Madd.  46. 

In  Smith  v.  Smith,  2  Y.  &  C.  361, 
the    fact    that    the    administrator 


was  an  uncertificated  bankrupt, 
and  was  not  appointed  to  his  of- 
fice by  the  testator,  but  had  taken 
out  administration,  was  held  net 
a  sufficient  reason  to  induce  the 
court  to  appoint  a  receiver  before 
answer,  where  several  of  the  par- 
ties interested  declined  to  join  in 
the  application. 

2  Haines  v.  Carpenter,  1  Woods 
262,  Fed.  Cas.  No.  5905. 

3  Everett  v.  Prytheigh,  12  Sim. 
365. 

4  Chappell  V.  Akin,  39  Ga.  177. 
The  allegations  of  the  bill  in  this 
case  were  that  the  executor  was 
insolvent,  unmarried,  extravagant, 
engaged  in  no  settled  business,  in- 
tending soon  to  move  to  Honduras, 
and  was  badly  managing  his  own 
business,  and  threatened  to  sell 
the  trust  property. 

r.  Gladdon  v.  Stoneman,  1  Madd. 
142  (Am.  ed.,  p.  86);  Steele  v. 
Cobham,  L.  R.  1  Ch.  App.  325. 


TRUST    ESTATES    AND    FIDUCIARY   RELATIONS.  333 

But  a  receiver  will  not  be  appointed  of  a  decedent's 
estate  because  an  executor  lias  become  bankrupt  since  the 
death  of  the  testator  where  there  is  a  co-executor  who  is 
willing  to  act.^ 

A  receivership  is  proper  when  the  testamentary  trustee, 
although  exempted  by  the  will  from  giving  security,  is  a 
man  of  limited  means,  and  engaged  in  a  hazardous  busi- 
ness, and  an  injunction  has  been  obtained  by  the  next 
friend  of  an  infant  beneficiary  restraining  the  trustee 
from  disposing  of  the  assets.'^ 

Where  there  were  several  executors  and  all  but  one 
were  insolvent,  it  was  suggested  as  proper  practice  to 
appoint  a  receiver  to  act  in  conjunction  wdth  the  solvent 
executor  provided  he  would  so  act,  but  in  the  event  of  his 
not  consenting  to  do  so  to  order  the  receiver  to  act  gen- 
erally in  lieu  of  all  the  executors,*  but  it  has  also  been 
held  that  part  of  the  estate  can  not  be  taken  from  one 
executor  and  given  to  a  receiver  so  as  to  allow  him  to 
co-operate  with  the  other  receiver.** 

§  89.    Receiver  in  Lieu  of  Executor  Conditioned  on  Failure  of 
Executor  to  File  Security  Bond. 

The  appointment  of  a  receiver  being  within  the  discre- 
tion of  the  court,  it  is  proper  for  the  court  to  make  the 
appointment  of  a  receiver  contingent  upon  the  alternative 
of  the  executor  or  administrator  in  possession  furnishing 

6  Bowen  v.  Phillips  (1897),  1  the  solvent  executor  if  he  would 
Ch.  174,  66  L.  J.  Ch.  N.  S.  165.  consent  to  act  with  the  receiver, 

7  Bowling  V.  Scales,  2  Tenn.  but  otherwise  would  appoint  the 
Ch.  63.  receiver  to  act   generally   in   lieu 

8  In  Jenkins  v.  Jenkins,  1  Paige  of  all  the  executors. 

(N.  Y.)  243,  three  out  of  four  exec-  9  A  receiver  must  be  of  the  whole 

utors     were      insolvent     and     the  estate.     Hence  it  is  improper  for 

actions    of    the    executors    in    the  a  court  of  equity  to  take  part  of 

handling  of  the  estate  were  such  an  estate  from  one  executor  and 

that  the  settling  of  the  estate  was  give  it  to  a  receiver  so  as  to  allow 

unduly    delayed.      The    court    sug-  him  to  co-operate  with  the  other 

gested  that  it  would  appoint  a  re-  executor.     Fairbairn  v.  Fisher,  57 

ceiver  to  act  in  conjunction  with  N.  C.  390, 


331 


LAW   OF   RECEIVERS. 


a  bond  to  secure  the  safety  of  the  estate.^  And  following 
the  principle  that  the  security  of  the  estate  from  loss  or 
undue  depreciation  is  the  main  purpose  of  a  receivership 
in  connection  with  estates  of  decedents,  the  court  will 
refuse  to  appoint  a  receiver  where  the  bond  furnished  by 


1  In  this  connection  see  §  15, 
supra,  for  a  discussion  of  the  prin- 
ciples involved  in  such  action  by 
the  court. 

While  it  is  undoubtedly  the  law 
that  the  probability  that  a  com- 
plainant will  ultimately  be  entitled 
to  relief  is  a  material  element  for 
consideration  by  the  court  in  the 
appointment  of  a  receiver,  mere 
defects  of  pleading  or  parties,  cur- 
able by  amendment,  will  not  pre- 
vent such  action,  if  there  are  gen- 
uine rights  to  be  protected  and 
preserved;  and  where  an  answer 
and  cross-bill  in  an  administration 
suit  by  an  executor  alleges  that 
the  testator  gave  defendant  cer- 
tain personal  property,  that  the 
executor  took  the  property  into  his 
custody,  that  a  devastavit  has  been 
committed  by  him,  that  he  has 
converted  much  of  the  estate  to 
his  own  use  and  is  insolvent,  that 
a  large  quantity  of  personal  prop- 
erty belonging  to  the  estate  is  in 
his  hands,  in  which  the  defendants 
are  interested,  and  that  the  de- 
fendants' interest  in  the  estate 
will  be  jeopardized  for  want  of 
security,  and  asks  that  the  execu- 
tor be  required  to  give  bond,  or 
that  the  assets  be  placed  in  the 
hands  of  a  receiver,  and  the  execu- 
tor fails  to  give  bond  when  re- 
quired, it  is  proper  to  appoint  a 
receiver.  Hurt  v.  Hurt,  157  Ala. 
126,  47  So.  260. 

In  an  administration  suit  by  an 
executor  for  a  discovery  and  ac- 
counting, a  cross-bill  alleged  cer- 


tain shortcomings  of  the  executor, 
as  well  as  his  insolvency,  and 
asked  that  he  be  required  to  give 
bond,  or  for  a  receiver  for  the 
assets  of  the  estate.  An  order 
requiring  the  executor  to  give 
bond  by  a  date  fixed  directed  that 
the  question  of  a  receiver  be  post- 
poned, to  be  thereafter  considered 
on  motion  of  either  party  to  the 
cause.  The  executor  failed  to  give 
the  required  bond,  and  a  receiver 
was  thereupon  appointed  without 
further  notice  to  the  executor.  It 
appeared  from  the  showing  that 
the  executor  was  insolvent,  had 
given  no  security,  had  made  no 
inventory  of  the  assets  of  the  es- 
tate, and  there  was  evidence  that 
he  had  converted  assets  to  his 
own  use.  The  appellate  court  held 
that  the  chancellor  was  justified  in 
appointing  the  receiver  without 
further  notice.  And  where  the 
order  required  the  executor  to 
give  bond  to  keep  and  perform 
and  pay  a  1 1  decrees  rendered 
against  him  in  the  cause,  the  con- 
dition prescribed  is  in  legal  effect 
no  more  than  the  requirement  of 
Code  1896,  66,  that  an  executor's 
bond  be  conditioned  to  perform 
all  the  duties  which  may  be  or 
are  required  of  him  as  such  execu- 
tor or  administrator,  and  the  order 
appointing  a  receiver  for  failure 
of  the  executor  to  give  the  re- 
quired bond  is  not  erroneous  on 
account  of  the  required  conditions 
of  the  bond.  Hurt  v.  Hurt,  157 
Ala.  126,  47  So.  260. 


TRUST    ESTATES    AND   FIDUCIARY    RELATIONS.  335 

l]ie  executor  or  administrator  is  ample  to  protect  the 
estate  in  every  way.-  And  likewise  where  the  executor  is 
not  only  solvent  but  willing  to  secure  the  plaintiff  in  what- 
ever rights  he  may  be  entitled  to  on  final  hearing,  the 
appointment  of  a  receiver  is  properly  refused.^ 

But  where  an  executor  without  an  order  of  court  is 
converting  all  of  the  assets  of  the  estate  into  money  and 
there  are  circumstances  indicating  that  the  estate  is  not 
properly  secured,  the  court  may  direct  that  the  executor 
furnish  a  bond  sufficient  to  protect  the  estate  or  in  default 
of  doing  so  that  a  receiver  be  appointed.* 

§  90.    Consent  or  Acquiescence  in  the  Appointment. 

There  are  cases  in  which  a  receiver  will  be  appointed 
to  take  the  place  of  trustees  appointed  under  a  will,  as 
where  some  of  the  trustees  refuse  to  act  and  all  the 
parties  are  before  the  court  consenting  to  the  appoint- 
ment.^ 

Where  a  receiver  is  appointed  on  account  of  the  mis- 
conduct of  one  of  two  executors  and  the  one  not  charged 
with  misconduct  had  not  qualified  until  after  the  commis- 
sion of  the  misconduct  but  did  so  prior  to  the  appoint- 
ment of  the  receiver,  the  management  of  the  estate  will 

2  On   an   application   to   appoint  3  A  receiver  of  a  decedent's  es- 

a  receiver  of  assets  in  the  hands  tate  should  not  be  appointed  with- 

of   executors,   where   both   of  the  out    giving   a    defendant,    who    is 
executors  are  solvent  and  one  of 
them  worth  many  times  the  value 
of   the   interests   of  the   plaintiffs 

in   the  estate,  and   the   court  has  ^"^"^   '^^^^"^'  ^^  ^PP^rtunity   to 

enjoined    any    disposition    of    the  ^^^^   ^  sufficient   bond   to  protect 

realty    which    one    of    the    defen-  ^^^  petitioner  in  whatever  rights 

dants  in  the  proceeding  had  pur-  ^^  "^^^  ^^  ^^'^  ^'^  establish  at  the 

chased  from  the  directors,  and  a  ^"^^   hearing.     Bivins   v.    Marvin, 

bond  was  exacted  from  the  execu-  ^^  ^^-  ^^^'  ^^  ^-  ^-  ^2^- 

tors  sufficient  to  protect  petition-  -  Gray  v.  Gaither,  74  N.  C.  237. 

ers,  a  refusal  to  appoint  a  receiver  i  Brodie  v.  Barry,  3  Meriv.  695, 

was  proper.    West  v.  Mercer,  130  citing  Beaumont  v.  Beaumont,  not 

Ga.  357,  60  S.  E.  859,  reported. 


shown   to   be   entitled   to   at  least 
half    the    estate    and    to    be    per- 


336  LAW   OF    RECEIVERS. 

not  be  turned  over  to  the  newly  qualified  executor  where 
be  acquiesced  in  the  appointment  and  took  no  appeal 
therefrom,- 

§  91.    Right  of  Surety  to  Have  Receiver  Appointed. 

The  court  will  not  appoint  a  receiver  in  lieu  of  an 
administrator  on  the  application  of  a  surety  on  the  bond 
of  the  administrator,  where  the  purpose  is  to  require  the 
administrator  to  secure  the  bondsman  on  account  of  his 
liability  for  his  principal.^ 

But  it  has  been  held  that  a  receiver  will  be  appointed  at 
the  instance  of  heirs  or  sureties  upon  the  administrator's 
bond  if  there  is  danger  of  loss  or  other  injury  to  their 
interests.^ 

The  proper  rule  in  such  circumstances  should  be  that  if 
the  misconduct  of  the  executor  or  loss  to  the  estate  has 
already  occurred,  the  surety  merely  has  his  right  of 
action  against  his  principal  for  moneys  paid  out  by  rea- 
son of  his  suretyship,  and  if  the  danger  is  merely  antici- 
patory, he  has  a  right  to  withdraw  from  the  bond.  Of 
course  he  may,  if  the  facts  and  circumstances  will  warrant 
it,  have  a  receiver  appointed  over  the  property  of  his 
principal  in  his  individual  capacity.  y 

§  92.    Rights  of  Personal  Receiver  or  Administrator. 

The  fact  that  a  judgment  is  rendered  against  an  admin- 
istrator in  his  personal  capacity  and  a  receiver  is  ap- 

2  Fraser    v.    City    Council    of  not    entitled     to    the     relief.     Cf. 

Charleston,  19  S.  C.  384.  Walker  v.  Drew,  20  Fla.  908,  as  to 

1  Delaney    v.    Tipton,    3    Hayw.  a  surety  of  a  deceased  debtor  and 

(4  Tenn.)  14.  In  this  case  Delaney,  his  right  to  have  a  receiver;   and 

the  surety  on  the  administrator's  Stenhouse  v.  Davis,  82  N.  C.  432, 

bond,  filed  a  bill  and  asked  for  an  as  to  the  right  of  a  surety  of  a 

order  on  the  administrator  to  give  purchaser    at    an    administrator's 

security    to    him,    and    in    default  "ale. 

of  so  doing  that  a  receiver  be  ap-  2  Thompson    v.    Orser,    105    Ga. 

pointed  to  take  possession  of  the  482,  30  S.  B.  626. 
assets.  Held,  that  the  plaintiff  was 


TRUST    ESTATES    AND   FIDUCIARY   RELATIONS.  337 

pointed  over  his  property  in  aid  of  the  judgment  creditor, 
does  not  entitle  such  receiver  to  collect  the  rents  due  the 
administrator  in  his  official  capacity.  And  in  the  event 
that  such  receiver  has  collected  such  rents,  they  may  be 
recovered  back  by  the  tenants  who  have  paid  them  an<l 
they  may  assign  their  right  of  recovery  to  the  adminis- 
trator who  may  thereupon  sue  on  behalf  of  the  estate.^ 

§93.  Effect  of  Receivership  Over  Testator  at  Time  cf  His 
Death. 
Although  as  a  general  rule  an  administrator  is  entitled 
to  the  possession  of  the  property  of  the  intestate  held  by 
him  at  the  time  of  his  death,  still  where,  prior  to  adminis- 
tration, the  property  had  been  placed  in  the  hands  of  a 
receiver  on  the  application  of  an  adverse  claimant,  the 
receiver  will  hold  possession.^  In  such  circumstances  the 
administrator  may  be  made  a  party  to  the  pending  receiv- 
ership proceedings  and  in  that  proceeding  assert  his 
right  to  the  property  which  he  claims. 

§94.    Receivership  Where  the  Administration  Is  of  Property 
Claimed  by  Third  Persons. 

While  courts  are  slow  to  appoint  receivers  to  take  prop- 
erty of  an  estate  from  the  hands  of  an  administrator  who 
has  been  legally  appointed,  yet  where  the  administrator 
is  attempting  to  administer  property  the  title  to  which 
appears  to  be  in  another,  then  in  such  case  a  receiver 
should  be  appointed  if  the  circumstances  indicate  that  the 
rights  of  all  the  parties  would  thereby  be  more  etfectually 
and  expeditiously  protected  and  enforced.^ 

1  Barker  v.    Clark,   12  Abb.   Pr.  in  respect  to  a  wife's  reversionary 

N    S    (N    Y.)  106.  interest  under  a  will. 

,  ^      _,„  A  receiver  can  not  be  appointed 

1  Johnson  V.  Stewart,  41  Ga.  549.  .^  ^^  ^^^.^^  ^^^.^^^  ^  ^^^^.^  ^^. 

1  Hill  V.  Arnold,   79   Ga.    367,    4  ecutor  as  an   individual   to   apply 

S.  E.  751.  securities  of  the  estate  to  redeem 

In  Fuggle  v.  Bland,  L.  R.  11  Q.  B.  securities  of  a  third  person  pledged 

Div.  711,  a  receiver  was  appointed  for  the  testator's  debt,  as  the  ex- 

I  Rec. — 22 


338 


LAW  OF   RECEIVERS. 


The  rule  that  a  receiver  will  not  be  appointed  to  take 
property  from  an  administrator  duly  appointed  and  in 
possession  does  not  extend  to  a  case  where  the  property 
was  fraudulently  conveyed  to  the  deceased  in  his  life- 
time.^ 

And  where  an  administratrix  is  carrying  on  the  busi- 
ness of  her  deceased  husband,  on  the  tiling  of  a  bill  by 
the  heirs  of  such  deceased  person  alleging  that  the  admin- 
istratrix was  not  the  widow  of  the  deceased  it  is  proper 
to  appoint  a  receiver.^ 

But  even  though  a  suit  be  instituted  by  a  person  who 
claims  to  have  an  interest  in  the  estate,  it  does  not  follow 
that  the  trust  created  by  the  testator  will  be  set  aside.  A 


editor  in  his  individual  capacity 
could  not  be  compelled  so  to  do. 
Collins  V.  Steuart,  2  App.  Div.  271, 
37  N.  Y.  Supp.  891. 

In  Marvine  v.  Drexel's  Exrs.,  68 
Pa.  362,  one  Drexel,  the  trustee, 
died,  ordering  his  executors  to  sell 
his  real  estate  whenever  they 
thought  proper.  There  was  an 
agreement  as  to  the  purchase  of 
lands  between  Drexel  in  his  life- 
time and  Marvine,  and  the  for- 
mer's executors  and  Marvine  dis- 
agreeing in  regard  to  the  mode  of 
selling,  a  receiver  was  appointed. 
This  case  was  based  upon  the  idea 
that  a  receiver  would  be  disinter- 
ested and  the  executors  were  rep- 
resentatives of  the  estate  only, 
and  that  the  court,  having  ob- 
tained jurisdiction,  would  direct 
the  sale  in  the  interest  of  all  par- 
ties. 

In  a  suit  to  carry  into  execution 
the  trusts  of  a  will  a  receiver  will 
not  be  appointed  over  the  lands  in 
possession  of  the  heir  at  law,  un- 
less he  admits   the  will   or   until 


it  is  proved  against  him.     Dobbin 
V.  Adams,  8  Ir.  Eq.  Rep.  157. 

Where  heirs  representing  one- 
third  of  an  estate  sued  to  set  aside 
conveyances  of  stock,  land,  etc.,  as 
having  been  obtained  from  dece- 
dent through  undue  influence,  but 
did  not  allege  defendant's  insol- 
vency, and  defendant  alleged 
under  oath  that  he  paid  par  for 
the  stock,  and  there  was  no  evi- 
dence to  the  contrary,  and  he 
asserted  his  ability  to  meet  any 
liability  that  might  be  established 
against  him,  while  heirs  repre- 
senting two-thirds  of  the  estate 
also  adopted  his  answer  and  main- 
tained the  validity  of  the  convey- 
ances, a  receiver  was  improperly 
appointed  to  take  charge  of  the 
land,  etc.  Homer  v.  Bell,  105  Md. 
113,   66  Atl.   39. 

A  receiver  may  be  appointed 
over  a  life  estate.  McCraith  v. 
Quin,  Ir.  Rep.  7  Eq.  324. 

2  Werborn's  Admr.  v.  Kahn,  93 
Ala.  201,  9   So.   729. 

3  Graham  v.  Graham,  2  Vict. 
Rep.  145. 


TRUST   ESTATES   AND   FIDUCIARY   RELATIONS.  339 

strong  case  must  be  made  out  in  order  to  induce  the  court 
of  equity  to  dispossess  a  trustee  or  executor  who  is  wiHing 
to  act.^ 

Where  land  has  been  devised  to  two  persons  under  a 
will,  and  subsequent  to  the  execution  of  the  will,  the 
testator  conveyed  part  of  the  land  to  one  of  the  legatees, 
who  entered  upon  such  land  and  operated  the  same  as 
mining  property,  and  it  appears  that  there  is  danger  of 
waste  of  the  property,  and  the  solvency  of  the  legatee  and 
grantee  was  doubtful,  the  court  may  appoint  a  receiver, 
it  also  appearing  that  the  land  was  charged  by  the  testa- 
tor with  the  payment  of  debts.    In  such  case,  it  appearing 
that  the  property  over  which  a  receiver  was  asked  to  be 
appointed  was  mining  property  and  machinery  for  oper- 
ating such  mines,  every  beneficial  and  legitimate  object 
will  be  attained  by  leaving  the  operations  to  go  on  as 
before,  and  requiring  returns  to  be  made  to  the  appointee 
from  time  to  time,  and  securing  the  same  by  bond,  con- 
ditioned for  the  payment  of  the  proceeds  as  ordered  by 
the  court.^ 

Where  a  ward  has  been  decreed  a  specific  interest  in 
certain  lands  of  the  estate,  a  receiver  may  be  appointed 
to  take  charge  of  the  land  where  the  administrator  of 
the  estate  is  committing  waste  and  his  sureties  are  in- 
solvent. In  such  a  case  the  appointment  of  the  receiver 
will  not  only  prevent  a  multiplicity  of  suits  but  preserve 
the  property  pending  its  division  among  the  persons  en- 
titled to  it.« 
§  95.   Receivership  Over  Foreign  Executor  or  Estate. 

The  power  of  a  court  ordinarily  is  limited  by  its  ter- 
ritorial jurisdiction.   The  questions  involved  in  the  exer- 

4  Haines  v    Carpenter,  1  Woods  party   in   possession   is  a   legatee 

262   Fed    Cas   No.  5905.  under  the  will  and  also  claims  the 

s'stith  V.  Jones.  101  N.  C.  360,  property   under  a  deed   from   the 

s  ^    F    151      This  requirement  is  testator, 

peculiarly    applicable    where    the  «  Ware  v.  Ware.  42  Ga.  408. 


349  LAW    OF    RECEIVERS. 

cise  of  extra-territorial  jurisdiction  will  be  considered 
under  the  topic  of  courts.  But  occasions  happen  when 
a  foreign  executor  brings  property  within  the  limits  of 
another  state  and  there  is  danger  of  such  property  being 
removed  from  the  jurisdiction. 

Thus  a  receiver  may  be  appointed  pending  litigation 
as  to  who  was  entitled  to  administer  the  estate  of  a  per- 
son who  had  died  in  one  of  the  British  Colonies  even 
though  there  were  no  charges  of  misconduct  wdiere  part 
of  the  assets  were  brought  within  the  jurisdiction  of  the 
court  and  there  was  a  danger  of  their  removal  from  the 
jurisdiction.^ 

And  in  another  case  where  the  estate  was  situated  in 
India  and  there  had  been  two  executors,  one  in  India 
and  one  in  England,  and  the  co-executor  in  India  having 
died,  a  receiver  was  appointed.^  And  in  another  case 
where  the  executors  resided  outside  of  the  jurisdiction 
of  the  court  but  the  estate  was  within  its  jurisdiction,  a 
receiver  was  appointed.^ 

It  must,  however,  be  observed  that  the  practice  of  the 
English  courts  has  not  been  followed  in  this  country, 
although  the  same  results  are  often  obtained  through  the 
appointment  of  ancillary  receivers. 

It  has  been  a  very  frequent  practice  of  the  courts  of 
chancery  of  England  to  appoint  receivers  for  the  pur- 
pose of  collecting  the  assets  of  persons  and  estates  of 
decedents  situated  in  foreign  countries.  Sometimes  the 
practice  was  to  appoint  a  receiver  who  was  residing  in 
the  foreign  country  where  the  assets  were  situated  and 
sometimes  to  appoint  a  resident  of  England  with  power 

1  Hervey  v.  Fitzpatrick,  Kay  421.  Pietroni,  John  604,  6  Jur.  N.  S.  532, 

2  Cockburn  v.  Raphael,  2  Sim.  where  a  receiver  was  appointed 
&  s.  453.  pending  proceedings  in  a  foreign 

3  Smith  V.  Smith,  10  Hare,  ap-  country  to  ascertain  who  were  the 
pendix  Ixxi.  next  of  kin. 

See,    also,   Transatlantic   Co.    v. 


TRUST    ESTATES    AND    FIDUCIAEY   RELATIONS.  341 

to  appoint  a  foreign  agent  for  the  purpose  of  transacting 
the  business.^ 

§  96.    Right  of  Creditors  of  Estate  to  Have  Receiver. 

As  soon  as  a  person  dies,  a  trust  arises  in  his  property 
for  the  benefit  of  his  creditors  and  the  executor  is  in  the 
position  of  a  trustee  whose  duty  is  to  collect  his  assets 
for  that  purpose.^ 

Hence  where  judgment  creditors  allege  fraud  and  mis- 
application of  funds  by  an  executor  together  with  in- 
solvency on  his  part,  it  is  proper  to  appoint  a  receiver.- 

A  creditor  may  file  a  creditor's  bill  against  the  executor 
of  a  deceased  debtor  to  make  him  account  for  the  estate 
in  his  hands,  without  first  having  obtained  a  judgment  at 
law  and  procured  a  return  of  execution  nulla  hona.^ 

If  an  executor  of  a  will  and  legatee  thereunder  files  a 
bill  in  the  nature  of  a  creditor's  bill,  enjoining  creditors 
of  the  testate  from  suing  him  at  law,  such  executor  is  a 
quasi  trustee  for  the  creditors,  and  on  proper  applica- 
tion a  receiver  may  be  appointed,  where  there  is  a  mis- 
use or  misapplication  or  waste  of  the  property,  and  there 
is  danger  of  loss,  and  in  such  case,  on  the  application  of 

4mnton  V.  Galli,  2   Eq.  479,  24  the    receiver    to    pay    the    claims 

L    J     Ch     121;    Cockburn    v.    Ra-  out  of  the  moneys  and  securities 

phaei   2  Sim.  &  Stu.  453;  v.  at    their    nominal    amount    which 

Linds'ey  15  Ves.  Jr.  91.  should  come  into  his  hands.    Held. 

1  Rider  V    Kidder,   1  Vesey   360  that  the  direction  to  the  receiver 

(opinion  by  Lord  Eldon).  to    pay    was    subordinate    to    the 

"Chappell  V    Akin,  39  Ga.   177;  right  of  the  administrator  to  de- 
Ex  parte  Walker,  25  Ala.  81;  Scott  termine    the    applicability    of    the 
V   Becher    4  Price  Bxch.  Rep.  346.  assets,    and    the    receiver    having 
'  3  Harmon  v.  Wagener,  33  S.  C.  paid  out  money  to  the  agent  of  a 
487    12  S    E    98  creditor   without  the   direction   of 

On    a    creditor's    bill,    a    decree  the     administrator,     the     court 

was     rendered     establishing    the  granted  an  injunction  to  restram 

claims  of  creditors  and  directing  the    moneys    paid    to    such    agent 

their  payment  out  of  such  assets  within    the    control    of   the    court, 

as    may    be    applicable    to    them.  Green  v.  Hanberry,  2  Brock.  403, 

by  the  administrator,  and  ordering  Fed.  Cas.  No.  5759. 


342  LAW   OF   RECEIVERS. 

creditors,  it  is  not  incumbent  to  show  that  they  have  ex- 
hausted their  legal  remedies,  the  basis  of  their  applica- 
tion being  mismanagement.  Where  the  application,  is 
based  upon  waste  committed  by  the  executor  or  admin- 
istrator, the  charge  must  be  specific  and  designate  the 
thing  done  which  constitutes  the  waste  complained  of.* 

But  the  appointment  of  a  receiver  was  refused  in  a 
creditor 's  proceeding  where  the  bill  was  filed  against  the 
intestate  debtor  in  his  lifetime,  and  after  his  death  re- 
vived against  his  administrator.^ 

The  appointment  of  a  receiver  is  proper  in  a  creditor's 
bill  against  an  estate  where  the  administrator  has  been 
removed  and  an  administrator  de  bonis  non  appointed 
over  the  assets  which  are  insufficient  to  cover  the  claims 
against  the  estate.^  Likewise  where  decedent  who  died 
intestate  and  insolvent  had  sold  a  stock  of  goods  with- 
out complying  with  a  bulk  sale  law,  requiring  certain 
formalities  in  selling  a  stock  of  merchandise,  a  creditor 
may  secure  the  appointment  of  a  receiver  to  recover  the 
stock  of  goods. '^ 

A  receiver  in  supplementary  proceedings  of  the  prop- 
erty of  decedent's  husband  can  not  contest  her  will  al- 

4  Sanders  v.  Christie,  1  Grant  entitled  to  receive  and  hold  the 
Ch.  (Ont.)  137.  remaining    assets,    because     they 

5  Mathews  v.  Neilson,  3  Edw.  had  once  been  administered,  a  re- 
Ch.  (N.  Y.)  348;  Sylvester  v.  Reed,  ceiver  should  be  appointed,  as  he 
3  Edw.  Ch.  (N.  Y.)  296.  In  these  is  the  only  one  with  ample  power 
two  cases  it  was  held  that  a  cred-  in  such  a  case.  Harman  v.  Mc- 
itor's  bill  could  not  be  revived  Mullin,  85  Va.  187,  7  S.  E.  349. 
against  the  debtor's  administrator  7  Where  a  debtor  sells  a  stock 
where  the  purpose  is  to  obtain  the  of  implements  without  complying 
appointment  of  a  receiver.  with   the   Bulk    Sales    Law    (Rev. 

G  On  a  creditor's  bill  against  a  St.  1913,  §  2651),  and  dies  intestate 
decedent's  estate,  where  the  ad-  and  insolvent,  a  creditor  may  se- 
ministrator  had  been  removed  and  cure  the  appointment  of  a  receiver 
the  sheriff  appointed  administra-  to  impound  the  .stock  and  have 
tor  d.  b.  n.;  and  the  unadmin-  same  sold  and  the  proceeds  ap- 
istered  assets  were  not  sufficient  plied  to  his  claim.  Scheve  v.  Van- 
to  pay  the  debts  of  the  estate,  derkolk,  97  Neb.  204,  149  N.  W. 
such  administrator  d.  b.  n.  is  not  401. 


TRUST   ESTATES   AND   FIDUCIARY   RELATIONS.  343 

though  she  has  thereby  cut  off  the  judgment  debtor  from 
any  share  of  her  estate.* 

A  receiver  in  supplementary  proceedings  of  a  legatee 
stands  in  relation  to  the  estate  in  the  place  of  the  judg- 
ment debtor  and  is  entitled  to  be  made  a  party  to  a  peti- 
tion for  an  accounting,^  while  a  receiver  in  supple- 
mentary proceedings  of  one  of  the  executors  has  been 
held  to  be  a  creditor,  but  only  to  the  extent  of  debtor's 
interest  in  the  estate.^® 

Where  a  testator  devises  a  life  estate  in  certain  land  to 
one  who  is  also  nominated  the  executor,  and  such  person 
offers  the  mil  for  probate,  and  a  caveat  is  filed  by  the 
heirs  of  the  decedent,  pending  the  determination  in  the 
court  of  ordinary  of  the  issue  of  devisavit  vel  non,  judg- 
ment creditors  of  the  devisees  of  the  life  estate  have  no 
right  to  have  the  land  impounded  in  the  hands  of  a  re- 
ceiver for  the  purpose  of  collecting  the  rents  to  be  ap- 
plied to  the  life  tenant's  debt  in  the  event  the  will  is 
probated,  even  though  such  debtor  be  insolvent.^^ 

8  Matter  of  Brown,  47  Hun  In  the  above  case  the  court,  in 
(N.  Y.)  360.  answer  to  the  argument  that  the 

9  Monahan  v.  Fitzpatrick,  16  creditors  were  entitled  to  equi- 
Misc.  Rep.  508,  39  N.  Y.  Supp.  857;  table  remedies  to  reach  a  devise 
Matter  of  Beyea's  Estate,  10  or  legacy  of  their  debtor  and  sub- 
Misc.  Rep.  198,  31N.  Y.  Supp.  200;  ject  it  to  the  payment  of  their 
Matter  of  Gilligan's  Estate,  1  Con-  claims  where  the  condition  of  the 
noly  Sur.  137,  3  N.  Y.  Supp.  17.  estate  is  such  that  the  devisee  or 

A  complaint  in  an  action  by  a  legatee  may  demand  that  his  de- 
receiver  against  the  executors  of  vise  or  legacy  be  turned  over  to 
such  testator  which  does  not  state  him,  said: 

that  the  defendants,  at  the  Ume  of  "But   the   facts    of   the    instant 

the   plaintiff's  appointment  as  re-  case   do   not   bring  it   within   the 

ceiver    had    money,    property    or  operation  of  this  equitable  remedy 

effects   in   their    hands    belonging  of  a  creditor.  The  judgment  debtor 

to  the  legatee,  is  bad  on  demurrer.  was  nominated  as  executor  in  his 

Graff  V.  Bonnett,  2  Rob.  (N.  Y.)  54.  sister's  will,  and  filed  an  applica- 

10  Matter  of  Kennedy's  Estate,  tion  to  have  it  probated  in  the 
143  App.  Div.  839,  128  N.  Y.  Supp.  court  of  ordinary.  A  caveat  to  the 
g26.  probate  of  this  will  was  filed  by 

11  Colclough  V.  Palmetto  Nat.  certain  heirs  of  the  deceased,  and 
Bank,  143  Ga.  336,  85  S.  E.  107.  the  issue  formed  by  the  caveat  is 


344 


LAW    OF    RECEIVERS. 


§  97.    Receivership  Upon  Death  or  Departure  from  Jurisdiction 
of  Executor  or  Administrator. 

Inasmuch  as  the  death  of  an  executoi'  or  administrator 
may  leave  the  estate  in  a  condition  where  its  safety  is 
endangered,  receivers  have  been  appointed  upon  the 
death  of  an  executor  or  upon  the  death  of  one  and  the  re- 
fusal of  a  co-executor  to  act.  Such  a  receivership  is 
merely  in  the  nature  of  an  interim  protection.^   The  same 


still  pending.  In  the  paper  offered 
for  probate  as  the  last  will  of 
Miss  Sallie  Colclough,  a  life  estate 
in  three  tracts  of  land  is  devised 
to  the  judgment  debtor.  If  the 
will  is  probated,  the  debtor  will 
be  entitled  to  receive  his  devise; 
but,  if  the  caveators  prevail,  the 
estate  of  Miss  Colclough  will  be 
distributed  among  her  heirs  at 
law.  Although  nominated  as  exec- 
utor, the  debtor  is  without  power 
to  assent  to  any  devise  to  himself 
until  the  will  is  admitted  to  pro- 
bate. The  theory  of  subjecting  the 
interest  of  a  legatee  to  the  judg- 
ment of  his  creditor  is  based  on 
the  right  of  the  legatee  to  demand 
his  legacy  of  the  executor.  Mani- 
festly a  legatee  has  no  such  right 
pending  the  proceeding  to  probate 
the  will.  Suppose  this  judgment 
be  allowed  to  stand,  and  the  will 
be  refused  probate;  we  would 
have  the  anomalous  situation  of 
a  court  of  equity  taking  posses- 
sion of  property  belonging  to  the 
legal  heirs  of  Miss  Colclough,  to 
subject  it  to  a  life  interest  in 
another  person,  which  has  been 
judicially  determined  never  to 
have  existed.  The  plaintiffs  prayed 
process  and  relief  against  the  de- 
fendant, both  individually  and  as 
executor.  There  is  no  allegation 
of  the  probate  of  the  will  in  com- 
mon form,   nor    do  we   think  that 


would  make  any  difference,  as  an 
executor  of  a  will  probated  in 
common  form  is  but  a  temporary 
administrator  pending  the  issue  of 
devisavit  vel  non  on  application  to 
probate  the  will  in  solemn  form. 
Civil  Code,  1910,  §  3883." 

1  McCosker  v.  Brady,  1  Barb.  Ch. 
(N.  Y.)  329.  This  was  a  bill  for 
partition,  alleging  the  invalidity  of 
a  will,  where  one  trustee  died  and 
the  other  two  refused  to  act. 
Cf.  King  V.  Donnelly,  5  Paige 
(N.  Y.)  46. 

In  this  case  it  would  seem  that 
the  power  of  the  probate  court  to 
appoint  a  successor  would  afford 
ample  relief.  The  master  of  rolls 
says:  "Nothing,  I  think,  can  be 
more  clear  than  when  there  are 
two  trustees  and  executors,  and 
one  dies  and  the  survivor  refuses 
to  act,  the  persons  beneficially  in- 
terested in  the  estate  are  entitled 
to  the  protection  of  the  court  and 
to  a  receiver."  Palmer  v.  Wright, 
10  Beav.  234. 

The  court,  on  the  application  of 
the  plaintiff,  who  was  entitled  to 
take  out  letters  of  administration, 
appointed  an  interim  receiver  for 
the  protection  of  the  property. 
Cash  v.  Parker,  12  Ch.  D.  293;  Re 
Shepherd,  43  Ch.  D.  131;  Mullane 
v.  Ahern,  28  L.  R.  Ir.  105. 

Where  a  testator  had  be- 
queathed the  residue  of   his   real 


TRUST    ESTATES    AND    FIDUCIARY    RELATIONS. 


345 


condition  of  affairs  may  result  from  the  executor  or  ad- 
ministrator removing  from  the  jurisdiction.  Conse- 
quently, it  is  cause  for  the  appointment  of  a  receiver 
where  the  executor  or  administrator  has  removed  to  an- 
other state  or  country.^  In  such  circumstances  the  court 
acts  upon  the  theory  that  by  such  removal  the  executor 
has  signified  his  abandonment  of  the  trust  imposed  by 
the  will  or  by  his  appointment  since  the  court  is  not  in 
a  position  to  compel  him  to  account  to  it  concerning  liis 
trusteeship. 

The  court,  however,  will  not  interfere  by  the  appoint- 
ment of  a  receiver  where  there  are  several  executors  or 
trustees  and  merely  one  has  removed  from  the  juris- 


and  personal  estate  to  his  widow, 
stating  in  his  will  that  he  had 
done  so  "in  perfect  confidence 
that  she  will  act  up  to  those 
wishes  which  I  have  communi- 
cated to  her  in  the  ultimate  dis- 
posal of  my  property  after  my 
decease,"  and  the  court,  being  sat- 
isfied from  the  evidence  that  the 
bequest  had  been  on  the  faith  of 
a  promise  made  by  her  that  she 
would  dispose  of  the  property  in 
favor  of  the  plaintiffs,  the  natural 
children  of  the  testator,  and  that 
an  implied  trust  was  accordingly 
raised  in  their  favor,  appointed  a 
receiver  of  the  rents  of  the  real 
estates,  and  of  the  personal  estate, 
on  the  death  of  the  widow,  against 
the  testator's  heir-at-law  and  the 
second  husband  of  the  widow. 
Podmore  v.  Gunning,  7  Sim.  644. 

2  Elting  V.  First  Nat.  Bank,  173 
111.  368,  50  N.  E.  1095  (affirming 
68  111.  App.  204);  Westby  v. 
Westby,  2  Coop.  C.  C.  210;  Jones 
V.  Smith,  10  Hare  71  (no  appear- 
ance of  defendant  and  no  written 
opinion). 

A  receiver  was  appointed  where 


the  executrix  was  a  married  wo- 
man, and  the  husband,  in  addition 
to  being  in  indifferent  circum- 
stances, was  out  of  the  jurisdic- 
tion, for  in  such  a  case,  said  the 
court,  if  the  executrix  waste",  the 
assets  or  refuses  payment,  the 
party  aggrieved  had  no  remedy, 
since  the  husband  must  be  joined 
in  the  action.  Taylor  v.  Allen,  2 
Atk.  213. 

The  reason  assigned  by  the 
court  in  the  above  case  would  not 
be  applicable  under  the  statutes 
prevailing  in  most  cf  the  states 
in  respect  to  the  independent 
rights  of  married  women  in  re- 
gard to  their  separate  property 
and  rights  of  suing  and  being 
sued. 

Ex  parte  Galluchat,  1  Hill  Eq. 
(S.  C.)  148.  In  this  case  the  execu- 
tor had  removed  to  another  state 
and  the  application  was  made  by 
the  beneficiary. 

Where  it  is  shown  that  the  ex- 
ecutor has  absconded  and  that 
there  is  danger  to  the  estate  a 
receiver  will  be  appointed.  Pitcher 
V.  Hellier,  Dick.  580. 


346  LAW   OF    RECEIVERS. 

diction,^  altliougli  a  receiver  may  be  appointed  wliere  the 
remaining  executors  are  inactive  or  refuse  to  render  an 
account  of  the  affairs  of  the  estate  to  the  beneficiaries."' 

Where  a  non-resident  executor  denied  the  right  of  tes- 
tator's  wife  to  any  part  of  the  estate,  removed  a  part 
thereof,  and  w^as  about  to  dispose  of  the  balance  and  di- 
vide the  proceeds,  to  the  exclusion  of  the  wife,  the  court, 
on  the  application  of  the  wife,  may  appoint  a  receiver  of 
the  community  property,  under  the  statute  providing 
therefor,  in  an  action  between  joint  owners  of  property, 
where  it  is  in  danger  of  removal.^ 

§  98.    Powers  of  a  Receiver  Over  the  Estate. 

The  administration  of  an  estate  by  a  receiver  is  not 
purely  in  rem,  and  the  acts  of  the  receiver  and  orders 
of  court  are  not  binding  on  persons  not  parties.^ 

A  receiver  has  no  right  to  interfere  in  a  suit  brought 
by  an  executor  before  the  appointment  of  such  receiver, 
and  then  pending,  without  an  order  of  court.^ 

Inasmuch  as  the  sole  power  to  remove  an  executor  or 
administrator  lies  in  the  probate  court  or  court  exercis- 
ing probate  jurisdiction,  the  appointment  of  a  receiver 
over  the  estate  does  not  have  the  effect  of  removing  the 
executor  or  administrator  from  his  office,  although  it 
must  necessarily  deprive  him  of  the  power  of  exercising 
his  functions  over  the  estate.^  In  proceedings  for  the  ap- 

3  Browell  v.  Reed,  1  Hare  434.  an  administrator  pendente  lite,  if 

4  Dickens  v.  Harris,  W.  N.,  1866,  it  is  just  and  proper  to  do  so, 
93   14  L.  T.  98.  although  a  receiver  has  been  ap- 

5  Merrell  v.  Moore,  47  Tex.  Civ.  pointed  by  the  chancery  court  in 
200,  104  S.  W.  514.  an    action    pending    between    the 

I'j.  W.  Dann  Mfg.  Co.  v.  Park-  same    parties,    and    affecting    the 

hurst,  125  Ind.  317,  25  N.  E.  347.  same  parties  and  property  as  the 

2  Tracy  v.  First  Nat.  Bank,  37  testamentary  action.  Tichborne  v. 
N.  Y.  523;  Gadsden  v.  Whaley,  14  Tichborne,  L.  R.  1  P.  &  M.  730. 

g    Q    210.  Under  the  old  statutes  of  New 

3  Leddel's  Exr.  v.  Starr,  19  N.  J.  York  State  relative  to  the  probate 
gq    5^59  of  wills,  it  was  held  that  the  power 

The  probate  court  will  appoint      of  the  surrogate  to  appoint  an  ad- 


TRUST    ESTATES   AND   FIDUCIARY   RELATIONS.  347 

pointment  of  a  receiver  over  a  decedent's  estate,  the  ex~ 
ecutor  or  administrator  should  be  made  a  party  to  the 
})roceedings.* 

§  99.  Effect  of  Removal  of  the  Receiver  from  the  Jurisdiction. 
If  the  receiver  appointed  in  lieu  of  a  receiver  because 
of  the  refusal  of  such  executor  to  act  subsequently  re- 
moves from  the  jurisdiction  and  the  executor  is  willing  to 
act,  the  court  instead  of  appointing  a  new  receiver  may 
simply  direct  the  executor  to  resume  his  duties  as  ex- 
ecutor.^ 

§100.  Subsequent  Receiver  Upon  Death  of  Receiver  of  the 
Estate. 
Upon  the  death  of  a  receiver  of  a  decedent  a  second 
receiver  may  be  appointed  upon  the  application  of  the 
executor  or  administrator  of  the  deceased  receiver  for 
the  purpose  of  turning  over  the  property  held  by  such 
former  receiver  and  making  an  accounting.^ 

§  101.    Receivership  Over  Escheated  Property. 

An  escheat  signifies  a  reversion  of  property  to  the 
state  in  consequence  of  a  want  of  an  individual  competent 

ministrator  with  the  will  annexed  i  Williamson  v.  Wilson,  1  Bland, 
was  not  superseded  merely  be-  Ch.  (N.  Y.)  418,  435.  In  this  con- 
cause  a  receiver  had  been  ap-  nection  see,  also.  Coombs  v.  Jor- 
pointed  over  the  estate.  De  Pau's  ^^n,  3  Bland's  Ch.  (Md.)  284,  22 
Estate,  1  Tuck.  (N.  Y.)  290.  j^^^  Dec.  236,  and  Jenkins  v. 
4  Appointment  of  a  receiver  for  ^^.j^j^t,  7  Sim.  171. 

the  estate  of  a  deceased   debtor,  '                  .                 •   *   j   +„ 

lae   ebtdue  ui   a,           ,     ^,       ^     .  Where  a  receiver  appomted   to 

without  making  decedent  s  admin-  ^.        .•       _Hh 

istrator  a  party,  held  error,  though  wind   up  a  corporation^  dies   with 

a  security  deed  given  by  decedent  the  personal  property  in  his  pos- 

to  the  creditor  authorized  the  ap-  session,  the  receiver's  title  thereto 

pointment  of  a  receiver  without  a  passes  to  his   administrator,  who 

rule  nisi  and  a  sale  of  the  property  should  be  substituted  to  prosecute 

by  the  receiver.     Johonson  v.  Ful-  a  pending  suit  in  respect  to  such 

ton  County  Home  Builders,  142  Ga.  property.     State    v.    German    Ex- 

702.  83  S.  E.  656.  change    Bank,    114^  Wis.    436,    90 

1  Davy  V.  Gronow,  14  L.  J.  N.  S.  N.  W.  570. 
Ch.  134. 


348 


LAW    OF    RECEIVERS. 


to  inherit  it.  Tlie  state  is  deemed  to  occupy  the  place  and 
hold  the  rights  of  the  feudal  lord.^ 

In  some  states,  however,  the  term  ''escheat"  is  used  in 
the  sense  of  a  mere  forfeiture  of  land  to  the  state  and  not 
in  the  common  law  sense. - 

Where  the  state  sues  to  have  property  escheated  to  the 
state  and  it  is  sho\\Ti  that  if  the  rents  and  profits  are 
not  collected  they  will  be  lost,  a  receiver  is  properly 
appointed.-''  Undoubtedly  a  case  in  which  the  claim  is 
made  that  the  property  in  controversy  has  been  escheated 
to  the  state  would  furnish  a  case  with  facts  wdiich  would 
clearly  bring  it  within  all  of  the  cardinal  principles  of 
jurisprudence  pertaining  to  the  law  of  receivers.  This 
was  very  clearly  shown  by  Vice  Chancellor  Bergen  in  a 
case^  before  the  Chancery  Court  of  New  Jersey,  in  which 
he  said : 


1  In  re  Miner's  Estate,  143  Cal. 
194,  76  Pac.  968;  Commonwealth 
V.  Blanton's  Exrs.,  2  B.  Mon.  (41 
Ky.)  393;  Commonwealth  v.  Chi- 
cago etc.  R.  Co.,  124  Ky.  497,  99 
S.  W.  596;  Matthews  v.  Ward,  10 
Gill  &  J.  (Md.)  443,  450;  Crane  v. 
Reeder,  21  Mich.  24,  70,  4  Am.  Rep. 
430;  Montgomery  v.  Dorion,  7 
N.  H.  475;  Smith  v.  Doe,  111  N.  Y. 
Supp.  525;  Hughes  v.  State,  41 
Tex.  10,  17;  Hamilton  v.  Brown, 
161  U.  S.  256,  16  Sup.  Ct.  585, 
40  L.  Ed.  691. 

2  See  Commonwealth  v.  New 
York  etc.  R.  Co.,  132  Pa.  591.  19 
Atl.  291,  7  L.  R.  A.  634. 

3  P  e  o  p  1  e  V.  Norton,  1  Paige 
(N.  Y.)  16,  17. 

4  In  McCarter  v.  Clavin,  72  N.  J. 
Eq.  642,  66  Atl.  599,  the  suit  was 
Instituted  by  the  attorney-general 
to  escheat  to  the  state  property 
worth  about  $100,000  on  the  ground 
that  the  decedent  left  no  heirs, 
and  alleged  that  a  certain  instru- 


ment offered  for  probate  was  not 
the  last  will  and  testament  of  the 
decedent.  A  receiver  was  allowed 
on  the  ground  that  the  litigation 
would  be  likely  to  cover  a  consid- 
erable period.  The  property  had 
been  sold  for  taxes  for  want  of 
an  owner  or  person  representing 
an  owner.  The  court  held  that 
equity  required  that  a  receiver 
should  be  appointed  to  protect  the 
property  from  loss  and  hold  it  for 
the  benefit  of  those  to  whom  it 
may  be  finally  determined  to  be- 
long. In  concluding  the  observa- 
tions set  forth  in  the  text,  the 
learned  chancellor  said:  "The 
course  which  I  am  adopting  is 
justified,  in  my  judgment,  by  Flag 
ler  V.  Blunt,  32  N.  J.  Eq.  518,  in 
which  the  learned  chancellor,  on 
page  523,  speaking  of  this  very 
question,  quoted  from  High  on  Re- 
ceivers, §§9,  11,  as  follows:  'The 
principal  ground  upon  which 
courts    of   equity    grant   their    ex- 


TRUST   ESTATES    AND    FIDUCIARY   RELATIONS.  349 

''During  the  litigation  concerning  the  admission  of  a 
will  to  probate  and  during  the  interval  before  an  executor 
or  administrator  is  appointed  a  court  of  equity  has  power 
to  appoint  a  receiver  of  the  personal  property  and  of  the 
rents  and  profits  of  the  real  estate  when  there  is  any  dan- 
ger of  their  loss,  misuse,  or  misapplication.  In  the  pres- 
ent instance,  there  is  a  controversy  over  the  admission 
of  the  alleged  will  to  probate.  There  is  a  contest  over  the 
question  whether  the  party  claiming  to  be  the  only  heir 
is  such.  The  property  is  in  great  danger  of  loss  owing 
to  tax  sales  and  threatened  foreclosure.  It  is  clear  that, 
in  the  absence  of  an  heir,  in  the  absence  of  an  executor 
or  of  any  lawful  appointee  entitled  to  hold  the  property 
together,  it  will  be  lost,  and  in  any  event  the  rents  and 
profits  will  be  misapplied.  It  appears  to  me  that  if  there 
ever  was  a  case  in  which  the  rule  I  have  referred  to 
ought  to  be  applied,  it  is  this  case,  otherwise  a  vast 
amount  of  property  that  may  belong  to  the  state  will,  for 
want  of  protection,  be  swept  away  and  pass,  without 
practical  consideration,  into  the  hands  of  strangers  to  the 
decedent. ' ' 

3.   E>;tates  of  Insane  Persons. 
§  102.    The  General  Rule. 

A  receiver  may  be  appointed  over  the  estate  of  a  per- 
son pending  a  judicial  proceeding  in  respect  to  his  sanity 
in  order  to  prevent  waste  or  mismanagement  of  his  prop- 
erty.^   Such  a  receiver  is  an  ad  interim  one  and  is  ap- 

traordinary  aid  by  the  appointment  A    receiver    may    be    appointed 

of  receivers  pendente  lite  are  that  over  the  estate  of  a  lunatic  pend- 

the  person  seeking  the  relief  has  ing  the  return  of  the  inquisition, 

shown  at  least  a  probable  interest  Ii-  re  Kenton,  5  Bin.  (Pa.)  613. 

In  the  property,  and  that  there  is  Where  a  person  is  of  weak  mind, 

danger  of  its  being  lost  unless  a  a  receiver  may  be  appointed  over 

receiver  is  allowed.'  "  his  estate  in  a  proceeding  by  his 

1  In   re   Misselwitz,   177   Pa.    St.  next  friend  in  his  behalf.   Edwards 

359,   35   Atl.   722;    Lowe  v.   Lowe,  v.    Edwards,    14    Tex.    Civ.    87,    36 

1  Tenn.  Ch.  515;    In  re  Fountain,  S.  W.  1080. 

37  Ch.  Div.  609.  Under  Act  of  May  28,  1907  (P.  L. 


350 


LAW  OF  RECEIVERS. 


pointed  with  power  to  take  possession  of  the  estate  and 
also  with  leave  to  be  appointed  ad  litem  in  actions  pend- 
ing against  the  alleged  insane  person.^  But  a  receiver 
should  not  be  appointed  in  such  case  where  the  appli- 
cant for  the  appointment  of  the  receiver  has  no  lien  upon 
the  property  of  the  defendant  or  interest  therein.^  Where 


292),  providing  for  the  appoint- 
ment of  a  guardian  for  insane  or 
feeble-minded  persons  unable  to 
care  for  their  property,  and  au- 
thorizing the  court  to  make  an 
allowance  for  the  support  of  the 
ward  and  his  family,  it  is  within 
the  sound  discretion  of  the  court 
of  common  pleas  to  appoint  a  tem- 
porary receiver  of  the  estate  of  an 
insane  or  feeble-minded  person. 
In  re  Parke's  Case,  41  Pa.  Sup. 
Ct.  531. 

In  re  Hybart,  119  N.  C.  359,  25 
S.  E.  963,  it  was  held,  under  the 
Act  of  1889,  a  receiver  might  be 
appointed  for  an  insane  person  on 
motion,  after  due  and  proper  no- 
tice. 

2  Re  Pountain,  L.  R.  37  Ch.  Div. 
609.  In  this  case  the  order  was 
made  ex  parte. 

3  The  harsh  remedy  of  appoint- 
ing a  receiver  and  of  granting  an 
injunction  before  trial  on  the 
merits  of  the  case  should  not  be 
exercised,  where  the  applicant  for 
such  remedies  has  no  lien  upon 
the  property  of  the  defendant,  and 
no  interest  therein  or  claim 
thereto.  Atlanta  etc.  Ry.  Co.  v. 
Carolina  Portland  Cement  Co.,  140 
Ga.  650,  79  S.  E.  555,  and  cases 
cited. 

Therefore,  where  two  adult  and 
married  daughters  instituted  a 
proceeding  in  the  court  of  ordi- 
nary, in  accordance  with  Civ. 
Code  1910,  §§  3089  et  seq.,  seeking 


to  have  their  father  adjudged  to 
be  an  imbecile  and  incapable   of 
managing  his  property  and  to  have 
a  guardian  appointed  for  him,  and 
he,    not   having   been    notified    of  j 
such  proceeding,  and  without  ap-  ' 
pearing  in  the  court  of  ordinary 
or  in  anywise  becoming  a  party 
to  such  proceeding,  filed  a  verified  ' 
petition  against  such  daughters  in 
the  superior  court,  wherein  he  al- 
leged that  he  was  perfectly  sane 
and  fully  capable  of  managing  and 
caring  for  his   property,   that   he 
was  not  committing  any  waste,  and 
that  the  defendants  had  no  inter- 
est in  or  claim  to  any  of  his  prop- 
erty, that  he  did  not  owe  a  cent 
to  either  of  them,  or  to  any  one 
else,  and  that  the  defendants  had 
not   instituted    the    proceeding    in 
the  court  of  ordinary  in  good  faith, 
but    were    influenced    in    bringing 
such  proceeding  solely  on  account 
of  their  enmity  against  the  present 
wife  of  petitioner,  the  stepmother 
of  the  defendants,  on  which  peti- 
tion   an    interlocutory    injunction 
was   granted,   and  where  the   de- 
fendants answered  such  petition, 
denying    its   material    allegations, 
and  filed  a  cross-petition  against 
their    father,    averring    his    imbe- 
cility, and  in  consequence  thereof 
his  inability  to  manage  and  care 
for  his  property,  and  praying  that 
a   receiver   be   appointed   to   take 
charge  of  all  of  his  property,  and 
that  an  injunction  be  granted,  en- 


TRUST   ESTATES   AND   FIDUCIARY   RELATIONS.  351 

the  estate  of  an  insane  person  has  been  managed  by  a 
trustee  or  committee,  upon  the  death  of  the  insane  person, 
it  was  held  proper  for  the  court  to  appoint  a  receiver  to 
take  charge  of  the  estate  until  proper  probate  proceed- 
ings may  be  instituted,  and  thereupon  the  receiver  will  be 
directed  to  turn  the  property  over  to  the  probate  admin- 
istrator,^ although  in  a  subsequent  case  in  the  same  state 
it  was  held  that  where  such  a  committee  had  been 
appointed  prior  to  the  death  of  the  insane  person  the 
appointment  of  a  receiver  pending  a  contest  of  the  dece- 
dent's will  was  unnecessary.^  The  appointment  of  a  re- 
ceiver in  cases  of  this  character,  as  in  other  receivership 
cases,  is  within  the  discretion  of  the  court,  and  the  court 
may  refuse  to  make  the  appointment.^ 

Where  a  receiver  is  appointed  merely  pending  proceed- 
ings to  determine  whether  the  person  is  insane  and  the 
person  is  adjudged  sane  in  such  proceedings,  the  receiver 
will  be  discharged  and  his  compensation  and  expenses 
allowed.^ 

A  receiver  of  the  property  of  an  insane  person  is  under 
the  same  duty  to  account  to  the  court  as  in  other  cases, 

joining  him  from  interfering  with  4  in   re   Colvin's   Estate,   3   Md. 

the  property  in  the  hands  of  the  Ch.  278,  288. 

receiver,  the  judge  of  the  superior  In  this  connection  see  King  v. 

court  upon  an  interlocutory  hear-  King,  6  Ves.  Jr.  172;   Edmunds  v. 

ing,    where    both   sides    submitted  Bird,  1  Ves.  &  B.  88;  Bull  v.  Oliver, 

evidence   tending    to    substantiate  2  Ves.  &  B.  96;   Atkinson  v.  Hen- 

their  respective  contentions,  erred  shaw,  2  Ves.  &  B.  85,  and  Richards 

in  appointing  a  receiver  for  all  the  v.  Chave,  12  Ves.  Jr.  462. 

property  of  the  father,  except  his  5  Curtis'   Estate  v.   Piersol,  117 

farm  upon  which  he  resided,  and  Md.  170,  83  Atl.  87. 

"other  properties"  which  the  judge  6  In  re  Ferror,  L.  R.  3  Ch.  App. 

found  to  be  "ample  and  more  than  175. 

sufficient  to  support  him  and  his  7  In  re   Sulk,   74  N.  J.   Eq.   736, 

immediate  family,"  and  in  grant-  70  Atl.   661. 

ing  an  injunction  against  any  in-  The  receiver  of  an  insane  person 

terference  with  the  property  in  the  will    not    be    discharged    without 

hands  of  the  receiver.    Gartrell  v.  grounds  for  the  same  being  pre- 

McCravey,   144   Ga.  249,    86   S.    E.  sented.  In  re  Lytle,  3  Paige  (N.  Y.) 

932.  251. 


352  LAW   OF    RECEIVERS. 

and  if  deemed  proper  a  reference  may  be  ordered  to  as- 
certain tlie  exact  condition  of  the  estate.^ 

§  103.    Who  May  Be  Appointed  Receiver. 

The  same  principles  apply  in  the  selection  of  the  re- 
ceiver of  an  insane  person  as  in  other  circumstances; 
namely,  that  the  person  selected  should  not  occupy  such 
a  relation  toward  the  insane  person  that  he  will  be  placed 
in  a  position  where  he  will  be  obliged  to  pass  upon  the 
propriety  of  his  own  actions.  Hence  the  court  in  making 
such  appointment  should  not  select  the  solicitor  of  the  in- 
sane person/  even  wdiere  it  is  stated  that  no  one  else  is 
willing  to  accept,  nor  a  Master  in  Chancery  if  his  ac- 
counts are  to  be  passed  upon  by  another  master.^ 

4.   Estates  of  Infants. 

§  104.    General  Eule  Applicable. 

The  same  general  principles  apply  in  respect  to  the  ap- 
pointment of  a  receiver  over  the  estate  of  an  infant  as 
apply  to  that  of  the  estate  of  a  decedent  or  of  a  trust 
estate.  And  similarly  to  the  practice  as  shown  by  the  de- 
cisions, relief  by  the  appointment  of  a  receiver  has  been 
more  frequent  in  the  English  practice  than  in  the  Ameri- 
can practice.  In  all  these  classes  of  cases  the  large  pro- 
tective features  of  the  statutes  and  the  broad  jurisdiction 
which  has  been  assumed  by  the  courts  for  the  protection 
of  wrongs  of  every  conceivable  sort  have  made  the  neces- 
sity for  receiverships  in  estates  which  are  already  under 
the  protection  of  the  courts  very  infrequent.  However, 
there  are  occasions  when  the  remedy  of  a  receivership 

s  Lowe    V.    Lowe,    1    Tenn.    Ch.  is  the  same  as  in  cases  of  receiver- 

515.  ship.    The  theory  of  the  case  may 

1  Ex  parte  Pincke,  2  Meriv.  452.  be  sound,  but  evidently  its  applica- 

2  Ex   parte  Fletcher,  6  Ves.   Jr.  tion    in    many    cases    would    be    a 
427.    This  was  a  case  for  the  ap-  matter  of  discretion.     Cf.  Re  Fer- 
pointment    of    a    committee    of    a  rior,  L.  R.  3  Ch.  App.  175. 
lunatic's  estate,  but  the  principle 


TRUST    ESTATES   AND    FIDUCIARY    RELATIONS.  353 

for  the  protection  of  an  infant's  estate  will  be  found  to 
be  the  most  effective  for  its  safety  and  preservation.  Such 
circumstances  would  doubtless  arise  where  great  speed 
would  be  necessary  in  order  to  prevent  a  threatened  loss 
or  damage.  The  older  cases  on  the  subject  are  illustrative 
of  the  general  principles  applicable. 

As  early  as  1727,  the  Parliament  of  England,  sitting  as 
a  Court  of  Appeals,  held  that  where  a  testator  by  will 
named  his  widow  as  guardian  of  his  minor  children  it 
was  beyond  the  power  of  the  Court  of  Chancery  to  change 
the  will  of  the  testator  in  this  regard,  in  the  absence  of 
proof  of  misbehavior  on  the  part  of  such  testamentary 
guardian.^  It  has  remained  the  law,  supported  by  reason 
and  authority,  from  that  time  to  this,  that  where  a  trustee 
has  been  appointed  by  a  testator  as  executor  or  as  guar- 
dian, the  court,  in  the  absence  of  strong  proof,  will  not  in- 
terfere with  such  selection  by  the  appointment  of  a  re- 
ceiver.2 

Thus  a  receiver  may  be  appointed  for  the  estate  of  an 
infant  if  his  father  is  insolvent  or  of  bad  character  or 
there  is  danger  of  his  rents  being  lost.=^ 

So  also  where  the  mother  was  dead  and  the  father  was 
a  man  of  irregular  habits  and  the  minors  inherited  by  way 
of  their  mother.^ 

1  Dillon  V.  Lady  Mount  Cashell,  receiver,  upon  the  principles  upon 
4  Bro.  C.  P.  306.  which  it  interposes  in  the  trustees 

2  Even  though  a  guardian  is  ap-  and  executors.  Duke  of  Beaufort 
pointed  by  will  under  the  statute,  v.  Berty,  1  P.  W.  704. 

the  court  may  appoint  a  receiver.  Middleton  v.  Dodswell,  18  Ves. 

Gardner  v.  Blane,  1  Ha.  381.  Jr.  268.    In  this  case  Lord  Erskine 

Guardians     appointed     by     will  said:     "It  is  for  the  testator,  not 

under  the   statute   have   no   more  the  court,  to  say  in  whom  the  trust 

power   than   guardians   in   socage,  for    administration   of  the   effects 

and    are    but    trustees.      If    it    be  shall  be  reposed."     Cf.  Stairley  v. 

made  to  appear  that  the  estate  of  Rabe,  McMul.  Eq.  (S.  C.)  22. 

an    infant   is    likely    to    suffer    by  3  Ex    parte    Mountfort,    15    Ves. 

the   conduct  of  his   guardian,   the  449,  n. 

court  will  interpose  and  appoint  a  -i  Re  Connicks,  2  Ir.  Eq.  2G4. 
I  Rcc. — 23 


354  LAW    OF   RECEIVERS. 

Likewise  where  the  mother  of  infant  children,  who  had 
been  appointed  by  her  husband  executrix  and  guardian  of 
the  children,  married  a  man  in  necessitous  circumstances, 
a  receiver  was  appointed.^ 

A  receiver  was  appointed  upon  the  application  of  minor 
heirs  where  the  executrix  of  the  estate  intrusted  the  man- 
agement of  the  estate  to  her  husband,  who  w^as  not  man- 
aging it  properly  and  involving  it  in  debt.^ 

§  105.    On  Refusal  of  a  Trustee  or  Executor  to  Act. 

A  receiver  will  be  appointed  to  protect  the  interests  of 
an  infant  where  trustees  or  others  appointed  to  protect 
his  rights  refuse  or  fail  to  act  in  that  behalf.^  The  ap- 
pointment in  such  circumstances  is  made  on  the  ground 
that  the  estate  is  endangered  by  the  failure  of  having  a 
person  in  charge  or  control  of  it. 

§  108.    In  Actions  on  Behalf  of  Infants  to  Disaffirm  Contracts. 

In  an  action  to  disaffirm  contracts  or  other  transactions 
made  by  infants  it  is  proper  to  appoint  a  receiver  where 

5Willon  V.  Lord   Mountcashell,      should,  instead   of  being  paid   to 

4  Bro    P    C    306  t^®  infant's  guardian,  be  adminis- 

^     .  ,  ^  K      Tv/r„A/r,,i    vn       tered    by    the    court,    through    a 

6  Stairley  v.  Rabe,  McMul.  Kq.  .  -r^,  j  t^-  ^-ii-       r^^ 

«  oLa.li  cj-  receiver.    Edgewood  Distilling  Co. 

(S.  C.)    22.  ^     Rosser's    Admr.,    116    Va.    624, 

Where  the  income  of  property  gg  g.  E.  716. 
belongs  to  a  mother  and  the  prop-  j  Where  two  are  appointed  and 
erty  itself  to  her  children,  and  the  one  declines  to  act,  the  court  will 
husband  and  trustee  with  the  con-  appoint  a  receiver  on  behalf  of  an 
sent  of  the  wife  so  manage  prop-  infant  cestui  que  trust,  with  lib- 
erty that  debts  are  incurred  which  erty  to  either  of  the  trustees  to 
become  a  charge  upon  the  future  offer  himself.  Tait  v.  Jenkins,  1 
income  of  the  property,  a  receiver  Younge  &  C.  Ch.  491. 
may  be  appointed.  Robert  v.  Tift,  Where  there  had  been  several 
60  Ga.  566.  trustees,  one  of  whom  was  dead, 

The  homestead  allowance  to  one  abroad,  and  the  business  fell 
minors,  inuring  to  their  benefit,  exclusively  on  one,  and  application 
under  Code,  1904,  §  3635,  till  they  was  made  for  a  receiver,  the  act- 
are  of  age,  or  marry,  after  which  ing  trustee  consenting,  a  receiver 
the  creditors  are  entitled  to  the  was  appointed,  Tidd  v.  Lister,  5 
principal,     consisting    of     money,  Madd.  433. 


TRUST    ESTATES    AND    FIDUCIARY   RELATIONS.  355 

there  are  circumstances  showing  danger  to  the  property- 
involved.^ 

Thus  where  an  infant  bought  property  and  mortgaged 
it  to  secure  the  purchase  price  and  upon  default  the  mort- 
gagee took  possession  of  the  property  and  also  other 
property  belonging  to  the  infant  which  he  was  about  to 
sell,  the  court  in  an  action  to  disaffirm  the  transaction  ap- 
pointed a  receiver.2 

§  107.    Who  Is  Eligible  for  Appointment. 

Following  the  principles  which  we  have  already  dis- 
cussed, one  whose  duties  are  such  that  he  would  be  placed 
in  the  position  of  acting  as  a  judge  of  his  own  acts  on 
behalf  of  the  interests  of  others  if  he  were  appointed 
receiver,  should  not  be  appointed  receiver  over  the  estate 
of  an  infant. 

Thus  the  next  friend  of  an  infant  should  not  be  ap- 
pointed receiver  of  its  property,  since  it  is  his  duty  to 
watch  the  accounts  and  acts  of  the  receiver.^ 

And  for  the  same  reason  it  is  not  proper  to  appoint  a 
trustee  or  executor  for  such  a  purpose.^ 

But,  on  the  other  hand,  it  was  held  that  a  person  who 
has  acted  as  receiver  of  the  property  and  is  for  that 
reason  familiar  with  it  and  who  was  appointed  as  trus- 
tee  and   executor   of  the   will   under  which  the  infant 

1  Where   the   facts   and   circum-  2 v.  JoUand,  8  Ves.  Jr.  72. 

stances  warrant  an  action  for  re-  Cf.  Sykes  v.  Hastings,  11  Ves.  Jr. 

scission   of  contract  entered   into  363;    Sutton  v.  Jones,   15  Ves.  Jr. 

during  minority  and  for  cancella-  584.    Lord  Eldon,  in  Sykes  v.  Hast- 

tion    of   notes,    chattel    mortgage,  ings,   supra,   says:     "The  appoint- 

etc,  the   plaintiff  had   a   right  to  ment  of  a  trustee  as  receiver  is 

apply    for    the    appointment   of    a  extremely    rare;    and   only    where 

receiver.     Moser  v.  Renner,    (Mo.  he    will    act    without    emolument. 

App.)  179  S.  W.  970.  .    .    .    The   principle   of  the   court 

2  Skinner  v.   Maxwell,   66   N.   C.  is    that  the   trustee    shall    not    be 
45,  68  N.  C.  400.  receiver  if  any  other  can  be  pro 

1  Stone  v.  Wishart,  2  Madd.  63.      cured." 


35 S  LAW   OF    RECEIVERS. 

tenant  takes  as  a  life  tenant,  is  properly  appointed  to  act 
as  receiver  on  behalf  of  the  interests  of  the  infant.^ 

§  108.    Effect  of  the  Appointment  and  Duties  Thereunder. 

The  appointment  of  a  receiver  for  the  estate  of  an  in- 
fant, it  has  been  held,  does  not  put  the  infant  out  of  pos- 
session.^ And  where  a  receiver  is  appointed  in  lieu  of  a 
guardian  removed,  he  is  not  invested  with  the  powers  of 
a  guardian,  but  acts  under  the  control  of  the  court  until 
another  guardian  is  appointed.^ 

A  receiver  for  the  estate  of  an  infant  will  be  liable  to 
the  infant  for  interest  if  he  fails  to  invest  the  funds  when 
they  are  sufficient  for  such  a  purpose.^ 

But  a  receiver  ought  not  to  invest  the  funds  of  the  re- 
ceivership mthout  an  order  of  court.  And  where  he  is 
directed  to  invest  funds  belonging  to  the  receivership 
and  report  from  time  to  time  to  the  court  in  respect  to 
the  matter  but  invests  it  T\'ithout  making  such  reports 
and  the  fund  is  lost,  he  may  be  held  liable  for  its  loss 
even  though  he  acted  in  good  faith.^ 

The  general  opinion,  however,  is  that  the  receiver  will 
not  be  liable  if  he  manages  the  funds  of  the  infant  in  the 
same  manner  as  a  reasonably  prudent  man  w^ould  do. 
Thus  it  was  held  that  he  would  not  be  liable  to  the  infant 
for  funds  paid  to  relieve  tenants  who  had  been  impov- 
erished by  the  failure  of  crops.^ 

3  Newport  v.  Bury,  23  Beav.  30.      to  his  credit  as  receiver,  on  which 

1  Sharp  V.  Carter,  3  P.  Wms.  379.      deposit  he   was   paid   interest   by 

■„T.„.  n-,    TVT    o       the  banlt,  which  afterwards  failed, 

2  Temple  v.  Williams,  91  N.  C.      ^  ,.  v,,     *      *i,     i     ^      „  v,^ 

^  he  was  liable  for  the  loss,  as  he 

had  failed  to  report  to  the  court 

3  Hicks  V.  Hicks,  3  Atk.  274.  the  manner  in  which  he  had  in- 

4  Where  a  receiver  was  ap-  vested  the  infant's  estate,  although 
pointed  to  take  charge  of  an  in-  he  had  acted  in  the  best  faith, 
fant's  estate  and  invest  the  same.  State  v.  Gooch,  97  N.  C.  186,  2  Am. 
and  report  to  the  court  annually,       St.  Rep.  284,  1  S.  E.  653. 

and  he  deposited  a  portion  of  the  5  Jackson  v.  Jackson,   2   Hogan 

money  in  a  bank  in  another  state      238. 


TRUST   ESTATES    AND   FIDUCIARY   RELATIONS,  357 

The  infant  should  be  allowed  a  reasonable  time  after 
coming  of  age  within  which  to  examine  the  accounts  of 
the  receiver.'^  But  where  a  receiver  has  accounted  to  a 
guardian  of  an  infant  he  will  not  be  required  to  account 
again  to  the  infant/ 

§  109.    When  Such  a  Receiver  Will  Be  Discharged. 

A  receiver  of  an  infant  is  naturally  subject  to  dis- 
charge or  removal  as  in  any  other  case  and  for  like 
reasons.  We  will  discuss  the  grounds  for  such  discharge 
or  removal  in  the  chapter  devoted  to  that  subject. 

Where  a  receiver  has  been  appointed  over  the  estate 
of  several  infants  it  has  been  held  that  he  will  not  be  dis- 
charged until  all  have  reached  their  majority.^ 

And  he  should  not  be  discharged  until  the  infant  has 
had  an  opportunity  to  examine  his  account.^ 

6  Matter  of  Van  Home,  7  Paige  i  Smith  v.  Lyster,  4  Beav.  227. 
(N.  Y.)  46;  Wildridge  v.  McKane,          2  Wildridge  v.  McKane,  2  Moll. 
2  Moll.  547.                                                  547. 

7  Palmer  v.  Truby,  136  Pa.  556, 
20  Atl.  516. 


CHAPTER  VI. 

CONTROVEBSIES  AND  RELATIONS  ARISING   OUT   OF   MARRIAGE. 

1.   Separate  Property  of  Wife. 

§  110.    In  General. 

Receivers  have  been  appointed  in  numerous  cases  over 
the  estates  of  married  women  in  the  English  practice.^ 

But  a  receiver  will  not  be  appointed  of  separate  estate 
of  a  married  woman  which  has  restraints  on  anticipation 
where  the  plaintiff  obtained  leave  to  enter  final  judg- 
ment for  a  debt  against  her  but  delayed  entering  it  for 
three  months  when  he  knew  that  arrears  had  just  become 
due  and  then  entered  judgment  and  applied  for  a  re- 
ceiver.^ 

And  where  the  separate  property  of  a  married  woman 
has  restraints  from  anticipation  by  her  such  restraints 
are  not  removed  by  the  death  of  the  husband,  and  the 
court  will  not  appoint  a  receiver  over  it  on  behalf  of  her 
creditor.^ 

§  111.   In  Action  Against  Married  Woman  Doing  Business  as 
Sole  Trader. 

In  an  action  by  creditors  to  charge  the  separate  prop- 
erty of  a  married  woman  doing  business  as  a  sole  trader 
with  the  payment  of  debts  contracted  by  her,  a  receiver 
may  be  appointed  over  her  property  where  it  is  showTi 
that  there  is  danger  of  the  property  being  wasted  or 

1  Bryant  v.  Bull,  10  Ch.  D.  153;  2  Colyer  v.  Isaacs,  77  L.  T.  N.  S. 

Re   Peace  and  Waller,  24  Ch.  D.      198. 

405;  Hill  V.  Cooper  (1893),  2  Q.  B.  3  Pelton  r.   Harrison    (1891),   2 

85;   Hood  Barro  v.  Heriot  (1896),      Q.  B.  422. 
N.    C.    174;    Cummins    v.    Perkins 
(1899),  1  Ch.  16. 

(358) 


CONTROVERSIES   ARISING  OUT  OF   MARRIAGE.  359 

placed  beyond  the  reach  of  her  creditors.  Such  a  suit 
would  be  in  the  nature  of  a  sequestration  of  her  prop- 
erty as  in  the  case  of  a  creditor's  bill,  and  it  is  customary 
in  such  cases  to  appoint  a  receiver.^ 

§  112.   In  Action  by  Wife  to  Establish  Her  Separate  Interest. 

In  an  action  by  a  married  woman  against  her  husband 
to  establish  her  separate  interest  in  property  in  his  pos- 
session, the  remedies  of  sequestration  and  attachment 
are  not  so  adequate  and  complete  as  to  prevent  the  ap- 
pointment of  a  receiver.  Consequently,  under  a  statute 
which  authorizes  the  appointment  of  a  receiver  in  an 
action  ''between  partners  or  others  jointly  owning  or 
interested  in  any  property  or  fund  on  the  application 
of  the  plaintiff  or  any  party  whose  right  to  or  interest  in 
the  fund  or  the  proceeds  thereof  is  probable  and  where 
it  is  shown  that  the  property  or  fund  is  in  danger  of 
being  lost,  removed,  or  materially  injured,"  a  receiver 
may  be  appointed  in  such  an  action  and  thus  prevent  him 
from  disposing  of  her  interest  therein  and  converting  the 
proceeds  to  his  own  use  where  the  character  and  condi- 
tion of  the  property  are  such  that  the  interest  of  the 
plaintiff  can  be  best  protected  by  the  appointment  of  a 
receiver.^ 

§  113.    Controversies  Arising  Out  of  Marriage  Settlements. 

Wliere  by  the  marriage  settlement  the  husband  and 
wife  were  to  mutually  enjoy  certain  premises  but  the  wife 
having  procured  a  divorce,  the  husband  who  was  in- 

1  Todd  V.  Lee,  15  Wis.  365.  converting  the  proceeds  to  his  own 

1  Shaw  V.  Shaw.  50  Tex.  Civ.  363.  "«e.  and  for  a  divorce,  a  receiver 

m  S   W   223  °'     *'^®     property    could    be    ap- 
pointed solely  upon  plaintiff's  afR- 

In  an  action  by  a  wife  against  ^^^^^  therefor,  notwithstanding  de- 

her  husband  to  establish  her  sep-  fendant's    denial,   by    affidavit,    of 

arate   interest  in  property  in  his  all  the  allegations  of  the  petition, 

possession,  and  to  prevent  his  dis-  Shaw  v.  Shaw,  51  Tex.  Civ.  55,  112 

posing  of  her  interest  therein,  and  S.  W.  124. 


360  LAW   OP   KECEIVERS. 

solvent  remained  in  possession,  a  receiver  was  appointed 
over  the  property  on  the  application  of  the  wdfe.^ 

And  in  a  suit  by  a  husband  against  his  wdfe  to  enforce 
the  terms  of  an  ante-nuptial  agreement,  the  execution  of 
which  is  admitted  by  the  wife  but  claimed  to  have  been 
procured  by  fraud,  a  receiver  was  appointed  to  collect 
the  rents  of  real  property  which  the  wife  had  covenanted 
to  convey  to  a  trustee  for  the  purpose  of  carrying  out 
the  settlement,  the  person  named  in  the  contract  as 
trustee  refusing  to  act.^ 

So  also  where  a  husband  after  having  made  a  marriage 
settlement  w^hich,  however,  was  made  after  marriage, 
sold  the  property  for  value,  the  court  appointed  a  re- 
ceiver in  a  suit  by  the  purchaser  for  specific  performance 
and  in  which  it  was  claimed  that  the  marriage  settle- 
ment was  invalid  as  against  the  purchaser.^ 

But  a  receiver  will  not  be  appointed  where  property 
is  in  the  hands  of  a  trustee  for  husband  and  wife,  under 
the  terms  of  a  marriage  settlement.* 

And  wdiere  by  a  marriage  settlement  certain  moneys 
were  settled  upon  the  wife  for  her  separate  use  and  ben- 
efit but  vested  in  certain  trustees  wdio  permitted  the  hus- 
band to  receive  rent  belonging  to  his  wife,  and  the  trus- 
tees afterward  insisted  on  receiving  it  themselves,  it  was 
held  that  the  husband  was  not  entitled  to  a  receiver.^ 

So  also  where  under  a  marriage  settlement  the  inter- 
est of  the  wife  is  a  charge  upon  the  fee  of  the  property, 
a  receiver  will  not  be  appointed  merely  because  the  fee 
owner  has  neglected  to  pay  interest,  since  in  such  circum- 
stances the  wife  has  an  adequate  remedy  at  law.^ 

/ 

1  Boggs  V.  Boggs,  55  Ga.  590./  4  Whitaker   v.    Cohen,    69    L.    T. 

2  De    Rustafjaell   v.    De   Rustaf-       451. 

jaell,  43  W.  N.  C.  56.  5  Wiles  v.  Cooper,  9  Beav.   294. 

3  Metcalfe  v.  Pulvertoft,  1  Ves.  6  Drought  v.  Percival,  2  Mol.  502. 
&  Bea.  180. 


CONTROVERSIES   ARISING   OUT   OF    MARRIAGE.  361 

§  114.    In  Matters  Affecting  Dower  and  Curtesy. 

Owing  to  the  inchoate  character  of  the  dower  right, 
its  protection  is  a  matter  which  is  favored  by  courts  of 
equity.  Where  a  receiver  of  the  property  of  a  husband's 
estate,  appointed  on  behalf  of  his  creditors,  seeks  to  sell 
the  property  he  will  be  required  to  do  so  subject  to  the 
dower  interest  of  the  wife.^  And  in  a  proceeding  by  the 
widow  to  have  her  dower  interest  fixed  and  set  aside, 
where  the  property  is  in  the  possession  of  a  person  who 
is  insolvent  and  there  is  danger  of  loss  of  the  rents  and 
profits,  the  court  will  appoint  a  receiver.-  But  in  such  a 
proceeding  by  an  heir  or  devisee  it  should  not  only  be 
shown  that  the  rents  and  profits  are  in  danger  of  being 
lost,  but  the  manner  in  which  they  will  be  lost  so  that 
the  court  can  readily  see  that  there  is  no  adequate  rem- 
edy at  law.^  And  in  the  event  that  a  mdow  entitled  to 
dower  fraudulently  releases  her  dower  right  to  her  chil- 
dren in  order  to  defraud  her  creditors,  the  court  may 
in  a  creditor's  suit  appoint  a  receiver  pending  the  ter- 
mination of  the  suit.^  Likewise,  in  a  suit  to  admeasure  the 
dower  by  decreeing  that  in  lieu  of  a  designated  parcel, 
the  widow  shall  receive  a  specified  part  of  the  fixed 
annual  rental  value  of  each  parcel,  a  receiver  may  be 
appointed  to  enforce  the  decree.^ 

The  estate  by  curtesy,  w^liere  such  estates  still  exist, 
upon  the  death  of  the  wife  after  issue  born,  passes  to 
the  receiver  of  the  husband  appointed  in  proceedings 
against  him  by  a  judgment  creditor.^ 

1  Lowry  v.  Smith,  9  Hun  (N.  Y.)  5  Conlon  v.  Kelly,  199  N.  Y.  43, 
514.  92  N.  B.  109    (reversing  136  App. 

2  Chase's   Case,   1   Bland.    (Md.)  Div.  940.  122  N.  Y.  Supp.  1125). 
206,  17  Am.  Dec.  277.  6  Beamish     v.     Hoyt,     2     Rob. 

3  Knighton  v.  Young,  22  Md.  359.  (N.  Y.)   307. 

4  Tenbrook   v.   Jessup,   60   N.   J. 
Eq.  234,  46  Atl.  516. 


362 


LAW   OF   RECEIVERS. 


§  115.    Receivers  in  Actions  for  Divorce  or  Maintenance. 

The  practice  is  well  settled  that  the  court  may  appoint 
a  receiver  to  take  charge  of  the  defendant's  property  in 
a  suit  for  divorce  where  a  decree  for  alimony  is  sought. 
In  some  cases  the  receiver  is  appointed  under  the  author- 
ity of  statutes  making  special  provisions  for  the  appoint- 
ment of  receivers  in  divorce  actions  and  in  other  cases 
under  a  showing  of  danger  to  the  fund  from  which  the 
alimony  is  sought  to  be  collected.^ 

In  some  states  the  statute  authorizes  the  court  to  re- 
quire the  husband  in  a  divorce  action  to  give  reasonable 
security  for  alimony,  and  upon  his  failure  to  do  so  ap- 
point a  receiver.2  Where  the  appointment  is  made  pursu- 


1  Court  may  appoint  a  receiver 
to  take  charge  of  husband's  prop- 
erty to  enforce  a  decree  for  ali- 
mony. Huellmantel  v.  Huellman- 
tel,  124  Cal.  583,  57  Pac.  582;  An- 
derson V.  Anderson,  124  Cal.  48, 
56  Pac.  630,  57  Pac.  81,  71  Am.  St. 
Rep.  17;  Anderson  v.  Anderson, 
123  Cal.  445,  56  Pac.  61;  Petaluma 
Sav.  Bank  v.  Superior  Court,  111 
Cal.  488,  44  Pac.  177;  Stallings  v. 
Stallings,  127  Ga.  464,  9  L.  R.  A. 
(N.  S.)  593,  56  S.  E.  469;  Harding 
V.  Harding,  120  111.  App.  389; 
Holmes  v.  Holmes,  29  N.  J.  Eq.  9; 
Carey  v.  Carey,  2  Daly  (N.  Y.) 
424;  Drake  v.  Drake,  27  S.  D.  329, 
131  N.  W.  294. 

Receiver  is  to  be  appointed  to 
collect  alimony  particularly  where 
sequestration  has  been  ordered. 
Seibly  v.  Ingham,  Cir.  Judge,  105 
Mich.  584,  63  N.  W.  528;  Cizek  v. 
Cizek,  69  Neb.  797,  5  Ann.  Cas. 
464,  96  N.  W.  657,  99  N.  W.  28; 
Swansen  v.  Swansen,  12  Neb.  210, 
10  N.  W.  713;  Foster  v.  Town- 
shend,  68  N.  Y.  203. 

In  Kirby  v.  Kirby.  1  Paige 
(N.  Y.)  261,  the  court  says;   "The 


injunction,  receiver,  and  ne  exeat 
may  all  properly  be  made  use  of 
to  aid  the  court  in  doing  justice 
between  the  parties."  So,  also,  in 
Questel  v.  Questel,  Wright  (Ohio) 
492,  where  a  husband  conveyed  his 
property  to  his  son  to  prevent  a 
recovery  for  alimony  on  a  bill 
pending  for  such  purpose,  it  was 
held  that  a  court  of  chancery  may 
properly  enjoin  the  parties  from 
further  changing  the  property,  and 
appoint  a  receiver  to  secure  the 
income  to  satisfy  the  alimony. 

Receiver  may  be  appointed  of 
rents  and  profits  pending  the  liti- 
gation. Vincent  v.  Parker,  7  Paige 
(N.  Y.)   65. 

Receivers  have  also  been  ap- 
pointed in  divorce  cases  in  the 
English  practice.  See  Waddell  v. 
Waddell  (1892),  P.  226;  Campbell 
V.  Campbell  (1895),  72  L.  T.  294. 

2  White  V.  White,  130  Cal.  597, 
80  Am.  St.  Rep.  150,  62  Pac.  1062; 
see,  also,  Petaluma  Sav.  Bank  v. 
Superior  Court,  111  Cal.  488,  44 
Pac.  177  (see  §  30,  supra,  for 
quotations  from  this  case);  Mur- 
ray v.  Murray,  115  Cal.  266,  56  Am. 


CONTROVERSIES   ARISING   OUT   OF    MARRIAGE. 


363 


ant  to  such  a  statute,  the  powers  of  the  court  must  be 
exercised  only  in  accordance  with  the  terms  of  the  stat- 


St.  Rep.  97,  37  L.  R.  A.  626,  47  Pac. 
37;  McAneny  v.  Superior  Court, 
150  Cal.  6,  87  Pac.  1020. 

Under  statute,  receiver  will  not 
be  appointed  unless  husband  fails 
to  comply  with  decree  for  alimony. 
Logan  V.  Logan,  125  App.  Div.  724, 
110  N.  Y.  Supp.  174. 

Evidence  that  the  husband  has 
failed  to  pay  alimony  pursuant  to 
orders  of  the  court,  and  that  he 
has  attempted  to  dispose  of  his 
property  for  the  purpose  of  pre- 
venting the  wife  from  getting  any 
part  of  it,  authorizes  the  appoint- 
ment of  a  receiver  on  her  appli- 
cation, and  after  notice  to  him, 
under  Civ.  Code,  §  140,  which  pro- 
vides that  the  court  may  enforce 
the  payment  of  alimony  by  the  ap- 
pointment of  a  receiver.  Huell- 
mantel  v.  Huellmantel,  124  Cal. 
583,  57  Pac.  582. 

Under  Code  Civ.  Proc,  §  1772, 
providing  that,  where  a  judgment 
requires  a  husband  to  provide  for 
the  support  of  his  wife,  the  court 
may  require  reasonable  security, 
etc.,  and  on  failure  to  do  so  the 
court  may  appoint  a  receiver 
thereof,  but  the  power  to  appoint 
a  receiver  is  expressly  contingent 
upon  failure  to  comply  with  the 
requirements  of  the  judgment, 
and,  where  it  aifirmatively  appears 
that  there  has  been  no  such 
failure  on  the  part  of  the  defen- 
dant, the  application  for  a  receiver 
should  be  denied.  Logan  v.  Logan, 
125  App.  Div.  724,  110  N.  Y.  Supp. 
174. 

Under  Code  Civ.  Proc,  §  1772, 
which  provides  that,  when  an 
action  is  brought  upon  a  foreign 
judgment  of  divorce  for  adultery, 


the  court  may  direct  the  husband 
to  give  reasonable  security  for  the 
payment  of  alimony  under  the 
judgment,  and,  if  he  fails  to  give 
the  security  or  defaults,  the  court 
may  appoint  a  receiver  for  his 
personal  property,  in  an  action  to 
enforce  a  foreign  judgment  for 
alimony,  defendant  can  be  required 
to  give  security  only  under  sec- 
tion 1772,  and,  on  his  failure  to 
give  security,  the  court  is  confined 
to  the  remedy  of  sequestration 
provided  in  said  section,  and  can 
not  commit  defendant  for  con- 
tempt for  failure  to  give  the  se- 
curity. Moore  v.  Moore,  142  App. 
Div.  459,  126  N.  Y.  Supp.  936. 

Under  G^n.  Laws,  1909,  ch.  247, 
5,  16,  and  ch.  289,  1,  the  superior 
court  in  a  divorce  action  has  juris- 
diction to  appoint  a  receiver  to 
conserve  the  property  during  the 
pendency  of  a  proceeding  for  ali- 
mony. Warren  v.  Warren,  36  R.  I. 
167,  89  Atl.  651. 

Rev.  St.  1895,  art.  1465,  author- 
izes the  appointment  of  a  receiver 
in  an  action  between  partners  or 
others  jointly  owning  or  inter- 
ested in  any  property  or  fund,  on 
the  application  of  the  plaintiff  or 
any  party  whose  right  to  or  inter- 
est in  the  fund  or  the  proceeds 
thereof  is  probable,  and  where  it 
is  shown  that  the  property  or  fund 
is  in  danger  of  being  lost,  removed, 
or  materially  injured.  Article  2985 
provides  that,  pending  a  suit  for 
divorce,  the  court  or  the  judge 
thereof  may  make  such  temporary 
orders  respecting  the  property  and 
parties  as  may  be  deemed  neces- 
sary and  equitable.  Under  these 
provisions  it  was  held  that  a  re- 


3G1 


LAW   OF   RECEIVERS. 


ute,  althougli  such  statutes  are  generally  framed  on  the 
theory  of  giving  protection  to  the  wife  from  the  prop- 
erty under  the  control  of  the  husband  and  necessarily 
from  the  nature  of  the  case  must  leave  many  matters  to 
the  discretion  of  the  trial  court.^ 


ceiver  may  be  appointed  in  an 
action  by  a  wife  against  her  hus- 
band to  establish  her  separate 
interest  in  property  in  his  posses- 
sion, and  to  prevent  his  disposing 
of  her  interest  therein,  and  con- 
verting the  proceeds  to  his  own 
use,  and  for  a  divorce,  where  the 
character  and  condition  of  the 
property  are  such  that  the  interest 
of  plaintiff  can  be  best  protected 
by  the  appointment  of  a  receiver. 
Shaw  v.  Shaw,  51  Tex.  Civ.  55, 
112  S.  W.  124. 

3  In  an  action  by  a  wife  against 
lier  husband  for  a  divorce  where 
it  appears  that  he  is  a  resident  of 
another  state,  to  which  he  is  at- 
tached by  large  holdings  of  prop- 
erty therein,  and  that,  by  reason 
of  his  non-residence  he  can  not 
give  personal  attention  to  his 
property  in  this  state,  but  leaves 
it  to  the  management  of  agents, 
and  it  is  admitted  by  the  pleadings 
that  he  has  endeavored,  and  is  en- 
deavoring, to  sell  or  encumber  his 
property  so  as  to  deprive  his  wife 
of  a  support,  the  court  is  justified 
in  appointing  a  receiver  to  en- 
force its  decree  of  maintenance. 
Anderson  v.  Anderson,  124  Cal.  48, 
71  Am.  St.  Rep.  17,  56  Pac.  630, 
57  Pac.  81. 

In  the  above  case  the  court  said: 
"A  more  serious  question  is  the 
necessity  of  the  appointment  of  a 
receiver  in  the  case.  Section  140 
of  the  Civil  Code  provides  that  the 
court  may  require  the  husband  to 
give  reasonable  security  for  mak- 


ing any  payments  required,  and 
may  enforce  the  same  by  the  ap- 
pointment of  a  receiver,  or  by  any 
other  remedy  applicable  to  the 
case.  It  is  charged  in  the  com- 
plaint and  not  denied  in  the  an- 
swer, that  the  husband  endeavored 
and  is  endeavoring  to  sell  and 
transfer  or  encumber  his  property 
and  thereby  deprive  his  wife  of 
support.  The  defendant  is  a  res- 
ident of  the  State  of  New  York. 
Where  so  much  is  necessarily  com- 
mitted to  the  discretion  of  the  trial 
court,  depending  in  each  case  upon 
its  estimate  of  the  character  of 
the  parties,  as  exhibited  in  mat- 
ters too  numerous  or  too  trivial  to 
go  into  the  record,  we  can  not  say 
that  there  was  an  abuse  of  dis- 
cretion in  this  case  in  the  appoint- 
ment of  a  receiver.  That  the  de- 
fendant was  a  non-resident  of  this 
state,  attached  to  his  residence  in 
New  York  by  large  holdings  of 
property,  is  a  strong  circumstance 
tending  to  make  a  receivership  the 
most  natural,  as  well  as  the  most 
effective,  method  of  enforcing  com- 
pliance with  the  order  for  main- 
tenance. And  the  severity  of  the 
method  devised  is  mitigated  by 
the  fact  that  he  did  not,  as  from 
his  non-residence  he  could  not, 
give  personal  attention  to  his  prop- 
erties in  this  state,  and  left  them 
to  the  management  of  agents. 
Under  the  management  of  a  re- 
ceiver, judiciously  appointed,  and 
subject  to  the  control  of  the  court, 
the  properties  may  be  well  man- 


CONTROVERSIES    ARISING   OUT    OP    MARRIAGE. 


365 


The  power  given  by  the  statute  to  appoint  a  receiver 
*•  after  judgment  to  carry  the  judgment  into  effect"  is  to 
be  construed  as  applying  only  to  cases  where  the  judg- 
ment affects  specific  property  and  to  a  case  of  an  or- 
dinary judgment  for  money  which  may  be  enforced  by 
an  execution.  The  judgment  for  a  specific  sum  for  ali- 
mony is  regarded  as  an  ordinary  judgment.^ 

But  aside  from  the  statutory  authority  to  be  found  in 
some  of  the  states  for  the  appointment  of  a  receiver  in 
divorce  suits,  a  chancery  court  would  have  an  undoubted 
right  to  appoint  a  receiver  pending  the  determination  of 
the  question  of  alimony  where  there  is  danger  of  the  ali- 
mony fund  being  wasted,  depreciated  or  removed,  since 
the  property  of  the  husband  is  charged  with  the  liability 
of  an  alimony  decree  being  rendered  against  him.-^    The 


aged  and  the  rights  of  both  parties 
protected.  These  considerations 
probably  tended  to  influence  the 
judgment  of  the  court  below." 

Under  Acts  May  23,  1907  (P.  L. 
227),  and  April  27,  1909  (P.  L. 
182),  where  service  is  upon  hus- 
band by  publication  only,  court 
held  to  have  no  power  to  appoint 
receiver  to  take  all  of  deserting 
husband's  property  and  sell  it  for 
the  benefit  of  creditors  and  sup- 
port of  the  wife.  Erdner  v.  Erd- 
ner,  234  Pa.  500,  83  Atl.  420. 

4  White  V.  White,  130  Cal.  597, 
SO  Am.  St.  Rep.  150,  62  Pac.  1062. 

5  A  court  in  chancery  granting  a 
decree  for  alimony  has  ample 
power  to  enforce  that  decree  when 
enforcement  is  possible;  and  this 
by  the  appointment  of  a  receiver 
in  a  proper  case.  Harding  v.  Hard- 
ing, 120  III.  App.  389. 

Where,  in  a  divorce  suit  by  the 
wife,  it  appears  that  the  husband 
is  a  resident  of  another  state  with 
'arge    property    holdings    in    such 


state  and  leaves  the  management 
of  his  property  in  the  state  of  the 
suit  to  agents  and  it  is  shown 
that  he  is  endeavoring  to  encum- 
ber the  property  so  as  to  deprive 
the  wife  of  support,  it  is  proper 
for  the  court  to  appoint  a  re- 
ceiver. Anderson  v.  Anderson,  124. 
Cal.  48,  71  Am.  St.  Rep.  17,  56  Pac. 
630,  57  Pac.  81. 

Although  statutes  exist  upon 
the  subject  in  California,  still  the 
rule  announced  by  the  court  in  the 
above  case  would  undoubtedly  be 
the  same  in  the  absence  of  stat- 
utes on  the  subject. 

The  fact  that  the  petition  may 
show  upon  its  face  that  defendant 
has  an  interest  in  the  real  prop- 
erty involved  in  the  suit,  and  that 
he  has  been  enjoined  from  dispos- 
ing of  sufficient  of  it  to  protect 
plaintiff  against  any  damage  that 
she  might  sustain  by  his  misman- 
agement or  fraudulent  disposition 
of  the  personal  property,  would 
not  defeat  plaintiff's  right  to  have 


366 


LAW   OF   RECEIVERS. 


necessity  for  the  appointment  of  a  receiver  may  be  obvi- 
ated by  the  defendant  giving  a  bond  to  secure  the  payment 
of  any  alimony  to  be  awarded  to  the  plaintiff.^  Where 
the  object  to  be  attained  by  the  appointment  of  a  receiver 
has  been  attained  by  an  order  restraining  the  defendant 
from  disposing  of  his  property,  the  appointment  of  a 
receiver  wdll  be  refused.^    Likewise  where  the  wife  has 


a  receiver  to  take  charge  of  the 
personal  property.  Shaw  v.  Shaw, 
51  Tex.  Civ.  55,  112  S.  W.  124. 

Where  an  attachment  was  issued 
against  defendant  for  disobedience 
to  an  order  for  the  payment  of  ali- 
mony, pending  a  divorce  suit,  and 
the  defendant  was  about  to  dis- 
pose of  his  property  and  leave  the 
state,  held,  that  it  was  proper  to 
interfere  by  injunction,  and  ap- 
point a  receiver  of  his  property,  if 
necessary  to  enable  the  court  to 
apply  the  statute  remedy  Carey 
V.  Carey,  2  Daly  (N.  Y.)   424. 

A  receiver  will  not  be  appointed 
unless  the  husband  is  about  to  re- 
move the  property.  Spiller  v. 
Spiller,  2  N.  C.  482. 

In  an  action  for  an  absolute 
divorce,  where  it  is  impossible  to 
serve  the  defendant  personally  be- 
cause of  his  indefinite  absence 
from  the  state,  and  there  is  prop- 
erty belonging  to  him  in  the  state, 
which  is  in  imminent  danger  of 
being  lost,  destroyed,  depreciated 
by  waste,  or  removed,  so  as  to  de- 
feat the  right  of  the  wife  to  ali- 
mony, a  receiver  may,  on  a  proper 
showing,  be  appointed  to  preserve 
the  property.  Stallings  v.  Stall- 
ings,  127  Ga.  464,  9  L.  R.  A.  (N.  S.) 
593,   56   S.  E.   469. 

Independently  of  any  statutory 
provision,  a  suit  in  equity  may  be 
maintained  to  compel  the  payment 


of  alimony  decreed  to  a  wife.  Bar- 
ber v.  Barber,  62  U.  S.  (21  How.) 
582,  16  L.  Ed.  226. 

Receivers  may  be  appointed  in 
these  classes  of  cases  under  the 
equitable  rules  under  the  author- 
ity of  a  statutory  provision  which 
allows  a  receiver  to  be  appointed 
in  all  cases  "where  receivers  have 
been  heretofore  appointed  by  the 
usages  of  the  courts  of  equity." 
Murray  v.  Murray,  115  Cal.  266,  56 
Am.  St.  Rep.  97,  37  L.  R.  A.  626, 
47  Pac.  37. 

6  After  giving  of  bond  by  hus- 
band, receiver  could  not  be  ap- 
pointed to  take  charge  of  com- 
munity property.  Williams  v.  Wil- 
liams, 60  Tex.  Civ.  179,  125  S.  W. 
937,   1199. 

In  Holmes  v.  Holmes,  29  N.  J. 
Eq.  9,  a  receiver  is  said  to  be  jus- 
tifiable if  the  defendant  will  not 
give  bond,  with  satisfactory  se- 
curity for  the  payments.  Cf.  Still- 
man  V.  Stillman,  7  Baxt.  (66 
Tenn.)  169. 

7  Where,  in  a  suit  for  divorce, 
it  is  shown  that  defendant  is 
worth  $75,000  to  $80,000,  composed 
largely  of  real  estate,  and  defen- 
dant has  been  enjoined  from  dis- 
posing of  it,  the  appointment  of  a 
special  receiver  to  take  charge  of 
the  personal  property  of  the  de- 
fendant is  sex  abuse  of  judicial 
discretion.  Goff  v.  Goff,  54  W.  Va. 
364,  46  S.  E.  177. 


CONTROVERSIES    ARISING    OUT    OF    MARRIAGE. 


367 


been  awarded  a  money  judgment  which  is  made  a  lien 
upon  the  husband's  property,  a  receiver  should  not  be 
appointed,  since  the  plaintiff  ordinarily  has  an  adequate 
remedy  by  means  of  the  lien,^ 

But  a  receiver  is  sometimes  appointed  under  the  stat- 
ute in  supplementary  proceedings  on  the  alimony  judg- 
ment. In  such  a  case  the  case  is  governed  by  the  same 
rules  applicable  to  similar  proceedings  on  ordinary  judg- 
ments.® 

The  same  general  rules  as  are  applicable  to  divorce 
cases  in  respect  to  receiverships  therein  also  apply  to 
suits  for  maintenance. ^° 


8  In  a  suit  for  divorce,  the  ap- 
pointment of  a  receiver  to  collect 
and  dispose  of  the  defendant  hus- 
band's property  held  improper; 
the  wife  being  protected  by  a 
money  judgment  made  a  lien 
thereon.  Gust  v.  Gust,  78  Wash. 
414,  139   Pac.  228. 

9  Barker  v.  Dayton,  28  Wis.  367. 
Where,  on  failure  of  a  husband 

to  comply  with  an  order  to  pay  his 
wife  alimony,  all  his  personal 
property  has  been  sequestered, 
and  a  receiver  appointed,  a  sep- 
arate action  to  restrain  the  execu- 
tors of  a  will  from  paying  the  hus- 
band a  legacy  in  their  hands  may 
also  be  maintained  by  the  wife, 
and  the  proceeds  thereof  directed 
to  be  paid  to  the  receiver.  Garden 
V.  Garden,  34  Misc.  Rep.  97,  69 
N.  Y.  Supp.  481. 

Where  defendant  failed  to  pay 
plaintiff  alimony  due  her,  she  can 
not  complain  of  an  order  to  se- 
quester the  personal  property  of 
defendant  and  appoint  a  receiver 
therefor  for  her  benefit,  even 
though  an  issue  may  arise  between 
herself  and  such  receiver  respect- 
ing the  title  to  certain  insurance 


policies  on  defendant's  life  which 
are  in  her  possession.  Conklin  v. 
Conklin,  125  App.  Div.  278,  109 
N.  Y.  Supp.  187. 

Order  appointing  receiver  and 
sequestrating  certain  moneys  for 
purposes  of  payment  of  alimony 
will  not  be  set  aside  on  defen- 
dant's motion.  Radloski  v.  Rad- 
loski,  72  Misc.  Rep.  101,  129  N.  Y. 
Supp.  818. 

A  decree  for  alimony  is  similar 
to  a  judgment  and  the  party  in 
whose  favor  it  is  rendered  is  in 
the  position  of  a  judgment  creditor 
in  respect  to  having  a  receiver  ap- 
pointed to  aid  in  its  enforcement. 
Oliver  v.  Lowther,  28  W.  R.  381. 

Also  appointed  where  alimony 
has  been  decreed  and  husband  at- 
tempts to  fraudulently  dispose  of 
his  property.  Kirby  v.  Kirby,  1 
Paige  (N.  Y.)  261;  Barker  v.  Day- 
ton, 28  Wis.  367. 

10  Under  2  Rev.  Stats.,  p.  147, 
55,  which  provides  that  the  court 
may  make  an  order  for  the  sup- 
port and  maintenance  of  the  wife 
and  her  children,  though  separa- 
tion is  not  decreed  her,  it  was  not 
intended  to  authorize  the  court  to 


368 


LAW    OF    RECEIVERS. 


§  116.    Procedure  Requisites  to  the  Appointment. 

The  general  requisites  in  the  matter  of  procedure  also 
apply  to  the  appointment  of  receivers  in  divorce  actions. 
Thus  the  receiver  will  not  be  appointed  if  by  reason  of 
being  dismissed,  there  is  no  pending  suit  for  divorce 
before  the  court.^  Likewise  there  should  be  a  prayer  ask- 
ing for  the  appointment  of  a  receiver.-    And  where  the 


seize,  in  tlie  first  instance,  out  of 
the  bullc  of  tlie  iiusband's  prop- 
erty, tlirougli  means  of  a  receiver, 
a  sum  sufficient  to  produce  tiie 
income  deemed  proper,  but  only  to 
require  him  to  secure  its  payment. 
Davis  V.  Davis,  1  Hun  (N.  Y.)  444. 

A  receiver  may  be  appointed  of 
the  husband's  property  in  the 
state,  where  a  decree  for  separate 
maintenance  has  been  rendered  in 
favor  of  the  wife,  and  the  hus- 
band is  a  non-resident,  and  allega- 
tions in  the  bill  that  he  is  about 
to  dispose  of  the  property  are  not 
denied.  Anderson  v.  Anderson,  124 
Cal.  48,  71  Am.  St.  Rep.  17,  56  Pac. 
630,  57  Pac.  81. 

In  an  action  for  separation,  a 
receiver  in  sequestration  proceed- 
ings will  not  be  discharged,  nor 
wyi  directions  be  given  to  him  to 
withdraw  all  claim  to  certain 
funds  on  deposit  in  a  bank  neces- 
sary for  the  payment  of  alimony 
awarded  plaintiff,  where  it  is  mani- 
fest that  the  money  in  question 
was  the  property  of  the  defendant, 
who  has  sought  to  thwart  the 
plaintiff's  rights  to  recover  the 
same  and  disobeyed  the  order  of 
the  court.  Radloski  v.  Radloski, 
72  Misc.  Rep.  101,  129  N.  Y.  Supp. 
818. 

An  action  by  a  wife  for  main- 
tenance without  divorce,  in  which 
it  is  also  sought  to  set  aside  trans- 
fers made  by  a  husband  to  defeat 


plaintiff's  rights  to  maintenance 
out  of  his  property,  is  by  reason 
of  the  inadequacy  of  purely  legal 
remedies  so  much  a  subject  of 
equitable  cognizance  that  it  car- 
ries with  it  the  right  to  have  a 
receiver  appointed  under  the  gen- 
eral provision  of  Cal.  Code  Civ.  ^ 
Proc,  sec.  5641,  for  the  appoint- 
ment of  receivers  in  all  cases 
"where  the  receivers  have  been 
heretofore  appointed  by  the  usages 
of  the  courts  of  equity."  Murray 
V.  Murray,  115  Cal.  266,  56  Am.  St. 
Rep.  97,  37  L.  R.  A.  626,  47  Pac. 
37. 

1  Where  plaintiff's  petition  in 
divorce  had  been  dismissed  when 
the  court  appointed  a  receiver,  and 
the  defendant  had  withdrawn  his 
answer,  in  so  far  as  it  prayed  for 
a  divorce,  only  leaving  that  part 
which  prayed  for  a  division  of  the 
property,  but  plaintiff's  reply  to 
the  answer,  in  which  she  renewed 
her  prayer  for  a  divorce,  was  be- 
fore the  court,  so  that  there  was 
a  suit  pending  when  the  receiver 
was  appointed.  Crawford  v.  Craw- 
ford (Tex.  Civ.),  163  S.  W.  115. 

Receiver  to  collect  alimony  may 
be  appointed  on  wife's  affidavit 
alone.  Shaw  v.  Shaw,  51  Tex.  Civ. 
55,  112  S.  W.  124. 

2  Where  in  an  action  for  divorce 
in  which  a  corporation  was  joined 
as  defendant  in  order  to  seek  re- 
lief as  to  certain  property  alleged 


CONTROVERSIES    ARISING    OUT    OF    MARRIAGE, 


369 


statute  requires  the  receiver  to  furnish  a  bond  before 
entering  upon  his  duties,  such  a  bond  must  be  furnished-^* 
The  court  has  no  jurisdiction,  after  the  entry  of  a 
money  judgment  in  a  divorce  action,  to  continue  the  re- 
ceiver for  the  purpose  of  enforcing  the  judgment.   Any 
new  duties  conferred  upon  him  by  the  judgment  are  in 
excess  of  the  jurisdiction  of  the  court,  where  the  power 
to  appoint  a  receiver  exists  only  in  the  cases  prescribed 
by  the  code.    Hence  the  functions  of  a  receiver  appointed 
pending  an  action  for  divorce  who  takes  possession  of  no 
property  before  the  judgment,  terminates  with  the  entry 
of  the  judgment,  since  the  object  of  his  original  appoint- 
ment and  the  functions  originally  vested  in  him  termi- 
nate with  the  entry  of  the  judgment.^    Likewise  where 
defendant  has  taken  an  appeal  from  an  order  appointing 
a  receiver  to  enforce  payment  or  security  for  the  pay- 
ment of  temporary  alimony  and  furnished  a  bond  to  stay 
further  proceedings  under  the  order,  the  court  has  no 
authority  to  appoint  a  receiver  to  secure  the  ultimate 
payment  of  the  temporary  alimony.^  And  a  receiver  ap- 

to   have    been   conveyed   to   it   in  to   a   receiver   appointed   to   take 

fraud  of  plaintiff's  rights,  the  only  charge  of  the  personal  property  of 

relief   asked   against  it  was   that  a  husband  against  whom  a  judg- 

it  be  enjoined  from  disposing  of  ment  for  alimony  had  been  recov- 

the  property  alleged  to  have  been  ered,  and  who  has  failed  to  pay 

conveyed  to  it.  and  the  corpora-  the  sum  decreed,  as  authorized  by 

tion   made   default   and   failed   to  section  1772.    In  re  Spies,  92  App. 

answer,  a  direction  that  the  cor-  Div.  175,  86  N.  Y.  Supp.  1043. 

poration  convey  the  property  to  a  4  White  v.  White.  130  Cal.  597. 

receiver  is  in  excess  of  the  relief  SO  Am.  St.  Rep.  150.  62  Pac.  1062. 

asked  and  under  the  section  of  the  5  Though,  under  Civ.  Code,  §  137, 

statute  prohibiting  such  relief,  is  a  Superior  Court  may  require  the 

improper.   Foley  v.  Foley,  120  CaL  husband,  in  an  action  for  divorce, 

33    65  Am.  St.    Rep.  147,   52  Pac.  to    pay    temporary    alimony,    suit 

-,22  expenses,  etc.,  and,  under  section 

3  Code  Civ    Proc,  §  715,  provid-  140,  may  enforce  payment  or  se- 

ing  that  if  a  receiver  be  appointed  curity  therefor  by  the  appointment 

in  an  action  or  a  special  proceed-  of  a  receiver  or  by  other  appro- 

ing   before  entering  on  his  duties,  priate    remedy,    where    defendant 

shall  file  with  the  proper  clerk  a  filed   a  bond  to  stay   proceedings 

bond  conditioned,  etc..  is  applicable  pending  an  appeal  from  orders  re- 

I  Rec. — 24 


370  I'AW  OF   RECEIVERS. 

pointed  in  sucli  a  case  can  not  sue  without  leave  of  court 
as  in  other  receivership  cases.® 

§  117.    What  Property  May  Be  Placed  Under  Receivership. 

There  is  no  doubt  that  any  property  which  may  be 
considered  in  connection  with  the  making  of  an  award  of 
alimony  may  be  placed  under  a  receiver  appointed  in  a 
divorce  suit  if  the  same  is  within  the  jurisdiction  of  the 
court. 

Thus  where  a  husband  conveyed  certain  real  estate, 
including  a  large  number  of  contracts  for  the  sale 
thereof,  to  a  foreign  corporation  in  order  to  prevent  its 
seizure,  an  order  appointing  a  receiver  to  take  control  of 
such  contracts,  collect,  and  conserve  the  proceeds,  etc., 
was  not  objectionable  on  the  ground  that  they  were  mere 
choses  in  action,  and  not  ''assets"  and  that  prior  to  the 
award  of  alimony  complainant  was  not  a  creditor.^ 

Where  in  a  suit  for  divorce  a  receiver  has  been  ap- 
pointed over  the  property  of  the  defendant  which  is 
claimed  by  the  wife  as  belonging  to  her,  and  a  third  per- 
son claims  an  interest  in  the  property,  the  receiver  will 
be  directed  to  pay  the  rents  and  profits  of  the  portion 
claimed  by  the  third  person  in  court  to  await  the  final 
determination  of  the  title.^ 

Where  in  a  divorce  action  the  defendant,  who  is  a  part- 
ner in  a  business,  absconds  and  a  receiver  is  appointed 

quiring  him  to  pay  temporary  ali-  6  A    receiver    appointed    in    se- 

mony,  the  Superior  Court  had  no  questration  proceedings  against  a 

jurisdiction  to  appoint  a  receiver  husband  on  his  failure  to  pay  ali- 

to   provide   security   for   the   ulti-  mony  to  the  wife  as  directed  can 

mate   payment   of  temporary   ali-  ^^^^   g^g    without   leave   of   court. 

mony,  since  Code  Civ.  Proc,  §  946,  Q^rden  v.   Garden,  34  Misc.  Rep. 

provides  that  the  perfecting  of  an  ^      ^^  ^^    ^    ^^^^   ^^^ 

appeal  shall  stay  further  proceed-  „„„  ^  ,„., 

ings  in  the  court  below  on  orders  ^  Warren  v.  Warren.  36  R.  I.  167. 

appealed    from    and    matters    em-  ^9  -^^1.  651. 

braced  therein.     McAneny  v.  Su-  2  Vincent    v.    Parker,    7    Paige 

perior  Court.   150  Cal.   6,   87   Pac.  (N.  Y.)  65. 

1020. 


CONTROVERSIES   ARISING   OUT    OF    MARRIxVGE. 


371 


over  bis  property,  tlie  receiver  so  appointed  has  no  right 
to  dispossess  the  other  partner.^ 

A  receiver  in  such  a  case  takes  the  property  subject 
to  all  the  liens  and  equities  existing  against  it.-'  Where 
the  receiver  is  merely  appointed  to  collect  the  rents  and 
profits,  he  takes  no  title  to  the  land  itself^  and,  of  course, 
he  obtains  no  rights  in  respect  to  property  not  belonging 
to  the  defendant.^ 


3  Hamill  v.  Hamill,  27  Md.   679. 

4  Although  Civ.  Code,  §  140,  pro- 
vides that  the  court  may  require 
the  husband  in  a  divorce  case  to 
give  reasonable  security  for  ali- 
mony, and  may  enforce  the  same 
by  the  appointment  of  a  receiver, 
a  receiver  appointed  in  such  case 
takes  the  property  of  the  husband 
subject  to  all  prior  liens,  and  the 
holders  of  such  liens  may  take 
such  proceedings  elsewhere  as  the 
law  exacts  for  preserving  and  en- 
forcing the  liens,  according  to 
their  priority,  without  regard  to 
the  mere  volition  of  the  court  or 
judge  making  the  appointment, 
Petaluma  Sav.  Bank  v.  Superi^ 
Court,  111  Cal.  488,  44  Pac.  177. 

In  a  suit  for  divorce,  plaintiff 
averred  that  certain  creditors  of 
the  husband  had  caused  his  prop- 
erty to  be  sequestrated,  their 
claims  being  fraudulent  towards 
her,  she  obtained  an  order  ap- 
pointing her  custodian  of  the  prop- 
erty pending  the  determination  of 
the  question.  The  creditors  filed 
pleas  setting  up  good  faith,  alleg- 
ing that  the  property  delivered  to 
the  wife  had  been  converted  into 
money,  and  praying  that  she  be 
directed  to  pay  the  same  into 
court,    and   that    their    claims    be 


satisfied  therefrom.  The  court 
held  that  the  pleas  should  not  be 
stricken  out  as  foreign  to  the 
issues  in  the  suit.  Bradley  v.  Ram- 
sey (Tex.  Civ.),  65  S.  W.  1112. 

In  a  suit  for  divorce,  where 
plaintiff  obtained  an  order  whereby 
she  was  appointed  custodian  pend- 
ing investigation  of  seizure  of  her 
husband's  property  by  creditors, 
jurisdiction  to  enforce  such  claims 
against  the  property  so  delivered 
to  plaintiff  attached  as  incidental 
to  the  main  suit,  regardless  of 
amount  or  value.  Bradley  v.  Ram- 
sey (Tex.  Civ.),  65  S.  W.  1112. 

5  A  receiver  appointed  in  an  ac- 
tion for  divorce,  pursuant  to  1  Rev. 
Stats.,  p.  148,  60,  authorizing 
sequestration  of  rents  and  profits 
of  husband's  real  property  to  en- 
force payment  of  alimony,  does  not 
take  title  to  the  land.  Foster  v. 
Townshend,  68  N.  Y.  203. 

6  A  receiver  appointed  for  de- 
fendant's property  in  a  divorce 
action  could  not  move  for  an  ex- 
amination of  defendant  as  to  prop- 
erty now  or  theretofore  held  by 
him  belonging  to  his  wife;  the 
receivership  not  extending  to  the 
wife's  property,  whoever  may  have 
it.  Bradley  v.  Bradley,  137  App. 
Div.  751,  122  N.  Y.  Supp.  626. 


CHAPTER  VII. 

MATTERS  ARISING  FROM  PARTNERSHIP  RELATIONS. 

1.    General  Rules  Applicable. 
§  118.    General  Principles. 

The  inability  of  partners  to  sue  eacli  other  in  a  court 
of  law  has  always  resulted  in  the  equity  branch  of  the 
courts  assuming  a  broad  jurisdiction  in  matters  relating 
to  partnership  affairs.  A  court  of  equity  has  always 
been  regarded  as  the  proper  forum  in  which  to  adjust 
partnership  difficulties  and  take  charge, of  suits  for  the 
dissolution  of  the  partnership  relation.  The  jurisdiction 
to  appoint  receivers  over  partnership  property  has  been 
unquestioned  by  not  only  the  early  authorities  in  our 
country^  but  by  even  the  early  authorities  of  England,^ 
although  the  difficult  position  in  which  the  court  is  often 
placed  in  deciding  upon  the  propriety  of  appointing  a 
receiver  was  early  recognized  and  the  power  to  appoint 
receivers  over  partnership  property  was  exercised  with 
great  caution.^^  It  is  realized  by  the  courts  that  if  the 
receiver  is  appointed,  its  effect  is  to  terminate  the  part- 
nership relation  without  the  consent  of  one  of  the  parties, 
and  if  it  refuses  to  make  the  appointment  it  allows  the 
defendant  to  continue  the  business  at  the  risk  and  prob- 
ably to  the  loss  of  the  plaintiff.    It  must,  however,  weigh 

1  Tomlinson    v.    Ward,  2   Conn.  Appeal,  58  Pa.  St.  168,  98  Am.  Dec. 

396;   Allen  v.  Hawley,  6  Fla.  142,  255;  Jordan  v.  Miller,  75  Va.  442. 
164,    63  Am.    Dec.    198;    Saylor   v.  2  Const,   v.   Harris,   Turn.   &   R. 

Mockbie,   9   Iowa   209;    Gridley  v.  517;    Goodman  v.  Whitcomb,  1  J. 

Conner,  2  La.  Ann.  87;  Williamson  &  W.  589;  Smith  v.  Jeyes,  4  Beav. 

V.   Wilson,     1    Bland's    Ch.    (Md.)  503;   Wilson  v.  Greenwood,  1  Sw. 

418;  Wolbert  v.  Harris,  7  N.  J.  Eq.  471. 

605;    Crane  v.  Foi:d,  1   Hopk.   Ch.  3  New  v.  Wright,  44  Miss.  202; 

(N.    Y.)    114;    Henn    v.   Walsh.    2  Madgwick  v.  Wimble,  6  Beav.  495. 
Edw.  Ch.   (N.  Y.)    129;   Slemmer's 

(372) 


MATTERS    ARISING    FROM    PARTNERSHIPS. 


373 


these  difficulties  and  in  the  circumstances  presented  be- 
fore it  determine  what  is  for  the  best  interests  of  both 
parties.^  The  right  to  ajopoint  a  receiver  over  a  partner- 
ship property  is,  as  in  other  cases,  a  matter  within  the 
judicial  discretion  of  the  court,  having  in  view  all  of  tlie 
circumstances  of  the  case.^  The  appointment  will  not  be 
made  merely  because  no  one  will  be  injured  by  it.*^ 

^^And  where  the  injury  from  the  appointment  of  a  re- 
ceiver over  the  partnership  will  exceed  the  advantages, 
the  appointment  will  be  refused.'y 


4  Lord  Langsdale  in  Madgwick 
V.  Wimble,  6  Beav.  495,  said:  "It 
must  be  admitted  that  when  an 
application  is  made  for  a  receiver 
in  partnership  cases  the  court  is 
always  placed  in  a  position  of  very 
great  difficulty.  On  the  one  hand, 
if  it  grants  the  motion  the  effect 
of  it  is  to  put  an  end  to  the  part- 
nership which  one  of  the  parties 
claims  a  right  to  have  continued; 
and  on  the  other  hand,  if  it  refuses 
the  motion  it  leaves  the  defendant 
at  liberty  to  go  on  with  the  part- 
nership business  at  the  risk  "and 
probably  at  the  great  loss  and 
prejudice  of  the  dissenting  party. 
Between  these  difficulties  it  is  not 
very  easy  to  select  the  course 
which  is  best  to  be  taken,  but  the 
court  is  under  the  necessity  of 
adopting  some  mode  of  proceeding 
to  protect  according  to  the  best 
view  it  can  take  of  the  matter,  the 
interests  of  both  parties,  and  it 
has  accordingly  interfered  in  many 
such  cases." 

5  Bacon  v.  Engstrom,  129  Minn. 
229,  152  N.  W.  264,  537:  New  v. 
Wright,  44  Miss.  202;  Madgwick  v. 
Wimble,  6  Beav.  495. 


The  refusal  of  a  receiver  in  a 
suit  for  dissolution  of  a  partner- 
ship lies  in  the  discretion  of  the 
court.  Silveira  v.  Reese,  7  Cal. 
Unrep.  112,  71  Pac.  515;  Whitley  v. 
Bradley,  13  Cal.  App.  720,  110  Pac. 
596. 

In  Slemmer's  Appeal,  58  Pa.  168, 
98  Am.  Dec.  255,  it  is  said:  "A 
liartnership  will  not  be  dissolved 
on  slight  grounds."  "In  making 
such  a  decree  the  court  will  con- 
sider not  merely  the  terms  of  the 
express  contract  between  the  part- 
ners, but  also  the  duties  and  obli- 
gations implied  in  every  partner- 
ship contract.  Smith  v.  Jeyes,  4 
Beav.  503.  Where  a  valuable  busi- 
ness has  grown  up,  by  the  joint 
labors  and  contributions  of  all,  the 
court  should  be  careful  to  preserve 
it,  if  possible,  and  put  all  parties 
upon  a  fair  and  equal  footing  in 
competing  for  it.  To  appoint  a 
receiver,  to  direct  a  sale  of  the 
whole  and  a  winding-up  of  the 
business  would  destroy  its  value 
without  benefiting  either  party." 

6  Morey  v.  Grant,  48  Mich.  326, 
12  N.  W.  202. 

T  Philips  V.  Von  Raven,  26  Misc. 
Rep.  552,  57  N.  Y.  Supp.  701. 


374  LAW  OP  RECEIVERS. 

In  passing  upon  the  question  whether  a  receiver  should 
be  appointed  over  the  property  of  a  partnership  the  court 
is  not  governed  by  the  same  principles  of  law  as  are 
applicable  to  a  case  where  it  is  determining  whether  to 
issue  an  injunctional  order  against  one  or  more  members 
of  the  partnership.     In  appointing  a  receiver  a  much 
stronger  case  should  be  shown,  since  the  effect  of  the 
appointment  is  to  take  the  control  and  management  of 
the  property  entirely  out  of  the  hands  of  all  the  members 
of  the  partnership,  whereas  in  issuing  an  injunctional 
order  it  merely  modifies  the  control  of  the  property. 
Consequently  the  court  will  often  grant  an  injunction  as 
against  a  defendant  partner  in  a  case  where  it  will  refuse 
to  appoint  a  receiver.^  For  these  reasons  it  is  often  said 
that  courts  are  reluctant  in  the  exercise  of  their  power 
to   appoint  receivers  over  partnership  property.''    The 
general  principles  applicable  to  partnership  cases  were 
in  an  early  Maryland  case^°  stated  as  follows: 
-^It  is  true,  as  it  has  been  strenuously  urged,  that  it\ 
must  be  a  strong  case  that  will  justify  this  ultimate  resort' 
of  a  court  of  equity.    It  is  a  high  power  never  exercised 
where  it  is  likely  to  produce  irreparable  injustice  or 
injury  to  private  rights  or  where  there  exists  any  other 
safe  or  expedient  remedy. LStilH^ajari^t^^f^^^^ 

8  Hall  V.  Hall,  3  Mac.  &  G.  79;       App.  Div.  849,  117  N.  Y.  Supp.  633; 
Hartz  V.  Schrader,  8  Ves.  317.  Buchanan  v.    Comstock,    57   Barb. 

„.      ^  ^,    .,       ,CQ.       (N.   Y.)    568;    Webb   v.   Allen,    15 

9  Bard  V.  Bingham,  54  Ala.  463 .       ^^^    ^!^   ^^^^  ^^  ^   ^   3^^ .  ^^.^^ 

Loomis     V.     McKenzie,     31     Iowa  ^    ^^^^^^  ^^  ^^^^    240,   96   Pac. 

425;   Goldman  v.  Manistee  Circuit  ^^^^.    ^^j^^   ^    Dennis,   9    Wash. 

Judge,    155    Mich.    47,    118    N.   W.  ^Qg^    gy    p^^^.     450.    ^^ry    Bros.    v. 

600;  Morey  V.  Grant,  48  Mich.  326,  Dalhoff  Const.  Co.,  126  Fed.  584; 

12  N.  W.  202;  Albrecht  v.  Diamon,  Devereux  v.  Fleming,  47  Fed.  177; 

125   Minn.    283,    146    N.   W.    1101;  Baxter  v.  West,  28  L.  J.  Ch.  169; 

Nathan  v.  Bacon,  75  N.  J.  Eq.  401,  Waters  v.  Taylor,  2  Ves.  &  B.  299, 

72  Atl.  359;  Hard  v.  Klaus,  9  N.  J.  15  Ves.  10;  Carlen  v.  Drury,  1  Ves. 

Law  J.  370;    Moles  v.  O'Neill,  23  &  B.  154,  12  R.  R.  203;   Burden  v. 

N.  J.  Eq.   207;    Cox  v.   Peters,   13  Howard,  2  N.  Brunsw.  Eq.  461. 

K  J.  Eq.  39;  Birdsall  v.  Colie,  10  10  Speights    v.     Peters,     9     Gill 

N.  J.  Eq.  63;   Cohn  v.  Wahn,  132  (Md.)   472. 


MATTERS   ARISING   FROM   PARTNERSHIPS.  375 

^specially^in  partnersliip  transactions  where  the  parties 
after  dissolution  of  their  connection,  can  not  agree  upon 
the  adjustment,  and  the  property  or  funds  in  dispute  are 
liTflie  hands  of  one  partner  alone,  each  having  an  equal 
right  to  the  control  of  the  property,  cases  must  neces- 
sarily arise  where  the  interest  of  both  can  only  be  prop- 
erly secured  by  the  intervention  and  appointment  of  a 
receiver.  .  .  .  It  is  assumed  by  the  appellant  that  the 
court,  as  preliminary  to  the  appointment  of  a  receiver, 
must  also  further  be  satisfied  that  the  property  is  in 
imminent  peril.  This^  however,  is  not  always  a  necessary 
condition  to  the  action  of  the  court.  Against  the  legal 
title,  or  a  strong  presumptive  title  in  the  defendant,  the 
court  would  interfere  with  great  reluctance;  and  only 
where  the  property  was  in  danger  of  being  materially 
injured  or  lost.  But  in  respect  to  a  fund  which  is  claimed, 
and  is  prima  facie  the  proceeds  of  a  partnership,  it  is 
but  a  provident  exercise  of  equity  power  to  place  the 
property  under  the  care  of  the  court,iiJ 

^  The  appointment  of  a  receiver  being  the  exercise  of  a 
power  incidental  to  equity  jurisdiction  and  proceedings 
for  the  winding  up  of  partnership  affairs  being  an  equity 
proceeding,  it  is  obvious  that  the  court  has  an  inherent 
right  to  appoint  a  receiver  in  such  cases  where  necessary 
to  give  effect  to  a  decree  to  be  rendered  in  the  main 
action.^^ 

But  the  court  will  not  appoint  a  receiver  in  a  suit 
involving  a  controversy  among  partners  where  the  issue 
involves  merely  legal  rights  as  distinguished  from  equi- 
table rights. ^2  And  in  accord  with  the  general  rule  appli- 

11  Martin  v.  Hurley,  84  Mo.  App.  property.  Mcintosh  v.  Perkins,  13 
670;    Cox  V.  Volkert,  86  Mo.   505,      Mont.  143,  32  Pac.  653. 

511.  A  receiver  will  not  be  appointed 

12  A  receiver  should  not  be  ap-  over  a  question  of  damage.  There 
pointed  merely  to  determine  con-  must  be  an  account  to  be  ad- 
flicting  rights  to  property  where  justed.  Morrison  v.  Van  Benthuy- 
there  is  no  danger  of  loss  of  the  sen,  103  N.  Y.  675,  9  N.  E.  180. 


376 


LAW   OF    RECEIVERS. 


cable  to  all  receivership  cases,  a  receiver  will  not  be 
appointed  where  no  ultimate  relief  other  than  the  ap- 
pointment of  a  receiver  is  soiight.^^  Where  all  of  the 
partners  join  in  the  request  for  the  appointment  of  the 
receiver,  the  court  will  not  generally  refuse  to  make  the 
a^jpointment,^^  although  if  the  court  has  no  jurisdiction 
to  appoint  a  receiver,  jurisdiction  to  do  so  can  not  be 
conferred  by  the  consent  or  stipulation  of  the  parties. ^^ 

§  119.    Statutory  Provisions  for  Appointment. 

Frequently  statutes  exist  which  cover  the  appoint- 
ment of  receivers  including  the  circumstances  in  which 
one  will  be  appointed  in  relation  to  partnerships.  Such 
statutes,  though  having  many  features  in  common,  in 
some  instances  have  changed  the  general  rules  which 
would  othervsdse  apply,  but  in  most  instances  such  stat- 
utes are  merely  codifications  of  the  general  principles 
formulated  by  the  chancery  courts.^ 


Under  Code  Civ.  Proc,  §  564, 
subd.  6,  which,  after  setting  forth 
certain  specific  cases,  provides 
that  receivers  may  be  appointed 
in  all  other  cases  "where  receivers 
have  heretofore  been  appointed  by 
the  usages  of  courts  of  equity," 
a  receiver  may  not  be  appointed 
for  a  partnership  in  an  action  in- 
volving merely  legal,  as  distin- 
guished from  equitable,  rights,  on 
a  showing  that  the  defendants 
were  largely  indebted,  that  their 
property  was  subject  to  labor  liens, 
and  that  their  affairs  would  be 
better  conserved  by  the  appoint- 
ment of  receivers,  etc.  First  Nat. 
Bank  v.  Superior  Court,  12  Cal. 
App.  335,  107  Pac.  322. 

13  Style  V.  Lantrip  (Tex.  Civ.), 
171  S.  W.  786. 

14  A  partner  of  a  solvent  part- 
nership who  has  agreed  to  the  ap- 
pointment of  a  receiver  over  it  can 


not  thereafter  object  to  such  ap- 
pointment. Southwell  v.  Church, 
51  Tex.  Civ.  547,  111  S.  W.  969; 
Saylor  v.  Mockbie,  9  Iowa  209; 
Fitzner  v.  Noullet,  114  La.  167,  38 
So.  94;  Newman  v.  Schminke,  50 
La.  Ann.  516,  23  So.  714;  Todd  v. 
Rich,  2  Tenn.  Ch.  107;  Taylor  v. 
Neute,  39  Ch.  D.  538,  57  L.  J.  Ch. 
1044,  60  L.  T.  179,  37  W.  R.  190. 

15  First  Nat.  Bank  v.  Superior 
Court,  12  Cal.  App.  335,  107  Pac. 
322. 

1  The  power  to  appoint  receivers 
in  actions  between  partners,  con- 
ferred by  the  Rev.  Stats.,  1895,  art. 
1465,  is  to  be  exercised  only  in  ac- 
cord with  the  general  practice  and 
principles  of  equity,  in  cases 
where  some  good  reason  or  neces- 
sity is  shown  for  the  appointment. 
The  power  of  appointment  should 
not  be  exercised  without  notice 
except   in   a   case    of   emergency. 


MATTERS    ARISING   FROM    PARTNERSHIPS. 


377 


§  120.  Defendant  Partner  Furnishing  a  Bond  in  Lieu  of  a  Re- 
ceiver. 
As  we  have  seen  in  the  fore  part  of  this  work,  the 
court  may  make  the  appointment  of  a  receiver  dependent 
upon  the  failure  of  the  defendant  to  furnish  a  bond  to 
secure  the  plaintiff  in  any  recovery  which  the  court  may 
find  that  he  is  entitled  on  the  final  outcome  of  the  litiga- 
tion/ and  likewise  where  the  defendant  offers  voluntarily 
to  furnish  such  a  bond  the  court  will  be  very  reluctant  at 
appointing  a  receiver.-  These  same  principles  are  appli- 
cable to  suits  involving  controversies  between  partners. 
Undoubtedly  there  are  cases  in  which  the  furnishing  of  a 
bond  by  the  defendant  would  not  be  ample  protection  to 
the  plaintiff,  but  perhaps  in  the  majority  of  cases  the 
rights  of  the  plaintiff  partner  could  be  sufficiently  pro- 
tected by  the  furnishing  of  such  a  bond,  together  with  an 
injunctional  order. 


Webb  V.   Allen,  15  Tex.  Civ.   605, 
40  S.  W.  342. 

"Under  Rev.  Stats.,  1895,  art.  1465, 
authorizing  the  appointment  of  a 
receiver  in  an  action  between  part- 
ners on  the  application  of  one  of 
the  partners,  and  article  1492, 
which  provides  that  nothing  shall 
prevent  a  member  of  a  partner- 
ship from  having  a  receiver  ap- 
pointed whenever  a  cause  of  action 
arises  between  the  copartners,  a 
partner  applying  for  the  appoint- 
ment of  a  receiver  of  the  partner- 
ship property  need  not  prove  that 
the  property  is  in  danger  of  being 
lost,  but  is  entitled  to  the  appoint- 
ment of  a  receiver  on  a  showing 
that  he  has  been  wrongfully  ex- 
cluded from  the  management  of 
the  partnership  business.  Rische 
V.  Rische,  46  Tex.  Civ.  23,  101 
S.  W.  849. 

Under  a  statute  which  author- 


izes a  partner  in  a  suit  to  dissolve 
the  partnership  and  settle  its  af- 
fairs to  apply  to  a  judge  of  the 
proper  court,  in  case  they  can  not 
agree  upon  a  distribution,  for  a 
receiver  to  hold  the  partnership 
property  and  distribute  in  accord 
with  the  orders  of  the  court,  and 
which  also  authorizes  the  judge 
to  appoint  a  receiver  forthwith 
in  case  he  should  deem  it  just  and 
reasonable  to  do  so,  the  action  of 
the  judge  must  be  based  on  a  pre- 
liminary hearing  and  finding  that 
he  deems  the  appointment  just 
and  reasonable.  Bostwick  v.  Isbell, 
41  Conn.  305. 

For  a  general  discussion  of  the 
effect  of  statutory  provisions  on 
the  appointment  of  a  receiver,  see 
section  21.  supra. 

1  See  section  15,  supra. 

2  See  section  25,  supra. 


378  LAW   OF    RECEIVERS. 

If  the  appointment  of  the  receiver  would  cause  groat 
inconvenience  to  all  of  the  parties,  the  court  may  make 
an  appointment  to  be  effective  if  the  defendant  fails  to 
furnish  a  bond  to  indemnify  the  plaintiff  partner.^  In 
other  words,  under  such  circumstances  the  court  will 
allow  the  defendant  to  furnish  a  bond  to  secure  the  plain- 
tiff in  lieu  of  the  appointment  of  a  receiver.^  And  the 
court  may  in  its  discretion  refuse  to  appoint  a  receiver 
wiien  the  defendant  offers  to  furnish  an  indemnity  bond.^ 
And,  of  course,  where  the  statute  allows  a  defendant 
partner  to  prevent  the  appointment  of  a  receiver  in  a 
partnership  action  by  the  furnishing  of  a  bond  to  indem- 
nify the  plaintiff,  no  receiver  will  be  appointed  upon  com- 
pliance with  the  statute  in  that  respect.^ 

The  question  whether  the  rights  of  the  complaining 
partner  can  be  sufficiently  protected  by  the  furnishing  of 
a  bond  to  account  to  the  plaintiff  is  one  which  rests  within 
the  discretion  of  the  court,  having  in  view  the  particular 

3  Gary   Bros.   v.    DalhofE   Const.  ing  of  a  partnership   engaged  In 

Co.,   126   Fed.   584;    Mann  v.  Gad-  the    brokerage    business,    the     ap- 

die,'  158  Fed.  42,  88  C.  C.  A.  1.  pointment  of  a  receiver  will  de- 
stroy the  use  by  defendant  of  his 
stock  exchange  seat,  the  court 
may  permit  him  to  give  bond  in 

fendant  offered  to  execute  a  bond  j.^^  ^^  ^  receiver  being  appointed, 

in  such  sum  and  with  such  sure-  valentine  v.  Muir,  121  N.  Y.  Supp. 

ties    as   the   court  might   require,  704. 

conditioned  to  obey  all  orders  of  5  ijj  Buchanan  v.   Comstock,   57 

court;  a  receiver  was  refused.    In  Barb.   (N.  Y.)   568,  a  receiver  was 

Popper  V.   Scheider,  7  Abb.  Prac.  refused  before  it  was  determined 

N.  S.   (N.  Y.)   56,  38  How.  Pr.  34,  j^^^   ^uch  of  the  partnership  ef- 

the    partnership    was    denied    and  jgctg    belonged    to    each    partner, 

but  a  small  portion  of  the  capital  where  no  insolvency  was  alleged, 

was    controlled     by    the    plaintiff  and  the  defendant  denied  the  en- 

and   the   defendants  were   willing  ^ire   equity   of  the   complaint   but 

to  give   security,  a  receiver  was  offered  to  convey  one-half  of  the 

refused.    McDonald  v.  Trojan  But-  stock  to  the  plaintiff  to  indemnify 

ton   F.    Co.,    56   Hun    (N.   Y.)    648  him. 

(mem.),  10  N.  Y.  Supp.  91.  6  Roberts  v.  Pipkin,  63  S.  C.  252, 

Where,  in  a  suit  for  an  account-  41  S.  E.  300. 


4  In    Saverios   v.   Levy,   40   Hun 
639,  1  N.  Y.  St.  Rep.  758,  the  de- 


MATTERS   ARISING   FROM    PARTNERSHIPS, 


379 


circumstances  of  tlie  case  at  bar.  An  appellate  court 
will  not  disturb  the  action  of  the  trial  court  in  appointing 
a  receiver,  notwithstanding  that  the  defendant  offered  to 
give  a  bond  to  satisfy  any  decree  rendered  in  favor  of 
the  plaintiff.*^ 

§  121.    Necessity  for  a  Showing  of  Danger  of  Loss. 

It  is  one  of  the  fundamental  rules  in  respect  to  the 
appointment  of  a  receiver  that  as  a  prerequisite  to  such 
an  appointment  there  must  be  a  danger  of  loss  of  the 
property  or  fund  constituting  the  receivership.  Hence 
in  the  case  of  a  partnership  litigation  in  order  to  have  a 
receiver  appointed  there  must  be  a  showing  of  danger  to 
the  partnership  property.^ 


7  Where,  in  a  suit  for  tlie  disso- 
lution of  a  partnership,  the  defen- 
dant, being  in  possession,  in  order 
to  defeat  an  application  for  a  re- 
ceiver, offered  to  give  bond  to  sat- 
isfy any  decree  in  favor  of  plaintiff, 
but  the   court  made  the   appoint- 
ment, the  action  will  not  be  dis- 
turbed on  appeal,  the  record  not 
showing  the  proofs  on  which  the 
court's  judgment  was  based.  Flem- 
ing V.  Carson,  37  Ore.  252,  62  Pac. 
374.     The   court  said:    "It  is  fur- 
ther insisted  that,  as  the  defendant 
proffered  a  bond  to  meet  the  ap- 
proval of  the  court  for  the  satisfac- 
tion of  any  decree  that  might  be 
rendered  in  favor  of  the  plaintiff, 
the  court  ought  not  to  have  made 
the     appointment.     In     some     in- 
stances such  an  undertaking  will 
obviate  and  relieve  the  necessity 
for  a  receiver  (Buchanan  v.  Corn- 
stock,     57     Barb.     (N.    Y.)      568; 
Saverios  v.   Levy,  40   Hun   639,   1 
N.    Y.    St.    Rep.     758;     Popper   v. 
Scheider,    7    Abb.     Prac.     [N.    S.] 
(N.  Y.)    56,  38  How.   Pr.  34);    but 
in  the  present  instance  the  defen- 


dant is  in  possession  of  the  prop- 
erty, while  the  plaintiff  has  an 
equal  right  thereto  pending  ad- 
justment, and,  the  court  having 
passed  upon  the  propriety  of  the 
appointment,  we  can  not  assume 
to  disturb  its  action  in  the  ab- 
sence of  the  proofs  upon  which  its 
judgment  was  based." 

Where  plaintiff  obtained  an  in- 
junction restraining  defendant 
from  interfering  with  his  mercan- 
tile business  on  the  ground  of  be- 
ing a  discharged  employee  and 
gave  an  injunction  bond  in  that 
action,  such  bond  will  not  preclude 
the  defendant  from  obtaining  the 
appointment  of  a  receiver  in  an- 
other action  against  the  plaintiff 
seeking  a  dissolution  of  an  alleged 
partnership  in  the  business  based 
on  the  ground  that  the  business 
was  being  mismanaged  and  dissi- 
pated, since  the  bond  was  not  an 
adequate  remedy.  Robbins  v.  Reed, 
174  Ind.  291,  91  N.  E.  921. 

1  A  receiver  will  not  be  ap- 
pointed where  the  defendant  is 
responsible  and  danger  of  loss  is 


380 


LAW    OF   RECEIVERS. 


A  receiver  will  not  be  appointed  in  relation  to  rights 
arising  from  joint  transactions  where  such  transactions 
have  been  consummated,  in  the  absence  of  proof  of  in- 
solvency or  danger  of  loss.^ 

And  the  mere  fact  that  the  partnership  business  has 
not  been  profitable  is  not  ground  for  the  appointment  of 
a  receiver.^ 

§  122.    Effect  Where  Plaintiff  Partner  Is  in  Possession. 

A  plaintiff  who  is  in  the  possession  of  the  partnership 
is  not  in  a  position  to  ask  for  the  appointment  of  a 
receiver  over  it,  since  he  can  as  a  partner  sell  the  prop- 


not  alleged  and  shown.  Loomis  v. 
McKenzie,  31  Iowa  425;  Hefle- 
bower  v.  Buck,  64  Md.  15,  20  Atl. 
991;  Simon  v.  Schloss,  48  Mich. 
233,  12  N.  W.  196;  Quinlivan  v. 
English,  44  Mo.  46;  Renton  v. 
Chaplain,  9  N.  J.  Eq.  62;  Buchanan 
V.  Comstock,  57  Barb.  (N.  Y.)  568; 
Hayes  v.  Heyer,  4  Sandf.  Ch. 
(N.  Y.)  485;  Wellman  v.  Harker, 
3  Ore.  253;  Kilbreth  v.  Root's 
Adm'r,  33  W.  Va.  600,  11  S.  E.  21; 
Ex  parte  Owen,  L.  R.  13  Q.  B.  Div. 
113. 

A  receiver  will  not  be  appointed 
over  partnership  property  where 
there  is  no  danger  that  it  will  be 
ultimately  lost.  Perrin  v.  Lepper, 
56  Mich.  351,  23  N.  W.  39;  Well- 
man  V.  Harker,  3  Ore.  253. 

On  an  application  for  appoint- 
ment of  a  receiver  between  part- 
ners in  transactions  concerning 
land  and  other  deals,  the  plaintiff 
must  make  a  showing  that  the 
property  or  funds  were  in  danger 
of  being  lost,  removed,  or  materi- 
ally injured,  as  required  by  Rev. 
Stats.  1895,  art.  1465.  Sanborn  v. 
Nelson  (Tex.  Civ.),  134  S.  W.  855. 


The  fact  that  defendant,  in  an 
action  for  an  accounting  of  a  part- 
nership, had  the  legal  title  to  the 
partnership  property,  is  no  objec- 
tion to  the  appointment  of  a  re- 
ceiver, where  the  plaintiff  had  paid 
money  into  the  firm,  and  the 
profits  had  been  converted  by  de- 
fendant to  his  own  use.  Brooke  v. 
Tucker,  149  Ala.  96,  43  So.  141. 

If  danger  to  the  property  be 
shown,  a  receiver  may  be  ap- 
pointed even  though  the  existence 
of  the  partnership  be  denied  by  the 
defendant.  Longbottom  v.  Wood- 
head,  83  L.  T.  423,  31  Sol.  J.  796. 

2  In  Mcintosh  v.  Perkins,  13 
Mont.  143,  32  Pac.  653,  it  is  said 
that  where  it  appears  from  the 
complaint  that  all  the  joint  opera- 
tions had  been  consummated  ex- 
cept the  collection  of  the  debts 
and  there  remains  simply  a  dis- 
pute as  to  the  proper  apportion- 
ment of  the  fund  arising  from  the 
business,  no  averment  being  made 
as  to  insolvency  or  danger  of  loss, 
a  receiver  should  not  be  appointed. 

3  Shoemaker  v.  Smith,  74  Ind. 
71;  Moies  v.  O'Neill,  23  N.  J.  Eq. 
207. 


MATTERS   ARISING   FROM    PARTNERSHIPS. 


381 


erly,  the  only  liability  attaching  to  him  being  that  of  the 
duty  of  accounting  to  his  copartner  for  the  latter 's  share 
in  it.  If  the  copartner  does  not  complain  of  the  property 
being  left  in  his  possession,  he  who  has  the  possession  of 
it  certainly  ought  not  to  complain.^ 

So  also  where  the  partnership  has  expired  by  the  terms 
of  the  partnership  agreement  and  in  a  suit  for  a  final 
accounting  the  defendant  partner  offers  to  turn  over  the 
partnership  property  to  the  plaintiff  for  settlement  of 
the  partnership  affairs,  the  court  will  refuse  to  appoint 
a  receiver.- 

§  123.    Effect  of  Insolvency  of  Defendant  Partner. 

Inasmuch  as  a  loss  of  the  partnership  property  may 
result  from  allowing  an  insolvent  member  to  Avind  up  the 
partnership,  the  fact  of  the  partner  in  possession  being 
insolvent  is  ground  for  the  appointment  of  a  receiver.^ 


1  Smith  V.  Lowe,  1  Edw.  Ch. 
(N.  Y.)  33.  See  Hoffman  v.  Dun- 
can, 17  Jur.  825;  Roberts  v.  Eber- 
hardt  or  Everhardt,  1  Kay  148; 
Buchanan  v.  Comstock,  57  Barb. 
(N.  Y.)  568. 

2  Bufkin  V.  Boyce,  104  Ind.  53, 
3  N.  E.  615. 

1  In  Randall  v.  Morrell,  17  N.  J. 
Eq.  343,  the  court  said:  "But  with 
the  circumstance  of  the  insolvency 
of  one  of  the  partners  in  addition 
to  the  fact  of  the  dissolution  of  the 
firm  would  under  ordinary  circum- 
stances induce  this  court  to  as- 
sume the  administration  of  the 
partnership  affairs,  I  think,  admits 
of  no  doubt.  ...  It  is  only  by 
the  united  efficacy  of  these  two 
safeguards  (injunction  and  re- 
ceivership) that  when  insolvency 
supervenes  the  estate  of  the  co- 
partnership can  be  secured  and 
preserved  for  the  benefit  of  those 
to  whom  they  equitably  belong." 


On  insolvency  of  a  firm  one  who 
has  supplied  goods  may  have  a 
receiver  when  the  property  sold 
is  about  to  be  turned  over  to  a 
new  concern.  Hite  Natural  Gas 
Co.'s  Appeal,  118  Pa.  436,  12  Atl. 
267. 

In  an  action  between  partners 
for  an  accounting  and  recovery  of 
the  amount  due  them,  where  no 
claim  was  made  that  defendant 
partner  was  not  financially  respon- 
sible or  able  to  respond  to  any 
decree  which  might  be  rendered, 
and  no  dissolution  of  the  partner- 
ship was  prayed,  the  appointment 
of  a  receiver  pending  the  action 
to  take  charge  of  the  partnership 
property  was  unauthorized.  Green- 
wald  V.  Gotham-Attucks  Music  Co., 
118  App.  Div.  29,  103  N.  Y.  Supp. 
123. 

A  member  of  a  partnership  may 
maintain  an  action  to  place  the 
affairs  of  the  concern  in  the  hands 


382 


LAW  OP  RECEIVEES. 


>(So  also  where  tliere  are  any  state  of  facts,  such  as  mis- 
management, waste,  exclusion  of  one  partner  from  the 
partnership  affairs,  and  the  like,  together  with  insolv- 
ency on  the  part  of  the  member  in  possession  of  the 
partnership  property,  the  appointment  of  a  receiver  is 
very  appropriate.^   The  insolvency  of  one  of  the  copart- 
ners has  really  the  effect  of  terminating  the  partnership. 
By  reason  of  his  financial  death  the  insolvent  can  not 
perform  either  the  express  or  implied  duties  of  the  part- 
nership agreement.     Nor  can  he  perform  his  ultimate  / 
duty  toward  the  creditors  of  the  partnership.    If  the  j 
partnership  becomes  insolvent  the  partners  become  trus-  [ 
tees  for  the  benefit  of  the  partnership  creditors  and  it ' 
would  be  eminently  proper  in  such  circumstances  to  have 
a  receiver  handle  its  affairs.^ 


of  a  receiver,  when  the  partner- 
ship has  become  insolvent  and 
other  members  of  the  firm  are 
charged  with  fraudulent  misappli- 
cation and  improper  conversion 
and  w-ste  of  assets  of  the  part- 
nership. Watson  V.  Bettman,  88 
Fed.  825. 

2  In  Boyce  v.  Burchard,  21  Ga. 
74,  where  one  partner  in  violation 
of  his  duty  mismanages  the  part- 
nership business  to  the  great  det- 
riment of  the  partnership  and  is 
insolvent,  it  was  held  the  other 
partner  was  entitled  to  a  distribu- 
tion and  a  receiver. 

In  Pint  V.  Roncoroni  (1892),  1 
Ch.  Div.  633,  one  partner  withdrew 
from  the  partnership  a  large  sum 
of  money  and  this  brought  about 
its  insolvency;  a  receiver  was  ap- 
pointed although  the  partnership 
agreement  provided  for  referring 
the  matters  in  dispute  to  arbitra- 
tion. 

In  White  v.  Colfax,  1  Jones  &  S. 
(N.  Y.)  297,  it  is  held  that  al- 
though the  articles  of  distribution 


vest  the  right  of  winding  up  the 
partnership  in  some  one  or  more 
of  the  partners,  yet  when  they 
violate  the  terms  of  the  dissolution 
agreement,  such  as  refusing  access 
to  the  books,  and  when  the  feeling 
is  such  that  the  right  of  super- 
vision can  not  be  exercised  with- 
out great  embarrassment  or  un- 
pleasantness, a  receiver  should  be 
appointed. 

In  Smith  v.  Jeyes,  4  Beav.  503,  it 
is  held  that  the  specific  contract 
of  partnership  can  not  and  does 
not  cover  all  the  implied  duties  of 
the  partners  to  each  other. 

3  In  Williamson  v.  Wilson,  1 
Bland  Ch.  (Md.)  418,  it  is  said 
that  after  a  firm  has  become  insol- 
vent the  partners  are  to  be  consid- 
ered as  trustees  for  the  benefit  of 
their  creditors  and  therefore  a  suit 
between  such  partners  might  be 
considered  as  a  creditor's  suit  and 
the  partnership  estate  collected 
and  distributed  accordingly.  The 
allegation  in  this  case  was  that 
the  trading  had  ceased,  the  firm 


MATTERS  ARISING  PROM  PAETNERSHIPS. 


383 


Bankruptcy  of  one  partner  is  also  a  snfScient  ground 
for  the  appointment  of  a  receiver,  since  under  such  cir- 


utterly  insolvent,  and  a  receiver 
was  asked  as  tlie  only  means  of 
saving  tlie  partner  plaintiff  g.nd 
the  creditors  from  the  fraudulent 
practices  of  the  copartner.  The 
court  say:  "So  long  as  a  man 
carries  on  his  business  and  has  a 
prospect  of  gain  he  is  not  consid- 
ered as  insolvent;  but  if  in  addi- 
tion to  such  deficiency  of  property 
his  business  so  far  declines  as  to 
leave  him  no  prospects  of  paying 
his  debts  he  is  then,  according  to 
the  universal  sense  of  mankind, 
insolvent."  "Insolvency  is  the  total 
destruction  of  the  pecuniary  ca- 
pacity of  the  partner  to  fulfil  his 
contract  of  co-partnership.  But  his 
pecuniary  capacity  was  the  basis 
on  which  it  rested.  The  contract 
itself  must  therefore  be  consid- 
ered as  effectually  annulled  as  if 
the  party  were  dead.  If  both  be 
insolvent,  or  dead,  there  is  no  ef- 
ficient or  living  capacity  left  to 
execute  the  contract.  If  only  one 
be  dead,  or  insolvent,  the  terms 
can  not  be  complied  with;  and, 
where  personal  confidence  was  the 
principal  inducement  for  making 
an  agreement,  as  in  contracts  of 
this  nature,  it  would  be  unreason- 
able; and  therefore  the  other  party 
should  not  have  the  executor,  ad- 
ministrator, trustee,  or  assignee  of 
the  deceased  or  of  the  insolvent 
intruded  upon  him.  Consequently, 
the  partnership  between  these  par- 
ties must  be  considered  as  having 
been  virtually  and  effectually  ter- 
minated by  their  insolvency.  It  can 
not  be  extended  over  new  business 
transactions  nor  be  allowed  to  ex- 
pand any  more.  It  must  be  wound 
up   and   brought  to   a   close;    and 


except  for  such  purposes  must  be 
deemed  to  have  totally  ceased  to 
exist."  See  Ex  parte  Williams,  11 
Ves.  Jr.  5;  Harding  v.  Glover,  18 
Ves.  Jr.  281;  Vulliamy  v.  Noble, 
3  Meriv.  614;  Crawshay  v.  Maule, 
1  Swanst.  506. 

"While  a  man  continues  solvent 
the  order  in  which  he  pays  his 
creditors  is  a  matter  of  indiffer- 
ence, since  none  can  suffer;  and 
therefore  no  creditor  has  the  right 
to  complain  of  the  rights  given  to 
another.  But  as  soon  as  he  be- 
comes insolvent  that  privilege 
ceases;  and  equity  requires  that 
he  should  make  an  equal  distribu- 
tion among  them  all.  The  giving 
of  undue  and  improper  preference 
in  such  circumstances  is  de- 
nounced by  the  express  provisions 
of  our  insolvent  laws  as  a  fraud. 
And  in  all  cases  where  the  court 
of  chancery  can  be  called  upon  and 
does  interpose  for  the  purpose  of 
administrating  the  assets  of  an  in- 
solvent debtor  it  is  governed  by 
the  rule  of  equality;  because 
equality  is  equity.  The  assets,  if 
insufficient  to  pay  all,  are  always 
distributed  proportionately.  .  .  . 
These  parties  admit  themselves  to 
be  insolvent  debtors.  The  plaintiff 
charges  his  copartners,  the  de- 
fendants, with  a  design  to  waste 
the  joint  property  and  apply  it  to 
their  own  use.  The  defendants 
deny  this  allegation  and  charge 
the  plaintiff  with  a  design  to  mis- 
apply the  funds  and  give  some  of 
the  creditors  undue  preference. 
Taking  the  charges  of  the  plain- 
tiff and  of  the  defendants,  or  either 
of  them,  to  be  true  or  allow  that 
each  or  either  party  was  about  to 


i84 


LAW   OF   RECEIVERS. 


\J 


cumstances  the  partnership  is  practically  terminated  and 
the  proper  thing  to  do  is  to  close  its  affairs  as  speedily  as 
possible.^ 

§  124.  Over  V/hat  Propert7  a  Partnership  Receiver  Will  Be 
Appointed- 
It  is  self  evident  that  a  receiver  of  a  partnership  is 
only  entitled  to  take  possession  of  property  belonging  to 
the  partnership.  Hence  a  receiver  of  the  property  of  a 
partnership  appointed  after  the  death  of  one  of  the  part- 
ners shonld  not  be  authorized  in  the  order  to  take  posses- 
sion of  the  individual  property  of  the  surviving  partner.^ 


waste  the  property,  or  has  his 
favorite  creditors  to  whom  it  is 
his  design  to  give  an  undue  prefer- 
ence, and  it  is  clear  that  one  or 
the  other  or  both  of  them  have 
formed  a  fixed  resolution  to  violate 
one  of  the  great  principles  of 
equity  which  it  is  the  province  of 
this  court  to  prevent.  None  of  the 
creditors  of  these  insolvent 
debtors,  so  far  as  it  appears,  have 
as  yet  obtained  any  legal  advan- 
tage. It  is  proper,  therefore,  that 
this  court  should  now  lay  its 
hands  upon  the  joint  property  of 
this  partnership  and  let  all  its 
creditors  come  in  pari  passu  and 
according  to  their  respective  pri- 
orities, if  any  should  appear." 

4  Fraser  v.  Kershaw,  2  Kay  &  J. 
496.  The  bankruptcy  of  one  part- 
ner puts  an  end  to  the  partnership, 
but  the  solvent  partner  can  not 
transfer  his  right  to  another  by 
assignment  or  otherwise  to  wind 
up  the  concern,  or  permit  the  same 
to  be  sold  on  an  execution.  In 
Wilson  V.  Greenwood,  1  Swanst. 
471,  it  is  held  that  on  the  bank- 
ruptcy of  one  partner  the  partner- 


ship in  one  sense  is  determined, 
but  is  continued  until  all  the  part- 
nership affairs  are  settled.  In 
Freeland  v.  Stansfeld,  2  Smale  & 
G.  479,  on  the  bankruptcy  of  one 
partner  the  solvent  partner  is  en- 
titled to  a  receiver  and  the  as- 
signee has  no  right  to  interfere 
with  the  partnership  matters  and 
with  the  collection  of  the  partner- 
ship debts. 

A  firm  whose  articles  provide 
that  if  any  partner  becomes  bank- 
rupt he  shall  cease  to  be  a  partner, 
and  his  share  in  the  capital  shall 
remain  as  a  loan  during  the  re- 
mainder of  the  partnership  term, 
the  solvent  partner  is  entitled  to 
be  appointed  receiver  and  manager 
of  the  business,  but  he  must  give 
security,  pass  his  accounts,  fur- 
nish proper  accounts  to  trustees, 
allow  them  all  reasonable  access 
to  the  books,  and  pay  the  balances 
in  his  hands  into  court,  or  into  a 
joint  banking  account  of  such  trus- 
tees and  himself.  Collins  v.  Bar- 
ker, (1893)  1  Ch.  Div.  578. 

1  Adams  v.  Hannah,  97  Ga.  515, 
25  S.  E.  330. 


MATTERS   ARISING   FROM    PARTNERSHIPS.  385 

V 
A  conditional  interest  in  a  partnership  is   sufficient 

cause  for  appointing  a  receiver. - 

And  a  receiver  may  be  appointed  notwithstanding  that 
the  only  assets  of  the  partnership  are  proceeds  from  the 
sale  of  the  partnership  property.^  But  where  the  assets 
of  the  partnership  have  been  sold  under  foreclosure  pro- 
ceedings and  there  is  apparently  nothing  belonging  to  the 
partnership,  the  court  will  not  appoint  a  receiver.* 
Where  the  showing  for  the  appointment  of  the  receiver 
as  to  the  real  property  which  comprises  the  larger  part 
of  the  partnership  assets  is  insufiicient  to  warrant 
the  appointment,  the  court  should  refuse  to  make  the 
appointment.^ 

§  125.    Receivership  in  Case  of  Non-Resident  Partners. 

If  the  property  is  situated  within  the  state,  doubtless 
a  receiver  would  be  appointed  over  it  in  an  otherwise 
proper  case  even  though  the  partners  resided  in  another 
state,  but  in  case  the  partners  resided  within  the  state 
but  the  property  was  situated  elsewhere  a  more  difficult 
question  arises.  Doubtless  the  court  could  maintain  a 
certain  amount  of  control  over  the  property  by  means  of 
compelling  the  persons  within  its  control  to  comply  with 
its  orders.  This  was  done  in  an  English  case^  which  in- 
volved a  trust  organization  analogous  to  a  partnership 
which  was  dealing  with  mines  and  plantations  in  a  for- 

2  Taylor  v.  Bliley,  86  Ga.  154,  mortgagee  sells  the  property  to 
12  S.  E.  210.  one  of  the  partners  for  not  more 

3  Taylor  v.  Wells,  113  Iowa  326,  than  the  amount  of  the  debt,  even 
85  N.  W.  30.  though  the  latter  may  sell  it  for  an 

4  A  receiver  of  partnership  prop-  amount  in  excess  of  the  debt, 
erty  can  not  be  appointed  where  Davis  v.  Niswonger,  145  Ind.  426, 
all    the   partnership    property   has  44  N.  E.  542. 

been    sold   under   a   chattel   mort-  o  Sanborn  v.  Nelson,  (Tex.  Civ.) 

gage,  on  an  agreement  that  upon  134  S.  W.  855. 

any   sale   by   the   mortgagee,   who  i  Sheppard   v.   Oxenford,   1   Kay 

was    the    purchaser,    the    residue  &  J.  491.     In  this  connection  see 

above   the    mortgage   debt   should  the    sections    dealing    with    the 

belong  to  the  partners,  and  such  extra-territorial  power  of  courts. 
I  Rec. — 25 


386  LAW   OF    RECEIVERS. 

eign  country.  In  that  case  jurisdiction  was  had  over  the 
person  of  the  trustee  who  hekl  the  title  to  the  property 
and  who  had  threatened  to  sell  the  property,  and  the 
suit  in  which  the  receiver  was  appointed  was  one  for  an 
accounting.  The  courts  of  Massachusetts  and  New  York 
have  refused  to  appoint  receivers  as  against  non-resi- 
dent partners  on  the  ground  of  having  no  jurisdiction 
over  them.-  But  where  the  partnership  business  is  con- 
ducted within  the  state  the  court  may  appoint  a  receiver 
over  it  without  notice  to  a  non-resident  partner.^ 

§  126.    Receiverships  Over  Limited  or  Special  Partnerships. 

Limited  or  special  partnerships  are  governed  in  their 
general  relations  toward  the  partners  and  creditors  by 
the  statutes  of  the  particular  state.  In  many  of  their 
aspects  they  are  similar  to  corporations  and  on  account 
of  this  similarity  the  courts  have  applied  to  them  the 
equitable  principles  which  have  been  applied  to  corpora- 
tions in  disputes  between  their  members  or  insolvency  in 
respect  to  creditors.  A  receiver  may  be  appointed  over 
the  property  of  such  a  partnership  under  the  same  gen- 
eral conditions  and  circumstances  as  against  a  general 
partnership,  and  especially  will  one  be  appointed  in  a 
creditors'  suit  when  the  partnership  is  insolvent  or  in 
imminent  danger  of  becoming  so.^    This  rule  is  based 

2  Harvey  v.  Varney,  104  Mass.  against  the  creditors  of  the  firm 
436;  Evans  v.  Evans,  9  Paige  if  preferences  were  made  to  one 
(N.  Y.)  178.  creditor,  or  class  of  creditors;  and 

3  Alford  V.  Berkele,  29  Hun  also  if  the  assignment  provides 
(N.  Y.)   633,  634.  for  the  payment  of  a  debt  of  the 

1  Jackson  v.  Sheldon,  9  Abb.  Pr.  special  partner  ratably  with  other 

(N.  Y.)    127;    Lottimer  v.  Lord,  4  creditors   of  the   firm.    This   case 

E.  D.  Smith  (N.  Y.)  183.  was  based  upon  the  provisions  of 

In  Mills  etc.  v.  Argall,  6  Paige  the  statutes  regarding  limited  part- 

(N.  Y.)    577,  it  was  held  that  the  nership     and    prohibiting     prefer- 

assignment  by  a  limited  partner-  ences.     In    Innes    v.    Lansing,    7 

ship  to  a  trustee  for  the  benefit  of  Paige  (N.  Y.)  583,  it  was  held  that 

creditors    after   the    firm    had    be-  in   a  case  of  limited   partnership 

come  insolvent,  or  was  in  contem-  the  effects   of  the   firm,   upon   its 

plation  of  insolvency,  was  void  as  becoming  insolvent,  become  a  spe- 


MATTERS    ARISING   FROM    PARTNERSHIPS. 


387 


upon  the  doctrine  that  upon  the  insolvency  of  the  part- 
nersliip  the  assets  become  a  trust  fund  to  be  divided 
equally  between  all  creditors,  and  that  in  such  case  it 
becomes  the  duty  of  the  general  partners  to  place  the 
firm  property  in  the  hands  of  a  trustee  for  such  distri- 
bution, and  in  default  of  doing  so  court  will  appoint  a 
receiver  for  such  purpose.  The  underlying  principle 
upon  which  these  cases  rest  is  that  of  securing  an  equal 
distribution  among  all  general  creditors,  and  the  inequi- 
table principle  of  preferences  sometimes  recognized.  The 
principle  of  placing  the  effects  of  a  limited  partnership 


cial  trust  fund  for  the  payment 
of  the  partnership  debts  ratably 
except  debts  due  special  partners, 
and  that  the  filing  of  a  bill  by 
one  creditor  in  behalf  of  himself 
and  of  others  is  a  bar  to  the  filing 
of  another  similar  bill.  In  Jack- 
son V.  Sheldon,  9  Abb.  Pr.  (N.  Y.) 
127,  the  same  doctrine  was  held  as 
in  the  case  last  cited,  and  that 
where  the  firm  becomes  insolvent 
it  is  the  duty  of  the  partners  to 
place  in  the  hands  of  a  trustee 
the  partnership  effects  for  the  ben- 
efit of  all  creditors  without  prefer- 
ence. It  was  also  held  that  where 
certain  creditors  obtained  judg- 
ment upon  a  failure  of  the  parties 
to  answer  and  levied  executions 
upon  the  partnership  effects,  after 
which  the  partners  made  a  general 
assignment  for  the  benefit  of  cred- 
itors without  preference,  that  the 
court  should  enjoin  the  levy  and 
sale  on  the  execution  and  appoint 
a  receiver  to  take  charge  of  the 
effects  as  they  existed  at  the  time 
of  the  insolvency.  The  decision  is 
based  upon  the  ground  that  the 
failure  of  the  parties  to  answer 
and  thereby  suffering  a  default  of 
the   firm   was   in   effect   giving   a 


preference  to  the  judgment  cred- 
itors. The  motion  to  set  aside  the 
sale  in  such  case  for  irregularity 
must  be  made  in  the  action  in 
which  the  sale  was  had,  but  the 
order  on  the  sheriff  to  retain  the 
property  unsold  is  properly  made 
in  the  creditor's  suit.  Cf.  White- 
wright  V,  Stimpson,  2  Barb.  (N.  Y.) 
379. 

Where  a  limited  partnership  be- 
comes insolvent,  one  of  its  mem- 
bers may  sue  to  wind  up  its  busi- 
ness and  have  a  receiver  appointed 
to  preserve  its  assets  and  distrib- 
ute them  to  its  creditors.  Bell  v. 
Merrifield,  28  Hun  (N.  Y.)  219; 
Continental  Nat.  Bank  v.  Strauss, 
60  N.  Y.  Sup.  Ct.  151,  17  N.  Y. 
Supp.  188.  But  see  Snyder  v.  Le- 
land,  127  Mass.  291. 

In  this  connection  see,  also, 
American  Box  Mach.  Co.  v.  Cros- 
man,  61  Fed.  888,  10  C.  C.  A.  146; 
Batchelder  v.  Altheimer,  10  Mo. 
App.  181;  Whitewright  v.  Stimp- 
son, 2  Barb.  (N.  Y.)  379;  Whit- 
comb  V.  Fowle,  10  Daly  (N.  Y.)  23, 
7  Abb.  N.  Cas.  295,  56  How.  Pr. 
365;  Blaylock's  Appeal,  73  Pa.  St. 
146.  See,  also,  LaChaise  v.  Lord, 
1  Abb.  Pr.  (N.  Y.)  213,  10  How.  Pr. 
461. 


388 


LAW   OF   RECEIVERS. 


in  the  position  of  trust  funds,  and  applying  to  the  gen- 
eral partners  the  relationship  of  trustees  has  its  analogy, 
of  course,  in  the  rules  applied  to  private  corporations  in 
cases  of  insolvency  and  is  founded  upon  justice  and  fair 
dealing. 

But  the  liabilities  of  the  partners  toward  each  other 
and  toward  the  creditors  of  the  partnership  are  the  same 
as  otherwise,  notwithstanding  the  appointment  of  a  re- 
ceiver over  the  partnership  assets. - 

§  127.    Necessity  to  Show  the  Existence  of  a  Partnership. 

The  appointment  of  a  receiver  in  matters  of  partner- 
ship is  in  all  cases  dependent  upon  certain  facts,  the  ex- 


2  A  creditor  of  a  limited  part- 
nership association  over  which  a 
receiver  has  been  appointed  is  not 
thereafter  entitled  to  issue  execu- 
tion in  his  judgment  against  sub- 
scribers to  stock  of  the  association 
whose  subscriptions  are  not  paid 
up.  Rouse,  Hazard  &  Co.  v.  De- 
troit Cycle  Co.,  Ill  Mich.  251,  38 
L.  R.  A.  794,  69  N.  W.  511. 

In  Hogg  V.  Ellis,  8  How.  Pr. 
(N.  Y.)  473,  an  accounting  was 
allowed  between  general  and  spe- 
cial partners  as  in  other  cases,  and 
this  either  after  or  before  dissolu- 
tion. Cf.  Lottimer  v.  Lord,  4  E.  D. 
Smith  (N.  Y.)  183. 

In  Van  Alstyne  v.  Cook,  25  N.  Y. 
489,  it  is  held  that  the  members 
of  a  limited  partnership  before  or 
after  insolvency  are  .iust  as  liable 
to  suit  for  their  debts  as  other 
natural  persons.  Their  creditors 
are  entitled  to  recover  judgment 
against  them  with  a  view  of  reach- 
ing the  individual  property  as  well 
as  partnership  property.  The  prop- 
erty of  a  limited  partnership  does 
not  constitute  a  tnist  fund  in  the 
hands  of  partners  any  more  than 


in  ordinary  partnerships.  No  rule 
of  equity  exists  which  makes  them 
trust  funds  in  any  other  sense  or 
which  gives  a  court  of  equity  any 
control  over  them,  or  which  for- 
bids creditors  of  the  copartner- 
ship, or  an  individual  from  obtain- 
ing a  lien  on  them  by  due  process 
of  law. 

In  Hayes  v.  Heyer,  3  Sandf.  Ch. 
(N.  Y.)  293,  the  court  say  in  rela- 
tion to  general  and  limited  copart- 
nerships that  the  rule  is  the  same 
in  both  cases  regarding  the  distri- 
bution made  by  the  court,  but 
when  the  order  of  distribution  is 
made  by  the  partners  themselves 
in  ordinary  copartnerships  they 
may  give  preference  to  one  cred- 
itor or  a  class  of  creditors  over 
others,  while  in  limited  partner- 
ships the  statute  reserves  that 
power  and  directs  the  mode  of 
distribution.  It  was  also  held  that 
a  single  member  of  a  failing  firm 
can  not  appoint  a  trustee  without 
the  consent  or  knowledge  of  the 
other  partners  and  thus  transfer 
to  such  trustee  the  entire  partner- 
ship effects.  See,  also,  Deming  v. 
Colt,  3  Sandf.  Ch.  (N.  Y.)  284. 


MATTERS    ARISING    PROM    PARTNERSHIPS. 


589 


istence  of  wliicli  is  necessary  to  be  alleged  and  sliown 
as  preliminary  to  the  relief  prayed  for  and  as  prelimi- 
nary to  the  jurisdiction  of  the  court  in  granting  such 
relief. 

The  existence  of  a  partnership,  or  at  least  sucli  rela- 
tionship inter  se  as  practically  amounts  to  a  partnership, 
which  is  usually  determined  by  a  participation  in  the 
profits  of  the  concern,  must  be  shown.  Such  partnership 
must  exist  in  fact  and  not  merely  in  name,  for  an  em- 
ployee though  nominally  a  partner,  is  not  entitled  to  in- 
voke the  aid  of  the  court  in  the  appointment  of  a  re- 
ceiver, nor  is  the  existence  of  an  agreement  between  the 
parties  which  may  ripen  into  a  partnership  sufficient.^ 


1  Where  it  does  not  clearly  ap- 
pear that  the  relation  between  the 
parties  constitutes  a  partnership, 
a  receiver  will  not  be  appointed. 
Irwin  V.  Everson,  95  Ala.  64.  10 
So.  320;  Hobart  v.  Ballard,  31  Iowa 
521;  Kerr  v.  Potter,  6  Gill  (Md.) 
404:  Nutting  v.  Colt,  7  N.  J.  Eq. 
539;  Goulding  v.  Bain,  4  Sandf.  Ch. 
(N  Y.)  716;  Popper  v.  Scheider, 
7  Abb.  Pr.  N.  S.  (N.  Y.)  56,  38 
How.  Pr.  34.  See  Katsch  v. 
Schenck,  18  L.  J.  Ch.  N.  S.  38G; 
Peacock  v.  Peacock,  16  Ves.  Jr.  49. 

In  Kerr  v.  Potter,  6  Gill  (Md.) 
404,  one  of  the  parties  was  to  have 
one-fourth  of  the  net  profits  of  the 
business,  but  under  a  provision  of 
the  contract  it  was  provided  that 
they  were  not  to  be  partners  by 
reason  of  the  division  of  the 
profits;  it  was  held  not  to  be  a 
partnership  and  there  was  error 
in  appointing  a  receiver.  And  so 
where  a  person  was  employed  at 
a  salary  of  $500  and  one-fourth  the 
net  profits.  Nutting  v.  Colt,  7  N.  J. 
Eq.   539. 

Contra:  Where  the  salary  was 
£100    and    oncTifth    of    the    net 


profits  on  all  new  business.  Katsch 
V.  Schenck,  18  L.  J.  Ch.  N.  S.  386. 
A  n  agreement  o  f  partnership 
which  has  not  been  executed  is  not 
suff.cient.  Hobart  v.  Ballard,  31 
Iowa  521.  In  the  absence  of  proof 
of  danger  the  court  will  not  ap- 
point a  receiver  where  the  partner- 
ship is  denied.  Goulding  v.  Bain, 
4  Sandf.  Ch.  (N.  Y.)  716,  citing 
Peacock  v.  Peacock,  16  Ves.  Jr.  49. 

In  an  action  for  dissolution  of 
a  partnership  and  appointment  of 
a  receiver,  it  is  necessary  to  deter- 
mine before  the  appointment  of 
the  receiver,  the  existence  of  the 
alleged  partnership  and  the  facts 
necessary  to  vest  in  the  court  jur- 
isdiction of  the  controversy.  Nor- 
ton v.  Sperry,  113  Minn.  447,  129 
N.  W.  843. 

Where  the  existence  of  the  part- 
nership is  doubtful  and  the  busi- 
ness was  one  conducted  under  a 
license  which  could  not  be  as- 
signed, a  receiver  will  be  denied 
although  an  injunctional  order  re- 
straining a  disposition  of  the  prop- 
erty may  be  granted.  Semple  v. 
Flynn,   (N.  J.)   10  Atl.  177. 


390 


LAW   OF   RECEIVERS. 


It  is,  of  course,  obvious  that  great  damage  would  be 
done  a  defendant  if  a  receiver  were  appointed  over  a 
business  which  was  in  fact  owned  by  him  individually 
and  not  as  a  member  of  a  copartnership. 


'] 


§  128.    Effect  of  the  Existence  of  the  Partnership  Being  De- 
nied. 

As  shown  in  the  last  section,  it  is  essential  in  order  to 
give  the  court  jurisdiction  to  appoint  a  receiver  in  a 
partnership  litigation  that  there  must  be  a  partnership 
in  existence  but,  on  the  other  hand,  the  appointment 
of  a  receiver  might  be  defeated  by  the  mere  denial  of 
such  existence  if  such  a  denial  would  be  deemed  suffi- 
cient. Some  of  the  decisions  state  in  broad  terms  that 
the  appointment  of  a  receiver  will  be  refused  where 
the  existence  of  the  partnership  is  denied,^  but  we  do 


In  any  suit  for  an  accounting, 
the  existence  of  the  partnership 
must  he  shown  before  the  court 
will  determine  the  respective  in- 
terests of  the  partners.  Loftus 
V.  Fischer,  117  Cal.  128,  133,  48 
Pac.  1030. 

Where  a  petition  in  a  suit  for 
an  accounting  and  the  appoint- 
ment of  a  receiver  of  partnership 
property  alleged  that  plaintiff  and 
defendant  entered  into  a  partner- 
ship to  conduct  a  certain  business, 
and  continued  to  conduct  the  busi- 
ness until  a  specified  date,  suflB- 
ciently  alleges  the  existence  of  a 
partnership,  without  giving  further 
details,  to  warrant  the  appoint- 
ment of  a  receiver  on  a  proper 
ground.  Rische  v.  Rische,  46  Tex. 
Civ.  23,  101  S.  W.  849. 

But  the  court  in  a  suit  to  estab- 
lish a  joint  interest  of  the  parties 
in  alleged  partnership  property 
will  not  in  determining  appoint- 
ment of  a  receiver  determine  prop- 


erty rights  of  plaintiff  based  on 
the  insufficiency  of  his  pleading  a 
tender,  since  that  is  a  question  for 
the  trial  on  the  merits.  Ramsey  v. 
Bird,  (Tex.  Civ.)  147  S.  W.  671. 

Where  the  existence  of  the  part- 
nership is  in  doubt  and  there  is  no 
proof  of  fraud  or  mismanagement, 
and  the  appointment  of  a  receiver 
will,  according  to  the  evidence  of 
the  defendant,  irreparably  damage 
the  business,  that  of  a  theatrical 
business,  the  court  properly  re- 
fuses to  appoint  a  receiver.  Bim- 
berg  v.  Wagenhals,  53  Misc.  Rep. 
13,  102  N.  Y.  Supp.  925. 

1  In  Irwin  v.  Everson,  95  Ala. 
64,  10  So.  320,  where  the  defendant 
denied  the  partnership,  a  receiver 
was  refused. 

In  Irwin  v.  Everson,  95  Ala.  64, 
10  So.  320,  which  was  a  suit  for 
settlement  between  partners,  a  re- 
ceiver was  denied  on  the  ground 
that  the  defendant  in  possession 
denied   the   partnership   and    was 


MATTERS   ARISING  PROM  PAKTNERSHIPS. 


391 


not  believe  tliat  the  rule  sliould  be  stated  in  such  broad 
terms.  On  the  other  hand,  much  trouble  could  be  caused 
to  the  owner  of  a  business  by  appointing  a  receiver  in  a 
case  in  which  the  plaintiff  wrongfully  claims  to  be  a  part- 
ner in  the  business.  The  proper  rule  in  this  respect  is 
that  if  the  existence  of  the  partnership  is  denied,  the 
court  must  be  satisfied  of  its  existence  and  that  the  part- 
nership property  is  in  danger,  before  it  will  appoint  a  re- 
ceiver over  it.2   In  other  words,  if  the  court  is  satisfied 


solvent  and  able  to  respond  for  aU 
damages,  upon  the  authority  of 
Peacock  v.  Peacock,  16  Ves.  Jr. 
49;   Fairburn  v.  Pearson,  2  Macn, 

6  G.  144 ;  Goulding  v.  Bain,  4  Sandf. 
Ch.  (N.  Y.)  716;  Hobart  v.  Ballard, 
31  Iowa  521;  Williamson  v.  Mon- 
roe, 3  Cal.  383 ;  Popper  v.  Scheider, 

7  Abb,  Pr.  N.  S.  (N.  Y.)  56,  38 
How.  Pr.  34. 

And  where  it  is  distinctly  denied 
that  certain  property  is  partner- 
ship property  the  court  will  decline 
a  receivership.  Gregory  v.  Greg- 
ory, 1  Sweeny  (N.  Y.)  613. 

2  Rowland  v.  Auto  Car  Co.,  133 
Fed.  835;  Irwin  v.  Everson,  95  Ala. 
64,  10  So.  320;  Williamson  v.  Mon- 
roe, 3  ,Cal^83;  Leeds  v.  Town- 
send,  74  111.  App.  444;  Hobart  v. 
Ballard,  31  Iowa  521;  Bacon  v. 
Engstrom,  129  Minn.  229,  152  N.  W. 
264,  537;  Albrecht  v.  Diamon,  125 
Minn.  283,  146  N.  W.  1101;  Bim- 
berg  V.  Wagenhals,  53  Misc.  Rep. 
13,  102  N.  Y.  Supp.  925;  Kirkwood 
V.  Smith,  64  App.  Div.  615,  72 
N.  Y.  Supp.  291;  Day  v.  Dow,  46 
App.  Div.  148,  61  N.  Y.  Supp.  793; 
McCarty  v,  Stanwix,  16  Misc.  Rep. 
132,  38  N.  Y.  Supp.  820;  Goulding 
V.  Bain,  4  Sandf.  Ch.  (N.  Y.)  716; 
Moyn  V.  Rose,  245  Pa.  601,  92  Atl. 
39;  Baxter  v.  Buchanan,  3  Brewst. 
(Pa.)    435;    McGlensey    v.    Cox,    1 


Phila.  (Pa.)  387;  Smith  v.  Brown, 
50  Wash.  240,  96  Pac.  1077;  Bal- 
lard V.  Callison,  4  W.  Va.  326; 
Wood  V.  Wood,  50  W.  Va.  570,  40 
S.  E.  416;  Rische  v.  Rische,  46 
Tex.  Civ.  23,  101  S.  W.  849.  But 
see:  Hackett  v.  Multnomah  Ry. 
Co.,  12  Ore.  124,  53  Am.  Rep.  327, 
6  Pac.  659. 

A  receiver  will  not  be  appointed 
nor  an  injunction  granted  in  pro- 
ceedings to  dissolve  an  alleged 
partnership  where  the  partnership 
is  denied,  unless  it  clearly  appears 
that  a  partnership  exists  or  that 
the  fund  is  in  danger.  McCarty  v. 
Stanwix,  16  Misc.  Rep.  132,  38 
N.  Y.  Supp.  820. 

A  receiver  of  the  property  of  an 
alleged  partnership  will  be  ap- 
pointed, although  the  existence  of 
the  partnership  is  denied  by  the 
defendant,  when  the  court  is  satis- 
fied from  the  evidence  in  support 
of  the  application  that  a  partner- 
ship really  existed.  Leeds  v.  Town- 
send,  74  111.  App.  444. 

The  court  will  not  as  a  rule  ap- 
point a  receiver  of  a  partnership, 
the  existence  of  which  is  denied, 
until  the  question  of  such  exist- 
ence is  determined.  Guild  v. 
Meyer,  56  N.  J.  Eq.  183,  38  Atl. 
959. 

Receiver  will  not  be  appointed 


392  TAW    OF    RECEIVERS. 

of  the  existence  of  the  partnership  it  will  in  an  other- 
wise proper  case  appoint  a  receiver,  notwithstanding 
that  such  existence  is  denied  by  the  defendant  partner.^ 
Where  one  of  the  alleged  partners  in  possession  of  the 
property  denies  the  existence  of  the  partnership  rela- 
tion, such  denial  constitutes  an  exclusion  of  the  com- 
plaining party  from  the  partnership  if  it  in  fact  does 
exist,  and  on  that  ground  the  plaintiff  is  entitled  to  a 
receiver,  since  exclusion  from  the  partnership  consti- 
tutes a  breach  of  one  of  the  necessary  privileges  of  every 
partner.^ 

Thus  where  one  of  the  partners  claims  certain  prop- 
erty as  belonging  to  himself  as  his  individual  property 
and  the  copartner  claims  that  it  was  the  result  of  a  part- 
nership transaction,  it  is  proper  to  appoint  a  receiver 
over  it.^ 

And  where  in  an  action  to  subject-  certain  property  to 
the  payment  of  plaintiff's  claim,  it  was  claimed  that  the 
defendant  had  purchased  the  property  but  taken  title 
in  the  name  of  his  wife  to  defraud  creditors,  but  it  ap- 
peared that  the  property  was  partnership  property  of 
the  wife  and  another  person  and  that  the  partner  of  the 
wife  was  solvent,  the  appointment  of  a  receiver  was  re- 
fused.^ 

The  refusal  of  the  alleged  partner  to  join  in  a  deed 
of  assignment  for  the  benefit  of  creditors  and  his  denial 

in  a  proceeding  to  dissolve  a  part-  40;  Wilson  v.  Greenwood,  1  Sw. 
nership  where  the  existence  of  the      471. 

partnership  is   denied   unless   the  ^  Saylor  v.  Mockbie,  9  Iowa  209. 

court  is   satisfied  as  a  matter  of  I"  ^n  action  for  an  accounting 

fact  that  there  is  a  partnership  be-      between  alleged  former  partners. 

the  court  properly  refused  to  au- 


tween  the  parties  and  the  property 
is  in  danger.     Williamson  v.  Mon- 


thorize  a  receiver  to  take  charge 
of   property    claimed    by    each    as 
roe,  3  Cal.  383.  individual  property.   Bacon  v.  Eng- 

3  Rische  V.  Rische,  46  Tex.  Civ.      strom,   129  Minn.   229,   152   N.  W. 
23,  101  S.  W.  849.  264,   537. 

4  Peacock    v.    Peacock,    16    Ves.  «  Venable  v.  Smith,  98  N.  C.  523, 
49;   Blakeney  v.  Dufour,  15  Beav.      4  S.  E.  514. 


MATTERS    ARISING   FROM    PARTNERSHIPS.  393 

of  being  a  member  of  the  partnership  has  been  held  to 
be  insufficient  ground  for  the  appointment  of  a  receiver  J 

Where  the  existence  of  the  partnership  is  denied  the 
court,  as  has  been  stated  above,  must  settle  that  ques- 
tion to  its  satisfaction  before  considering  whether  it  will 
appoint  the  receiver,'^  but  we  do  not  believe  that  a  court 
would  refuse  to  appoint  a  temporary  receiver  pending 
such  a  determination  in  a  case  of  great  emergency. 
The  court  may,  if  it  desires,  direct  the  issue  of  whether 
a  partnership  exists  to  be  tried  as  an  issue  at  law  by  a 
jury.^  Sometimes,  however,  the  denial  of  the  existence 
of  a  partnership  may  raise  an  issue  of  law  as  to  whether 
under  undisputed  facts  the  circumstances  constitute  a 
partnership.  Thus  the  question  arose  in  one  case  whether 
two  corporations  which  had  formed  a  partnership  had 
in  law  the  power  to  enter  into  a  partnership.  The  right 
to  appoint  a  receiver  was  questioned  on  the  ground  that 
the  alleged  partnership  was  not  one  in  fact,  but  the  court 
held  that  in  view  of  the  authority  given  each  of  the  cor- 
porations to  become  a  member  of  a  partnership  there 
was  no  prohibition  in  the  statute  against  such  an  act 
and  sustained  the  receivership. '°    And  other  instances 

7  Wilson  V.  Hawker  Lumber  Co.,  in  his  possession.     Title  Ins.  etc. 

74  W.  Va.  65,  81  S.  E.  568.  Co.  v.  Grider,  152  Cal.  746,  94  Pac. 

s  In  a  suit  in  aid  of  an  execution  601. 
against  a  partnership,  a  receiver  9  Peacock    v.    Peacock,    16    Ves. 

will   not  be   appointed   wnere   the  49;   Fairburn  v.  Pearson,  2  Macn. 

existence  of  the  partnership  is  de-  &  G.  144. 

nied  until  the  question  of  such  lo  In  News-Register  Co.  v.  Rock- 
existence  is  settled.  Guild  v.  ingham  Pub.  Co.,  118  Va.  140,  86 
Meyer,  56  N.  J.  Eq.  183,  38  Atl.  S.  E.  874,  the  validity  of  the 
959.  appointment    of    a    receiver    was 

Where  the  complaint,  though  un-  dependent  upon  the  question 
certain  in  its  allegations  that  cer-  whether  the  two  corporations 
tain  property  belonged  to  the  which  had  entered  into  the  part- 
partnership  over  which  the  re-  nership  had  the  right  under  the 
ceiver  was  appointed,  was  not  law  to  do  so.  In  holding  that  there 
demurred  to  for  uncertainty  in  was  nothing  essentially  illegal  in 
that  respect,  the  court  may  direct  the  formation  of  a  partnership  by 
the  receiver  to  take  the  property  two  corporations  where  their  char- 


394 


LAW   OF   RECEIVERS. 


may  also  occur  in  wMcli  it  is  a  question  whether  the 
litigants  are  partners  such  as  various  arrangements 
whereby  one  person  is  not  to  furnish  capital  toward  the 
business  but  merely  services  and  receive  a  portion  of 
the  profits.  In  such  class  of  cases  the  real  question  be- 
fore the  court  is  whether  under  the  particular  facts  the 
relation  between  the  parties  is  that  of  partners.  If  they 
are  partners  and  the  circumstances  alleged  as  grounds 
for  the  appointment  are  sufficient  otherwise,  a  receiver 
will  be  appointed. ^^ 


ters  authorized  such  action,  the 
court,  spealdng  through  Mr.  Jus- 
tice Kelly,  said: 

"We    come,    then,    to    the    real 
question  in  the  case,  which  relates 
to  the  power  of  the  two  corpora- 
tions to  form  a  partnership.    The 
appellants'  contention,  as  stated  in 
their  brief,  'that  corporations,  un- 
less expressly  authorized,  have  no 
power  to  enter  into  a  partnership, 
either  with  each  other  or  with  in- 
dividuals,' is  perfectly  sound,  sub- 
ject to  the  slight  qualification  by 
some  respectable  authorities  that 
the   power    may    be   impliedly,    as 
well  as  expressly,  given.    The  law 
to  this  effect  is  old  and  well  set- 
tled,   but    not    more    so    than    the 
converse    proposition    that,    when 
the  authority  is  given,  the  exercise 
of  such  power  is  entirely  compe- 
tent and  valid.   This  is  so  because 
when   the   power  is   given  in   the 
charter,  the  reason  underlying  the 
rule  against  its  exercise  no  longer 
exists.    This  underlying  reason  is 
that  the  stockholders  are  entitled, 
in  the    absence   of  notice    to    the 
contrary  in  the  charter,  to  assume 
that  their  directors   will    conduct 
the     corporate    business     without 
sharing  that  duty  and  responsibil- 
ity with  others.    The  clear  result 


of  the  authorities.  Including  those 
cited  by  appellants,  is  that  the 
rule  against  corporate  partner- 
ships is  limited  to  cases  in  which 
the  power  in  question  does  not 
appear  in  the  charter,  and  that  the 
reason  for  the  rule  is  as  we  have 
here  stated  it.  See  Fechteler  v. 
Palm  Bros.  &  Co.,  133  Fed.  462, 
66  C.  C.  A.  336;  Whittenton  Mills 
v.  Upton,  10  Gray  (Mass.)  582,  71 
Am.  Dec.  681;  2  Cook  on  Corp. 
(6th  ed.),  §678;  7  Am.  &  Eng. 
Enc.  L.  (2d  ed.)  794,  795;  Hackett 
v.  Multnomah  Ry.  Co.,  12  Ore.  124, 
53  Am.  Rep.  327,  6  Pac.  659;  1  Min. 
Inst.  560;  1  Elliott  on  Contracts, 
§  483;  10  Cyc.  1143." 

11  Where  the  plaintiff  is  entitled 
to  participate  in  the  profits  of 
the  business  and  there  is  danger 
of  loss,  as  a  general  rule  the  court 
will  appoint  a  receiver.  Hobart  v, 
Ballard,  31  Iowa  521;  Katz  v. 
Brewington,  71  Md.  79,  20  Atl.  139; 
Katsch  V.  Schenck,  18  L.  J.  N.  S. 
Ch.  386. 

But,  of  course,  in  such  circum- 
stances, in  order  to  have  a  receiver 
appointed,  there  must  be  some 
facts  shown,  such  as  insolvency 
or  fraud,  which  endanger  the 
rights  of  the  plaintiff  partner. 
Cox  V.  Peters,  13  N.  J.  Eq.  39. 


MATTERS   ARISING   FROM    PARTNERSHIPS.  395 

2.    Violations  of  Partnership  Duties  and  Obligations. 

§  129.    General  Rule  as  to  Breach  of  Duties  and  Obligations. 

There  are  two  general  classes  of  cases  arising  out  of 
partnership  relations  in  which  a  receiver  may  be  ap- 
pointed; namely,  those  arising  in  the  ordinary  partner- 
ship dissolution  proceeding,  and  those  arising  by  reason 
of  a  breach  of  the  duties  and  obligations  existing  between 
the  partners  prior  to  the  termination  of  the  partnership 
relation  in  the  ordinary  way.  In  the  circumstances  last 
stated  the  breach  of  duty  must  generally  be  one  of  such 
a  nature  that  it  will  be  cause  for  the  termination  of  tlie 
partnership. 

Inasmuch  as  the  existence  of  mutual  confidence  is  of 
the  essence  of  a  partnership,  where  it  appears  that  the 
defendant  partner  has  done  acts  which  are  of  a  char- 
acter to  destroy  such  confidence,  it  is  proper  to  appoint  a 
receiver,!  but  such  lack  of  confidence  must  be  based  upon 
acts  of  misconduct  and  not  mere  suspicion.  In  order  to 
warrant  the  appointment  of  a  receiver  the  breaches  of 
the  partnership  agreement  or  the  duties  implied  from 
the  relationship  must  be  serious  ones  and  go  to  the  es- 
sence of  the  successful  conduct  of  the  partnership  busi- 
iiess.2   Where  all  the  partners  have  an  equal  right,  not 

A    plaintiff    is    not    entitled    to  Wolbert  v.  Harris,  7  N.  J.  Eq.  605; 

have   a  receiver   appointed   for  a  Sloan   v.    Moore,   37   Pa.    St.    217; 

partnership  of  which  he  is  not  a  Gowan  v.  Jeffries,  2  Ashm.    (Pa.) 

member    or    creditor,    nor    to    an  296;     Redding    v.     Anderson,     37 

account  based  on  its  receipts  and  Wash.   209,   79  Pac.  628;    Einstein 

expenditures.    Gwinn  v.  Lee,  6  Pa.  v.  Schnebly,  89  Fed.  540;   Hale  v. 

Super.  Ct.  646.  Hale,  4  Beav.  369;  Lawson  v.  Mor- 

1  Smith  V.  Jeyes,  1  Beav.  505;  gan,  1  Price  303;  Harding  v. 
Chapman  v.  Beach,  1  J.  &  W.  Glover,  18  Ves.  281;  Blakeney  v. 
594  n;  Ex  parte  Broome,  1  Rose  69.  Dufaur,   15  Beav.  40,   51  Eng.  Re- 

2  Whitley  v.  Bradley,  13  Cal.  print  451;  Steele  v.  Grossmith,  19 
App.  720,  110  Pac.  596;  West  v.  Grant  Ch.  (U.  C.)  141;  Doupe  v. 
Chasten,  12  Fla.  315;  Haight  v.  Stewart,  13  Grant  Ch.  (U.  C.)  637; 
Burr,  19  Md.  130;  Sutro  v.  Wagner,  Prentiss  v  Brennan,  1  Grant  Ch. 
23  N.  J.  Eq.  388  (affirmed  in  Wag-  (U.  C.)  371. 

ner  v.   Sutro,   24   N.  J.   Eq.   589) ;  There  must  be  some  violation  of 


396 


LAW    OF    RECEIVERS. 


only  in  the  conduct  of  the  business  but  also  in  its  set- 
tlement after  dissolution,  a  failure  to  agree  among  them- 
selves or  the  refusal  of  one  partner  to  allow  the  other 
to  participate  either  in  the  conducting  of  or  the  settle- 
ment of  the  business,  obviously  presents  a  case  for  the 
appointment  of  a  receiver.  When  the  conduct  of  one 
partner  is  incompatible  with  the  relations  of  the  copart- 
nership and  is  likely  to  result  in  loss  or  injury  to  any  of 
his  copartners,  it  is  the  practice  of  courts  of  equity  upon 
application  to  dissolve  the  partnership  and  appoint  a  re- 
ceiver.^ 

In  a  general  way,  it  may  be  stated  that  a  receiver 
may  be  appointed  where  there  has  been  a  violation  of  the 
partnership  agreement  or  a  breach  of  partnership  duty.* 


the  rights  of  a  copartner.  Henn 
V.  Walsh,  2  Edw.  Ch.  (N.  Y.)  129. 
In  a  suit  by  a  partner  against 
the  partnership,  where  it  appears 
from  the  answer  of  the  defendant 
partners  that  the  plaintiff  has  been 
guilty  of  waste,  mismanagement, 
and  a  refusal  to  furnish  statements 
concerning  the  condition  of  the 
partnership  affairs,  together  with 
collusion  with  others  in  respect  to 
the  litigation  against  the  partner- 
ship, a  receiver  may  be  appointed. 
Whilden  v.  Chapman,  80  S.  C.  84, 
61  S.  E.  249. 

In  Harding  v.  Glover,  18  Ves. 
284,  the  chancellor  said:  "I  have 
frequently  disavowed,  as  a  princi- 
ple of  this  court,  that  a  receiver  is 
to  be  appointed  merely  on  the 
ground  of  a  dissolution  of  partner- 
ship. There  must  be  some  breach 
of  the  duty  of  a  partner  or  of  the 
contract  of  partnership." 

Waste  on  the  part  of  a  defend- 
ant partner,  combined  with  a  con- 
dition of  insolvency  on  the  part  of 
the  partnership  furnishes  a  condi- 
tion of  affairs  in  which  the  court 


will  appoint  a  receiver.  William- 
son V.  Wilson,  1  Bland's  Ch.  418; 
Todd  V.  Rich,  2  Tenn.  Ch.  107. 

3  Maynard  v.  Railey,  2  Nev.  3i3. 

4  Allen  V.  Hawley,  6  Fla.  142, 
164,  63  Am.  Dec.  198;  New  v. 
Wright,  44  Miss.  202;  Sutro  v. 
Wagner,  23  N.  J.  Eq.  388;  Henn  v. 
Walsh,  2  Edw.  Ch.  (N.  Y.)  129; 
Heathcot  v.  Ravenscroft,  6  N.  J. 
Eq.  113;  Jackson  v.  Sheldon,  9 
Abb.  Pr.  (N.  Y.)  127;  Crawshay 
V.  Maule,  1  Swanst.  50;  Gowan  v. 
.Teffries,  2  Ashm.  296;  Estwick  v. 
Conningsby,  1  Vern.  118;  Const,  v. 
Harris,  Turn.  &  R.  496;  Harding 
V.  Glover,  18  Ves.  Jr.  281. 

Where  the  plaintiff  partner 
shows  that  defendant  has  refused 
to  contribute  his  part  of  the  capi- 
tal nor  to  account  for  the  moneys 
furnished  by  plaintiff  toward  the 
expenses  nor  to  co-operate  in  the 
prosecution  of  the  business,  and 
it  is  also  shown  that  no  division 
of  the  partnership  assets  or  good 
will  can  be  mutually  agreed  upon 
and  that  a  sale  of  the  property 
will  be  necessary  in  order  to  di- 


MATTERS   ARISING   FROM    PARTNERSHIPS. 


397 


§  130.    Dissensions  and  Quarrels  Between  the  Partners. 

One  of  the  common  difficulties  encountered  in  partner- 
ship affairs  is  dissensions  of  greater  or  lesser  magni- 
tud^r- 

/where  the  dissensions  are  of  such  a  nature  that  the 
partnership  can  no  longer  be  continued  or  carried  on 
with  comfort  and  advantage  to  all  concerned,  equity  will 
decree  a  dissolution,  and  in  making  such  a  decree  the 
court  will  consider  not  merely  the  terms  of  the  part- 
nership agreement,  but  also  the  duties  and  obligations 
implied  in  every  partnership  contract.^  ^ 


vide  it,  a  cause  for  the  dissolution 
of  the  partnership  is  shown  and 
the  court  may  appoint  a  receiver 
to  wind  it  up.  Smith  v.  Lamon 
(Tex.  Civ.),  143  S.  W.  304. 

Where  two  partners,  who  owned 
timber  land  and  a  saw  mill,  formed 
a  partnership  with  a  third  party, 
who  had  no  capital,  but  who  was 
to  operate  the  mill  and  share  in 
the  net  profits  and  account  with  the 
owners,  and  such  third  member 
purchased  timber  without  the  con- 
sent of  the  others,  operated  a  store 
without  their  consent  and  at  a 
loss,  caused  the  expenses  to  be 
largely  in  excess  of  the  gross  in- 
come from  the  mill,  improperly 
used  money  furnished  by  his  part- 
ners, failed  to  produce  proper  ac- 
counts or  pay  rolls  as  a  basis  for 
a  settlement  with  the  employees, 
and  refused  to  deliver  up  the  pos- 
session of  the  mill  to  his  partners, 
on  a  bill  for  dissolution  of  the 
partnership,  a  receiver  is  properly 
appointed  to  manage  the  business 
and  settle  the  rights  of  the  par- 
ties. Reid  V.  Freed,  100  Miss.  48, 
56  So.  278. 

Plaintiffs  and  defendant  entered 
into  a  verbal  agreement  of  part- 


nership, whereby  it  was  agreed 
that  each  should  contribute  $1500 
in  cash.  Each  plaintiff  deposited 
$1500  in  cash  but  defendant  re- 
fused to  carry  out  the  terms  of  the 
agreement,  and  misapplied  the 
money  contributed.  In  a  suit  to 
restrain  defendant  from  misappli- 
cation of  the  joint  property,  for  a 
receiver,  and  for  an  accounting,  it 
was  held  that  the  court  properly 
appointed  a  receiver  and  granted 
a  preliminary  injunction.  Fitzger- 
ald V.  Flynn,  (R.  I.)  69  Atl.  921. 

Chancellor  Walworth,  in  Marten 
V.  Van  Schaick,  4  Paige  Ch. 
(N.  Y.)  479,  said:  "Each  partner 
has  an  equal  right  in  this  case  to 
the  possession  and  control  of  the 
partnership  effects  and  business, 
and  if  they  can  not  agree  among 
themselves,  it  is  a  matter  of  course 
to  appoint  a  receiver  upon  a  bill 
filed  to  close  the  partnership  con- 
cerns on  the  application  of  either 
party." 

In  respect  to  the  above  case  and 
the  rules  set  forth,  see,  also,  §  144, 
infra. 

1  Slemmer's  Appeal,  58  Pa.  St. 
168,  98  Am.  Dec.  255. 

In   News  Register   Co.   v.   Rock- 


398 


LAW   OF   RECEIVERS. 


Mere  temporary  quarrels  or  dissensions  are  not  suf- 
ficient. It  must,  however,  appear  in  an  action  for  disso- 
lution based  upon  disagreements  and  dissensions  that  no 
reconciliation  nor  adjustment  is  probable.-  /In  such  cii'- 


ingham  Pub.  Co.,  118  Va.  140,  86 
S.  E.  874,  the  court  appointed  a 
receiver  for  a  partnership  engaged 
in  the  newspaper  publishing  busi- 
ness on  account  of  dissensions 
among  the  parties  controlling  the 
business. 

In  Allen  v.  Hawley,  6  Fla.  142, 
164,  63  Am.  Dec.  198,  the  court 
said:  "From  the  examination 
which  we  have  made  of  the  au- 
thorities on  this  subject,  we  think 
the  law  may  be  considered  as 
settled,  that  whenever  the  inter- 
vention of  a  court  of  equity  be- 
comes necessary,  in  consequence 
of  dissensions  or  disagreements 
between  the  partners,  to  effect  a 
settlement  and  closing  of  the 
partnership  concerns,  upon  bill 
filed  by  any  of  the  partners  show- 
ing either  a  breach  of  duty  on  the 
part  of  the  other  partners,  or  a 
violation  of  the  agreement  of  part- 
nership, a  receiver  will  be  ap- 
pointed as  a  matter  of  course." 

2  A  receiver  will  not  be  ap- 
pointed on  the  application  of  one 
partner  against  his  copartner 
where  it  appears  that  there  is  a 
mere  disagreement  between  the 
partners.  Loomis  v.  McKenzie,  31 
Iowa  425;  New  v.  Wright,  44  Miss. 
202;  Henn  v.  Walsh,  2  Edw.  Ch. 
(N.  Y.)  129;  Law  v.  Ford,  2  Paige 
(N.  Y.)  310;  Marten  v.  Van 
Schaick,  4  Paige  (N.  Y.)  479; 
Slemmer's  Appeal,  58  Pa.  168,  98 
Am.   Dec.   255. 

Where  there  is  a  disagreement 
in  respect  to  the  control  and  dis- 
position of  a  fund  and  as  to  the 


rights  of  the  copartners  to  it,  a 
receiver  may  be  appointed.  Whit- 
man V.  Robinson,  21  Md.  30. 

In  Loomis  v.  McKenzie,  31  Iowa 
425,  it  was  held  that  ill-feeling  or 
differences  between  the  partners 
which  are  not  shown  to  have  re- 
sulted from  the  fault  of  the  defen- 
dant will  not  justify  the  appoint- 
ment. Cf.  McCrackan  v.  Ware,  3 
Sandf.    (N.  Y.)    688. 

In  Garretson  v.  Weaver,  3  Edw. 
Ch.  (N.  Y.)  385,  it  is  held  that 
the  court  will  not  interfere  by 
appointing  a  receiver  of  a  subsist- 
ing partnership  unless  it  satisfac- 
torily appears  that  the  plaintiff 
will  be  entitled  to  have  the  part- 
nership dissolved  and  wound  up, 
but  a  receiver  will  not  necessarily 
be  appointed  because  an  injunc- 
tion is  granted.  See,  also,  Jack- 
son V.  De  Forest,  14  How.  Pr. 
(N.  Y.)  81. 

In  Williamson  v.  Wilson,  1 
Bland  Ch.  (Md.)  418,  there  were 
mutual  charges  made  by  the  part- 
ners against  each  other  any  one 
of  which  it  was  held  being  suffi- 
cient to  warrant  a  dissolution  of 
the  partnership  a  receiver  was 
appointed,  insolvency  being  ad- 
mitted on  both  sides. 

In  Harding  v.  Glover,  18  Ves. 
Jr.  281,  it  is  held  that  a  receiver 
would  not  be  appointed  merely 
upon  the  ground  of  a  dissolution 
of  the  partnership,  but  that  there 
must  be  a  breach  of  duty  by  one 
partner  or  a  breach  of  the  con- 
tract. 

In  Henn  v.  Walsh,  2  Edw.  Ch. 


MATTERS    ARISING   PROM    PARTNERSHIPS, 


399 


cumstances  where  the^i^ensions  and  lack  of  harmony 
and  understanding  between  the  partners  are  irrecon- 
cilable the  court  appoints  a  receiver  upon  the  theory 
tliat  if  the  partners  will  not  trust  each  other  equity  will 
not  trust  either  of  them  to  settle  an  affair  in  which  each 
of  them,  but  for  their  differences,  would  be  entitled  to 
share  in  equal   degree.^    Likewise  whorp   sArinn«   disa- 


1^ 


<N.  Y.)  129,  the  vice  chanceir 
said:  "A  partnership  agreement, 
like  any  other,  is  binding  upon 
the  parties;  and  they  must  adhere 
to  its  terms.  Neither  partner  is 
at  liberty  to  recede  from  it 
against  the  will  of  the  other,  with- 
out a  sufficient  cause.  Mere  dis- 
satisfaction by  one  party  will  not 
justify  him  in  filing  a  bill  for  a 
dissolution  where,  by  the  express 
agreement,  it  is  to  continue  for 
a  definite  term;  and  this  court 
will  not  interfere  to  dissolve  the 
contract  upon  such  ground.  ,  .  . 
The  same  rules  apply  in  respect 
to  the  appointment  of  a  receiver. 
It  must  appear  to  be  such  a  case 
as  would  authorize  a  decree  for 
a  dissolution.  Goodman  v.  Whit- 
comb,  1  Jac.  &  W.  569;  Coll.  195, 
196.  In  thus  interposing,  the  court 
generally  looks  to  the  winding  up 
of  the  affairs,  and  not  to  the  con- 
tinuation of  a  trade  under  its  au- 
thority. Where  a  dissolution  has 
already  taken  place,  or  it  is  ap- 
parent that  it  will  be  decreed  on 
the  ground  of  some  breach  of 
duty  or  contract  by  one  of  the 
partners,  then  a  receiver  will  be 
appointed.  But  if  partners  quarrel, 
a  receiver  will  not  be  appointed 
merely  on  such  an  account,  be- 
cause it  may  not,  of  itself,  be  a 
sufficient  ground  for  severing  the 
connection  between  them." 

Under  a  statute  providing  that 


a  receiver  may  be  appointed  in 
any  action  between  partners,  on 
application  of  the  plaintiff  or  any 
party  whose  right  to  an  interest 
in  the  property  or  fund  or  the  pro- 
ceeds thereof  is  probable,  where 
it  is  shown  that  the  property  of  a 
solvent  firm  is  in  danger  of  being 
lost,  removed,  or  materially  in- 
jured, because  of  disagreement 
between  the  partners,  a  receiver 
may  be  appointed  to  manage  the 
business.  Southwell  v.  Church, 
51  Tex.  Civ.  547,  111  S.  W.  969. 

But  the  existence  of  mere  dis- 
satisfaction is  not  sufficient  to 
warrant  the  appointment  of  a  re- 
ceiver over  the  partnership.  Webb 
V.  Allen,  15  Tex.  Civ,  605,  40  S.  W. 
342.  , 

<^ Martin    v.    Wilson,    84    Wash.X^ 
1 625,  147  Pac.  404. 

In  the  above  case  the  court 
said:  "Affidavits  signed  by  each 
of  the  parties  clearly  indicate  that 
the  parties  are  so  hostile  to  each 
other  that  it  is  not  likely  that 
there  will  be  any  reconciliation 
between  them,  or  that  the  affairs 
of  the  partnership  can  be  settled 
in  a  harmonious  way.  We  think 
it  is  also  clear  that  the  books  and 
a  knowledge  of  their  contents  and 
the  business  of  the  firm  is  within 
the  knowledge  and  keeping  of  the 
appellant,  and  that  in  a  sense  re- 
spondent is  excluded  from  a  par- 
ticipation in  the  affairs  of  the  con- 


400 


LAW    OF    RECEIVERS. 


greements  exist  between  the  partners  in  respect  to  tlie 
management  or  disposition  of  the  partnership  property, 
the  appointment  of  a  receiver  is  proper.'*  Indeed,  the 
most  frequent  causes  for  the  appointment  of  a  receiver 
for  a  partnership  are  disagreements  between  the  part- 
ners during  the  period  of  settling  its  affairs  respecting 


cern;  such  exclusion  resting  upon 
a  lack  of  understanding  of  the 
state  of  the  accounts  and  business 
of  the  firm.  Furthermore,  an  ac- 
counting is  prayed  for. 

"The  rule  is  well  established 
that  where  a  partnership  has  been 
dissolved,  or  a  suit  for  dissolution 
and  an  accounting  is  pending,  and 
there  is  a  serious  lack  of  under- 
standing and  harmony  between 
partners,  and  one  partner  is  ex- 
cluded from  any  voice  in  the  man- 
agement and  control  of  the  affairs 
of  the  partnership,  a  receiver  will 
be  appointed.  Cole  v.  Price,  22 
Wash.  18,  60  Pac.  153;  Redding 
v.  Anderson,  37  Wash.  209,  79 
Pac.  628;  30  Cyc.  726  et  seq.  The 
rule  may  be  epitomized:  If  the 
parties  to  a  partnership  will  not 
trust  each  other,  equity  will  not 
trust  either  of  them  to  settle  an 
affair  in  which  each  of  them,  but 
for  their  differences,  would  be  en- 
titled to  share  in  equal  degree. 

"We  think  the  case  fairly  falls 
within  the  principle  laid  down  by 
this  court  in  the  case  of  Boothe  v. 
Summit  Coal  Min.  Co.,  55  Wash. 
167,  19  Ann.  Cas.  1255,  104  Pac. 
207,  where  a  like  situation,  in  so 
far  as  the  relation  of  the  parties 
is  concerned,  was  before  the  court. 
It  was  held  that  notwithstanding 
the  rule  that  courts  would  hesitate 
to  appoint  a  receiver  in  aid  of 
minority  stockholders  of  a  corpo- 


ration, where  the  two  who  were 
contending  were  the  sole  and 
equal  owners  of  the  stock  of  the 
corporation,  they  would  be  treated 
as  partners.     .     .     . 

"While  all  of  the  circumstances 
which  we  found  to  exist  in  that 
case  do  not  exist  in  this  one,  we 
do  find  enough  in  the  disharmony 
of  the  parties  and  the  right  to  an 
accounting  to  bring  this  case 
within  the  rule  there  announced. 
This  disharmony  and  the  need  of 
an  accounting  is  as  clearly  shown 
by  the  affidavit  of  the  appellant  as 
it  is  by  that  of  the  respondent. 
Whipple  V.  Lee,  46  Wash.  266,  89 
Pac.  712.  See,  also,  Bergman  Clay 
Mfg.  Co.  V.  Bergman,  73  Wash. 
144,  153,  131  Pac.  485.  In  the 
Whipple  case  a  receiver  was  ap- 
pointed to  take  over  a  partnership 
pending  a  settlement  of  its  af- 
fairs." 

4  Terrell  v.  Goddard,  18  Ga.  664; 
Loomis  v.  McKenzie,  31  Iowa  425; 
Whitman  v.  Robinson,  21  Md.  30; 
Speights  v.  Peters,  9  Gill  472;  Wil- 
liamson V.  Wilson,  1  Bland  Ch. 
(Md.)  418;  Walker  v.  House,  4 
Md.  Ch.  39;  Marten  v.  Van  Shaick, 
4  Paige  (N.  Y.)  479;  Law  v.  Ford, 
2  Paige  (N.  Y.)  310;  McCracken 
V.  Ware,  3  Sandf.  (N.  Y.)  688; 
Dunham  v.  Jarvis,  8  Barb.  (N.  Y.) 
88;  Goodman  v.  Whitcomb,  1  Jac. 
&  W.  589;  Roberts  v.  Eberhardt 
or  Everhardt,  1  Kay  148;  Const  v. 
Harris.  Turn.  &  R.  518. 


MATTERS    ARISING    FROM    PARTNERSHIPS.  401 

the  proper  management  of  its  affairs.^XBnt  the  court 
will  not  appoint  a  receiver  because  of  dissensions  among 
the  partners  where  it  appears  no  manifest  benefit  will 
accrue  to  either  of  the  litigating  partners  and  it  does 
appear  as  if  the  appointment  will  destroy  the  business 
itself.^ 

The  fact  that  one  partner  does  not  co-operate  but 
leaves  the  entire  management  of  the  business  to  his 
copartner  is  not  ground  for  the  appointment  of  a  re- 
ceiver/ 


5  Gillett  V.  Higgins,  142  Ala.  444, 
4  Ann.  Cas.  459,  38  So.  664;  Allen 
V.  Hawley,  6  Fla.  142,  63  Am.  Dec. 
198;  Bennett  v.  Smith,  108  Ga.  466, 
34  S.  E.  156;    Dunn  v.  McNaught, 
38   Ga.   179;    Taylor   v.   Bliley,    86 
Ga.  154,  12  S.  E.  210;    Pressley  v. 
Lamb,  105  Ind.  171.  4  N.  E.  682; 
Wehmeier  v.  Mercantile  Banking 
Co.,  49  Ind.  App.  454,  97  N.  E.  558; 
Anderson  v.   Powell,  44  Iowa  20; 
Taylor  v.  Welles,  113  Iowa  326,  85 
N.  W.  30;    Story  v.  Moon,  3  Dana 
(Ky.)   331;  Whitman  v.  Robinson, 
21  Md.  30;    Speights  v.   Peters,  9 
Gill  (Md.)   472;   Walker  v.  House, 
4  Md.  Ch.  39;   Kirby  v.  IngersoU, 
1    Dougl.    (Mich.)    477;    Martin   v. 
Hurley,  84  Mo.  App.  670;  Veith  v. 
Ress,   60  Neb.   52,   82  N.  W.  116; 
Birdsall  v.  Colie,  10  N.  J.  Eq.  63; 
McElvey  v.  Lewis,  76  N.  Y.  373; 
Wilcox    V.    Pratt,    52    Hun    340,    5 
N.   Y.   Supp.   361    (affd.   125   N.  Y. 
ess,  25  N.  E.  1091) ;   Witherbee  v. 
Witherbee,    17    App.    Div.    181,    45 
N.  Y.  Supp.  297;  Brush  v.  Jay,  50 
Hun    446,    3    N.    Y.    Supp.    332,    21 
N.  Y.  St.  312  (revd.  113  N.  Y.  482, 
21   N.  E.  184) ;    Richards  v.  Baur- 
man,  65  N.  C.  162;  Fleming  v.  Car- 
son, 37  Ore.  252,  62  Pac.  374;   Fox 
V.   Curtis,   176   Pn     St.   52,   34   Atl. 
952;    Sloan   v.    Moore,    37    Pa.    St. 
I  Rec. — 26 


217;  Watson  v.  McKinnon,  73  Tex. 
210,  11  S.  W.  197;  Southwell  v. 
Church,  51  Tex.  Civ.  App.  547,  111 
S.  W.  969;  Rische  v.  Rische,  46 
Tex.  Civ.  App.  23,  101  S.  W.  849; 
Jordan  v.  Miller,  75  Va.  442;  Mar- 
tin V.  Wilson,  84  Wash.  625,  147 
Pac.  404;  Whipple  v.  Lee,  46  Wash. 
266,  89  Pac.  712;  McMahon  v.  Mc- 
Clernan,  10  W.  Va.  419;  Schmidt 
V.  Mertes,  145  Wis.  468,  130  N.  W. 
474. 

6  Slemmer's  App.,  58  Pa.  St.  168, 
98  Am.  Dec.  255. 

The  court  will  not  appoint  a  re- 
ceiver of  the  assets  of  a  firm  prior 
to  the  expiration  of  the  partner- 
ship term,  except  for  the  purpose 
of  the  preservation  of  the  assets 
in  the  face  of  a  real  danger  of 
loss,  although  the  disagreements 
between  the  partners  are  such  as 
to  justify  the  court  in  decreeing 
a  dissolution.  Warwick  v.  Stock- 
ton, 55  N.  J.  Eq.  61,  36  Atl.  488. 

T  In  Roberts  v.  Eberhardt,  Kay 
148,  it  was  held  that  merely  be- 
cause the  partners  did  not  co- 
operate in  the  business  was  no 
ground  for  a  receiver. 

As  to  lack  of  co-operation,  see, 
also,  Rowe  v.  Wood,  2  J.  &  W. 
556,  where  one  partner  refused  to 
nd-ance  more  funds  with  which 
to  conduct  mining  operations. 


402  LAW  OF  RECEIVERS. 

§  131.    Mismanagement  and  Misappropriation  as  Ground. 

Anotlier  ground  for  the  appointment  of  a  receiver  over 
a  partnership  frequently  urged  is,  that  one  of  the  part- 
ners in  control  of  the  business  is  mismanaging  it  or 
misapplying  its  funds.  Such  grounds  are  sufficient  for 
the  appointment  of  a  receiver  if  sufficiently  well  shown, 
since  they  go  to  the  essence  of  the  relations  which  should 
exist  between  partners. 

When  the  partnership  relation  has  been  entered  into 
each  partner  owes  a  duty  to  the  other  to  manage  the 
business  in  such  way  as  to  produce  the  greatest  profits 
consistent  with  a  judicious  management,  and  he  has  no 
right  to  conduct  it  in  such  way  as  to  endanger  its  success, 
or  to  result  in  loss  to  the  firm. 

And  each  partner  is  required  to  keep  an  accurate  and 
strict  account  of  the  receipts  and  disbursements,  and 
owing  to  the  relation  of  confidence  existing  between  mem- 
bers of  a  firm  the  partners  are  not  permitted  to  conceal 
from  each  other  the  financial  transactions  which  interest 
all  alike. 

These  grounds  are  generally  the  basis  of  an  action 
for  the  dissolution  of  the  partnership  before  the  expira- 
tion of  the  time  fixed  upon  in  the  partnership  agreement. 
Hence  a  receiver  will  be  appointed  where  one  partner 
is  destroying  the  firm  business,^  or  does  not  account 
for  the  firm  receipts,^  or  is  violating  the  terms  of  the 

1  Estwick  V.  Conningsby,  1  Vern.  appears  that  the  defendant  has  de- 

118.  liberately    resolved    to    break    up 

In  New  V.  Wright,  44  Miss.  202,  and  ruin  the  business  of  the  firm 
it  is  held  where  a  partnership  con-  and  the  personal  relations  be- 
cem  is  broken  up  by  controversial  tween  the  partners  were  such  that 
suits  and  it  is  apparent  there  can  they  could  never  carry  on  busi- 
be  no  agreement  between  the  par-  ness  together  to  advantage,  a  re- 
ties  in  interest  a  receiver  will  be  ceiver  wap  properly  appointed, 
appointed.  2  Read  v.  Bowers,  4  Bro.  C.  C. 

In    Sutro    v.    Wagner,    23    N.    J.  441. 

Eq.  388,  it  was  held  that  where  it  In  Smith  v.  Mules,  9  Hare  556, 


MATTERS    ARISING   FROM    PARTNERSHIPS, 


403 


partnership  agreement,^  or  in  case  of  the  insolvency  of 
one  member,  together  with  waste  on  his  part,^  or  misman- 


it  was  held  that  a  refusal  by  one 
jiartner  to  enter  proper  receipts 
is  ground  for  a  receiver. 

3  White  V.  Colfax,  1  Jones  &  S. 
297;  Brenan  v.  Preston,  2  DeG. 
M.  &  G.  813. 

In  Const  V.  Harris,  1  Turn.  & 
R.  496,  it  is  said  that  the  court 
will  entertain  a  bill  to  compel 
partners  to  act  according  to  the 
provisions  of  the  partnership  con- 
tract; thus,  where  it  was  agreed 
that  the  profits  should  be  applied 
for  a  particular  purpose  and  a  sub- 
sequent agreement  was  made  by 
a  majority  of  the  partners  to  apply 
the  profits  in  a  different  manner, 
on  the  application  of  the  owner 
of  a  one-eighth  interest  a  receiver 
was  appointed  on  the  ground  that 
the  partnership  agreement  could 
not  be  altered  without  the  sanc- 
tion of  all  the  parties.  The  act  of 
a  majority  of  the  partners,  how- 
ever, will  bind  the  firm  provided 
all  parties  have  notice  and  are 
acting  in  good  faith.  It  was  also 
held  that  a  bill  merely  for  the 
purpose  of  carrying  on  the  busi- 
ness will  not  be  maintained. 

See,  also,  Williams  v.  Wilson,  4 
Sandf.  Ch.  (N.  Y.)  379,  where  the 
facts  charged  were,  that  the  de- 
fendant had  sold  goods  and  failed 
to  account,  or  refused  to  account; 
that  the  books  were  incorrect  and 
the  defendant  irresponsible;  and 
there  was  also  a  violation  of  the 
partnership  agreements.  Cf.  Est- 
wick  V.  Conningsby,  1  Vern.  118; 
Read  v.  Bowers,  4  Bro.  C.  C.  441. 

4  Boyce  v.  Burchard,  21  Ga.  74; 
Speights  V.  Peters,  9  Gill  (Md.) 
472;  Williamson  V.  Wilson.  1  Bland 
Ch.  (Md.)   418;  Shannon  V.  Wright, 


60  Md.  520;  Sutro  v.  Wagner,  23 
N.  J.  Eq.  388;  Phillips  v.  Treze- 
vant,  67  N.  C.  370;  White  v.  Col- 
fax, 1  Jones  &  S.  (N.  Y.)  297;  Wil- 
liams V.  Wilson,  4  Sandf.  Ch. 
(N.  Y.)  379;  Todd  v.  Rich,  2  Tenn. 
Ch.  107;  Pini  v.  Roncoroni  (1892), 

1  Ch.  Div.  633;  Smith  v.  Jeyes,  4 
Beav.  503. 

A  receiver  will  '^^  appointed 
where  the  defenda^c  partner  Is 
guilty  of  misconduct  which  it  ap- 
pears will  result  in  a  waste  of  the 
assets  of  the  partnership.  Brooke 
V.  Tucker,  149  Ala.  96,  43  So.  141; 
Fischer  v.  Superior  Ct.  of  Tuol- 
umne County,  98  Cal.  67,  32  Pac. 
875;  Joselove  v.  Bohrman,  119  Ga, 
204,  45  S.  E.  982;  Fink  v.  Mont- 
gomery, 162  Ind.  424,  68  N.  E. 
1010;  Barnes  v.  Jones,  91  Ind.  161; 
Katz  V.  Brewington,  71  Md.  79,  20 
Atl.  139;  Shannon  v.  Wright,  60 
Md.  520;  Speights  v.  Peters,  9 
Gill  (Md.)   472;   Drury  v.  Roberts, 

2  Md.  Ch.  157;  Williamson  v.  Wil- 
son, 1  Bland  (Md.)  418;  Reid  v. 
Freed,  100  Miss.  48,  56  So.  278; 
Maynard  v,  Railey,  2  Nev.  313; 
Coddington  v.  Tappan,  26  N.  J. 
Eq.  141;  Randall  v,  Morrell,  17 
N.  J.  Eq.  343;  Geortner  v.  Canajo- 
harle,  2  Barb.  (N.  Y.)  625;  Hag- 
gerty  v.  Granger,  15  How.  Pr. 
(N.  Y.)  243;  Philips  v.  Trezevant, 
67  N.  C.  370;  Jones  v.  Weir,  217 
Pa.  321,  10  Ann.  Cas.  692,  66  Atl, 
550.  See,  also,  Warren  v.  Stagner, 
7  Wkly.  Notes  Cas.  (Pa.)  127; 
Gowan  v.  Jeffries,  2  Ashm.  (Pa.) 
296;  Whilden  v.  Chapman,  80  S.  C, 
84,  61  S.  E.  249;  Rische  v.  Rische, 
46  Tex.  Civ.  App.  23,  101  S.  W. 
849;  Cole  v.  Price.  22  Wash.  18, 
60    Pac.    153;    Wilson    v.    Hawker 


404 


LAW    OF    RECEIVERS. 


agement,^  or  misappropriation/'  or  in  case  he  absconds 


Lumber  Co.,  74  W.  Va.  65,  81  S.  E. 
568;  Ballard  v.  Calllson,  4  W.  Va. 
326;  Watson  v.  Bettman,  88  Fed. 
825;  Gaddie  v.  Mann,  147  Fed.  960 
(reversed  on  other  grounds  in  158 
Fed.  42) ;  Smith  v.  Jeyes,  4  Beav. 
503,  49  Eng.  Reprint  433;  Butch- 
art  V.  Dresser,  4  DeG.,  M.  &  G. 
542,  10  Hare  453;  Freeland  v. 
Stansfield,  2  Eq.  Rep.  1181,  1  Jur. 
(N.  S.)  8,  2  W.  R.  575,  2  Sm.  &  G. 
479,  23  L.  J.  Ch.  923;  Cane  v. 
Macdonald,  9  Brit.  Col.  297;  Pren- 
tiss V.  Brennan,  2  Grant  Ch. 
(U.  C.)  322. 

Where  one  partner  is  wasting 
the  partnership  property  a  re- 
ceiver will  be  appointed  over  the 
property  upon  the  principle  that 
each  partner  owns  an  interest  in 
each  and  every  item  of  the  part- 
nership property.  Fink  v.  Mont- 
gomery, 162  Ind.  424,  68  N.  E. 
1010. 

T"  Mismanagement  on  part  of  the 
partner  in  charge  of  the  business, 
together  with  danger  of  loss,  is 
ground  for  the  appointment  of  a 
receiver  of  the  partnership  prop- 
erty. Boyce  v.  Burchard,  21  Ga. 
74;  Sutro  v.  Wagner,  23  N.  J.  Eq. 
388;  Williamson  v.  Wilson,  1 
Bland  Ch.  (Md.)  418;  Todd  v. 
Rich,  2  Tenn.  Ch.  107;  Jeffreys  v. 
Smith.  1  Jac.  &  W.  298;  Bentley 
v.  Bates,  4  Younge  &  C.  182;  Hart 
v.  Clarke,  19  Beav.  349;  Roberts  v. 
Eberhardt  or  Everhardt,  1  Kay 
148;  Sheppard  v.  Oxenford,  1  Kay 
&  J.  491;  Word  v.  Word,  90  Ala. 
81,  7  So.  412;  Bufkin  v.  Boyce,  104 
Ind.  53,  3  N.  E.  615;  Renton  v. 
Chaplain,  9  N.  J.  Eq.  62;  Wilson  v. 
Fitchter,  11  N.  J.  Eq.  71;  Cox  v. 
Peters,  13  N.  J.  Eq.  39;  Randall 
v.  Morrell,  17  N.  J.  Eq.  343;  Bird- 


sail  V.  Colie,  10  N.  J.  Eq.  63;  Page 
V.  Vankirk,  1  Brewst.  (Pa.)  282, 
290;  Slemmer's  Appeal,  58  Pa.  168, 
98  Am.  Dec.  255;  De  Tastet  v.  Bor- 
dicu,  2  Bro.  C.  C.  272,  note;  Hard- 
ing v.  Glover,  18  Ves.  Jr.  281. 

6  Evans  v.  Coventry,  5  DeG.  M. 
<S-  G.  911;  Harding  v.  Glover,  18 
Ves.  Jr.  281. 

In  Woodward  v.  Schatzell,  3 
John.  Ch.  (N.  Y.)  415,  it  was  held 
that  the  mere  apprehension  of  one 
partner  that  the  other  will  mis- 
apply the  partnership  funds  is  not 
ground  for  an  injunction,  the  same 
rule  being  applied  to  a  receiver- 
ship. 

Appropriating  firm  property  to 
individual  use  is  ground  for  the 
appointment  of  a  receiver  over 
the  partnership.  Davis  v.  Grove, 
2  Robt.  (N.  Y.)  134,  635;  White- 
sides  V.  Lafferty,  3  Humph.  (Tenn.) 
150;  Pini  v.  Roncoroni  (1892),  1 
Ch.  633;  Harding  v.  Glover,  18 
Ves.  Jr.  281. 

Misappropriation  of  partnership 
property  justifies  the  appointment 
of  a  receiver.  Coddington  v.  Tap- 
pan,  26  N.  J.  Eq.  141. 

The  question  of  appointment  is 
discretionary  and  appellate  court 
will  not  review  the  appointment 
where  made  upon  conflicting  tes- 
timony as  to  the  misappropriation 
of  the  assets  or  danger  to  them. — 
Whitley  v.  Bradley,  13  Cal.  App. 
720,  110  Pac.  596. 

To  entitle  a  partner  who  has 
left  assets  with  a  copartner  for 
the  payment  of  firm  debts  which 
the  latter  assumed,  to  the  appoint- 
ment of  a  receiver  to  prevent 
M  aste  and  misapplication,  it  need 
not  be  shown  that  some  partner- 
ship creditor  has  attempted  or  is 


MATTERS    ARISING   FROM    PARTNERSHIPS. 


405 


from  the  country^  or  enters  into  collusion  with  creditors.^ 
The  mismanagement  which  is  required  to  be  the  ground 
for  the  appointment  of  a  receiver  must  be  such  as 
results  from  the  acts  of  one  of  the  partners  and  not 
that  of  an  employee  who  can  be  discharged  at  any  time.^ 

§  132.    Receivership  Where  Fraudulent  Acts  Are  Alleged. 

Courts  of  equity  are  especially  astute  to  give  protec- 
tion against  acts  of  fraud  in  all  cases.  And  where  one 
of  the  partners  is  guilty  of  fraudulent  acts  toward  his 
copartner,  a  receiver  will  be  appointed^  in  order  to  pre- 


about  to  attempt  to  subject  the 
plaintiff  to  liability.  Allen  v.  Coo- 
ley,  53  S.  C.  414,  31  S.  C.  634. 

In  Prentiss  v.  Brennan,  1  Grants 
Ch.  App.  (Ont.)  484,  it  appeared 
that  a  partner  had  purchased  a 
house  with  partnership  funds,  had 
withdrawn  all  partnership  books 
from  the  jurisdiction  of  the  court; 
a  receiver  was  appointed. 

7  Sheppard  v.  Oxenford,  1  Kay 
&  J.  491. 

8  Speights  V.  Peters,  9  Gill  (Md.) 
472;  Estwick  v.  Conningsby,  1 
Vern.  118. 

In  Estwick  v.  Conningsby,  1 
Vern.  118,  a  surviving  partner  was 
carrying  on  business  with  debtors 
of  the  late  firm  and  forbearing 
the  collection  of  debts  against 
them;    a   receiver  was   appointed. 

9  A  petition  by  a  partner  in  a 
partnership  organized  to  engage 
in  the  petroleum  oil  business,  al- 
leged incompetency  and  misman- 
agement of  the  general  manager. 
The  contract  of  employment  was 
not  for  a  definite  time,  and  the 
partnership  could  at  any  time  dis- 
charge the  manager.  The  petition 
alleged  no  disagreement  among 
the  partners,  no  fraud  or  wrong- 


doing on  the  part  of  any  of  them. 
It  was  not  alleged  that  the  part- 
nership or  any  of  its  members 
was  insolvent.  The  court  held  in 
these  circumstances  that  the  ap- 
pointment of  a  receiver  was  not 
justified,  since  Civil  Code  Prac. 
298  authorizes  only  the  appoint- 
ment of  a  receiver  during  the 
pendency  of  an  action  where  prop- 
erty or  a  fund  is  in  danger  of 
being  lost.  Campbell  v.  Rich  Oil 
Co.,  29  Ky.  Law  Rep.  716,  96  S.  W. 
442. 

1  In  Word  v.  Word,  90  Ala.  81, 
7  So.  412,  where  a  surviving  part- 
ner neglected  to  keep  an  account 
of  the  sales  it  was  held  that  his 
acts  were  negligent  and  faithless 
and  if  there  was  danger  of  loss  a 
receiver  would  be  appointed,  or 
the  surviving  partner  placed  under 
bonds  to  account. 

In  Goodman  v.  Whitcomb,  1  Jac. 
&  W.  589,  where  money  was  re- 
ceived and  not  entered  in  the 
books  and  the  books  were  not 
held  open  to  inspection,  it  was 
held  to  be  a  violation  of  the  duties 
of  partners  to  each  other. 

In  Barnes  v.  Jones,  91  Ind.  161, 
it   was   held   that  it   is   an   excep- 


406 


LAW   OP   RECEIVERS. 


vent  the  threatened  damages  resulting  from  such  fraud- 
ulent acts.^ 

The  existence  of  fraud  or  imminent  danger,  if  interme- 
diate possession  should  not  be  taken  by  the  court,  must 
be  clearly  proved  and  unless  the  necessity  be  of  the  most 
stringent  character  the  court  will  not  appoint  a  receiver 
until  the  defendant  is  first  heard  in  response  to  the  appli- 
cation.^ 


tional  case  of  partnership  that  a 
receiver  will  be  appointed  unless 
a  dissolution  is  about  to  occur,  but 
where  the  plaintiff  shows  acts  of 
fraud  on  the  part  of  the  defend- 
ants and  an  application  by  them 
of  partnership  property  to  their 
own  use,  false  entries  in  the 
books,  and  a  refusal  of  access  to 
the  books  and  a  concealment  of 
the  condition  of  the  partnership 
business,  a  receiver  should  be  ap- 
pointed. Citing  Howell  v.  Harvey, 
5  Ark.  270,  39  Am.   Dec.  376. 

In  Haight  v.  Burr,  19  Md.  130, 
one  partner  controlled  the  busi- 
ness as  if  exclusively  his  own  and 
failed  to  pay  the  debts  of  the  firm 
and  fraudulently  appropriated  the 
assets,  it  was  held  that  a  receiver 
should  be  appointed  where  the  de- 
fendant was  irresponsible. 

In  Shannon  v.  Wright,  60  Md. 
520,  it  was  held  that  a  refusal  to 
apply  money  to  the  payment  of 
debts  and  a  refusal  to  allow  an 
examination  of  the  books  and 
threatening  to  litigate  with  the 
firm's  money  until  the  plaintiff 
was  ruined  thereby,  was  ground 
for  a  dissolution  of  the  firm  and 
the  appointment  of  a  receiver. 

In  Brenan  v.  Preston,  2  DeG.  M. 
&  G.  813,  the  defendant  took  pos- 
session of  part  of  the  machinery 
of  a  ship  and  refused  to  give  it 
up.    A  receiver  was  allowed. 


A  receiver  will  be  appointed  for 
the  property  of  a  partnership 
where  some  of  its  members  are 
guilty  of  a  fraudulent  misapplica- 
tion of  revenues  and  there  is  ina- 
bility to  discharge  heavy  claims 
against  the  partnership  and  judg- 
ments against  its  members  while 
irreconcilable  differences  exist  be- 
tween the  members  in  respect  to 
the  management  of  the  property. 
Watson  V.  Bettman,  88  Fed.  825. 

2  In  West  V.  Chasten,  12  Fla.  315, 
where  the  firm  was  dissolved  and 
the  partnership  assets  assigned  to 
one  who  assumed  the  debts,  it 
was  held  that  the  property  ceased 
to  be  joint  property,  and  became 
the  separate  property  of  one,  the 
court  holding:  "If,  however,  in  a 
case  of  this  character  and  rising 
out  of  confidential  relations  the 
party  acts  iniquitously  and  un- 
justly or  fraudulently,  and  pays 
no  attention  to  his  covenants,  dis- 
regarding the  claims  of  his  surety, 
and  is  pursuing  such  a  course  as 
threatens  to  result  in  his  great 
damage  or  injury,  the  court  will 
interfere.  It  will  not  do  to  wait 
until  the  threatened  damage  or 
injury  occurs  to  such  an  extent  as 
to  ruin  the  other.  Then  the  court 
of  equity  will  be  powerless  to  act." 
3  Blondheim  v.  Moore,  11  Md. 
365,  374. 


MATTERS   ARISING   FROM   PARTNERSHIPS. 


407 


But  where  fraudulent  conduct  on  the  part  of  the  defen- 
dant partners  is  alleged  together  with  wrongful  exclusion 
from  participation  in  the  partnership  affairs  and  it  is 
apparent  that  an  ultimate  dissolution  must  result,  the 
court  will  appoint  a  receiver  regardless  of  whether  the 
defendants  are  solvent  or  not.'' 

If  one  of  the  partners  fraudulently  disposes  of  his  in- 
terest in  the  partnership,  such  disposition  operates  as  a 
dissolution  of  the  partnership  and  if  the  purchaser  had 
knowledge  of  it  a  receiver  may  be  appointed^  at  the 
instance  of  his  copartner,  but  a  contract  or  general  cred- 
itor before  judgment  has  no  right  to  have  a  receiver  ap- 
pointed to  wind  up  the  partnership  since  he  has  an  ade- 
quate remedy  at  law.^ 

Where  the  title  to  property  stands  in  the  name  of  a 
corporation  but  the  ownership  is  actually  in  a  partner- 


4  Cole  V.  Price,  22  Wash.  18,  60 
Pac.  153,  citing:  High  on  Rec. 
(3d  ed.),  §§522  et  seq;  Beach  on 
Rec,  §912;  Lindl.  Partn.  (2d  ed.), 
pp.  1198-1200;  Randall  v.  Morrell, 
17  N.  J.  Eq.  343;  McElvery  v. 
Lewis,  76  N.  Y.  373;  Maynard  v. 
Railey,  2  Nev.  313;  Sloan  v. 
Moore,  37  Pa.  St.  217;  Einstein  v. 
Schnebly,  89  Fed.  540. 

5  In  Renton  v.  Chaplain,  9  N.  J. 
Eq.  62,  one  partner's  interest  was 
sold  under  an  execution  and  it 
was  held  that  this  operated  as  a 
dissolution  of  the  firm  if  there 
was  any  fraud  between  the  pur- 
chaser and  the  insolvent  partner. 
If  the  sale  is  bona  fide  the  pur- 
chaser in  such  case  stands  in  no 
better  condition  than  the  insolvent 
defendant  to  whose  rights  he  has 
succeeded,  and  the  court  will  not 
interfere  with  the  remaining  part- 
ner in  winding  up  the  business 
unless  gross  misconduct  calls  for 


it.    Cf.  Birdsall  v.  Colie,  10  N.  J. 
Eq.  63. 

In  Sutro  V.  Wagner,  23  N.  J. 
Eq.  388,  there  was  a  fraudulent 
appropriation  of  the  partnership 
funds  and  a  fraudulent  convey- 
ance of  the  partnership  property 
of  one  partner  in  order  to  place  it 
beyond  the  reach  of  the  creditors 
and  giving  notice  of  such  transfer 
to  a  commercial  agency  to  ruin 
the  credit  of  the  firm  and  it  was 
held  a  receiver  should  be  ap- 
pointed. Cf.  Shannon  v.  Wright, 
60  Md.  520;  Phillips  v.  Trezevant, 
67  N.  C.  370. 

6  A  fraudulent  disposition  of  his 
interest  in  a  firm  by  one  of  the 
copartners  does  not  authorize  the 
appointment  of  a  receiver  to  set- 
tle up  the  partnership  estate  at 
the  instance  of  a  contract  or  gen- 
eral creditor  before  judgment,  as 
the  remedy  at  law  is  adequate. 
Waples-Platter  Co.  v.  Mitchell,  12 
Tex.  Civ.  App.  90,  35  S.  W.  2C'J. 


408  LAW   OF    RECEIVERS. 

ship,  in  an  action  by  one  of  the  partners  for  a  disso- 
lution on  account  of  fraud  of  another  partner,  and  the 
corporation  is  made  a  party  to  the  suit,  the  court  may 
appoint  a  receiver  to  take  charge  of  the  property.'^ 

And  where  the  defendant  partner  had  induced  the 
phiintiff  to  enter  into  partnership  with  him  by  false  and 
fraudulent  representations  and  plaintiff  upon  discover- 
ing the  fraud  sought  to  have  the  partnership  dissolved, 
it  is  proper  for  the  court  to  appoint  a  receiver.' 


8 


§  133.    Receivership  Where  One  Partner  Is  Excluded  From  the 
Business. 

Courts  have  frequently  been  called  upon  to  appoint 
a  receiver  in  matters  of  partnership  where  one  or  more 
partners  have  been  excluded  from  participating  in  the 
management  of  the  firm  business,  or  otherwise  denied 
recognition,  in  violation  of  the  copartnership  agreement, 
or  the  implied  relationship  between  the  members  of  the 
firm.  This  exclusion  may  be  from  a  participation  in  the 
business,  or  from  access  to  the  firm  books,  and  may  take 
place  during  the  existence  of  the  partnership,  or  after 
its  dissolution,  and  may  apply  under  some  circumstances 
to  the  legal  representatives  of  a  deceased  partner. ^    In 

7  Fischer  v.  Superior  Court,  98  179,  6  N.  E.  345;  Haight  v.  Burr, 
Cal.  67,  32  Pac.  875.  19   Md.   130;    Shannon  v.   Wright, 

8  Ex   parte   Broome,   1   Rose   69.       60  Md.  520;    Speights  v.  Peters,  9 
1  Gillett  V.  Higgins,  142  Ala.  444,      Gill  (Md.)  472;  Williamson  v.  W'il- 

4  Ann.  Cas.  459,  38  So.  664;   Fink  son,   1   Bland  Ch.  (Md.)  418;    Katz 

V.   Montgomery,    162    Ind.   424,    68  v.  Brewington,  71  Md.  79,  20  Atl. 

N.  E.  1010;  Redding  v.  Anderson,  139;    Kirby  v.  Ingersoll,   1   Dougl. 

37  Wash.  209,  79  Pac.  628;   Whip-  (Mich.)    477;    Wolbert   v.    Harris, 

pie  V.  Lee,  46  Wash.  266,  89  Pac.  7  N.  J.  Eq.  605;  Seibert  v.  Seibert, 

712.  1  Brewst.  (Pa.)  531;  Rutter  v.  Tal- 

Exclusion  of  one  partner   from  lis,   5   Sandf.    (N.   Y.)    610;    Hayes 

the  profits  or  the  management  is  v.    Heyer,    3    Sandf.    (N.   Y.)    284; 

ground  for  the  appointment  of  a  McCracken     v.     Ware,     3     Sandf. 

receiver.     Boyce   v.   Burchard,   21  (N.  Y.)   688;   Wetter  v.  Schlieper, 

Ga.  74;  see  Terrell  v.  Goddard,  18  4  E.  D.  Smith  (N.  Y.)  707;  Gowan 

Ga.  664;   Barnes  v.  Jones,  91  Ind.  v.    Jeffries,    2    Ashm.    (Pa.)     296; 

161;  of.  Naylor  v.  Sidener,  106  Ind.  Blackeney  v.  Dufaur,  15  Beav.  40; 


MATTERS    ARISING    FROM    PARTNERSHIPS. 


409 


Norway  v.  Rowe,  19  Ves.  Jr.  159; 
Peacock    v.    Peacock,    16   Ves.    Jr. 
49;    Butchart  v.    Dresser,    4    DeG. 
M.  &  G.  542;    Katsch  v.  Schenck, 
18  L.  J.  Ch.  N.  S.  386;   Wilson  v. 
Greenwood,  1  Swanst.  482;   Const 
V.    Harris,    Turn.    &    R.    496,    525 
Norway  v.  Rowe,  19  Ves.  Jr.  144 
Milbank  v.  Revett,  2  Meriv.  405 
Harding  v.  Glover,  18  Ves.  Jr.  281. 

But  where  an  action  by  one 
partner  against  his  copartner  is 
not  brought  for  a  dissolution  of 
the  firm,  but  to  continue  the  part- 
nership and  oust  tlie  other  from 
the  management  secured  to  him 
by  the  partnership  agreement,  and 
to  obtain  the  management  for 
plaintiff,  the  appointment  of  a  re- 
ceiver pending  the  action  is  im- 
proper. Shubert  v.  Laughlin,  122 
App.  Div.  701,  107  N.  Y.  Supp.  708. 

The  exclusion  of  one  partner 
from  his  full  share  in  the  affairs 
of  the  partnership  is  ground  for 
the  appointment  of  a  receiver  for 
the  partnership  property.  Einstein 
v.  Schnebly,  89  Fed.  540;  Wolbert 
v.  Harris,  7  N.  J.  Eq.  605. 

A  partner  who  has  been  wrong- 
fully excluded  from  participation 
in  the  management  of  the  prop- 
erty is  entitled  to  a  receiver,  with- 
out proving  the  insolvency  of  the 
copartner.  And  this  is  especially 
true  under  Rev.  Stats.  1895,  art. 
1465,  providing  for  the  appoint- 
ment of  a  receiver  in  an  action  be- 
tween partners  on  the  application 
of  plaintiff  whose  interest  in  the 
property  is  probable.  Rische  v. 
Rische,  46  Tex.  Civ.  23,  101  S.  W. 
849. 

A  refusal  of  the  right  of  a  part- 
ner to  share  in  the  management 
of  the  partnership  affairs  and  to 
participate  in  the  profits  is  a  suffi- 
cient   breach    of    the    partnership 


contract  to  warrant  the  appoint-  , 
ment  of  a  receiver,  regardless  of 
whether  the  business  is  in  full  op- 
eration or  in  process  of  dissolu- 
tion, on  a  sworn  petition  of  a  part- 
ner, which  shows  that  the  firm 
property  is  in  the  hands  of  a  third 
person,  and  that  the  petitioner  has 
been  excluded  from  participating 
in  its  management,  but  suh  ap- 
pointment will  determine  no  right 
as  between  the  parties  nor  affect 
the  title  to  the  property.  Holder 
V.  Shelby  (Tex.  Civ.),  118  S.  W. 
590. 

Where  a  partner  applies  for  a 
receiver  in  a  suit  for  an  account- 
ing and  dissolution,  and  alleges 
an  agreement  that  each  partner 
should  devote  his  entire  time  to 
the  business,  and  defendant  fails 
to  appear,  such  allegation  will  au- 
thorize the  introduction  of  evi- 
dence of  the  agreement,  and  to 
charge  defendant  with  plaintiff's 
services,  or  with  the  amount  ex- 
pended in  employing  a  servant  to 
do  the  work  which  defendant 
should  have  done.  Valentin  v.  Sar- 
rett,  25  Idaho  517,  138  Pac.  834. 

Where  a  partnership  has  been 
dissolved,  or  a  suit  is  pending  for 
its  dissolution  and  an  accounting, 
and  there  is  a  lack  of  understand- 
ing and  harmony  between  the 
partners,  one  of  them  is  denied  a 
voice  in  the  management  and  con- 
trol of  the  business,  a  receiver 
will  be  appointed.  Martin  v.  Wil- 
son, 84  Wash.  625,  147  Pac.  404. 

In  Wilson  v.  Greenwood,  1 
Swanst.  471  (481),  it  was  held  that 
in  the  ordinary  course  of  trade  if 
one  partner  excludes  another  from 
taking  that  part  in  the  concern 
which  he  is  entitled  to  it  is  ground 
for  the  appointment  of  a  receiver; 
so,  also,  if  in  the  course  of  wind- 


410 


LAW   OF   RECEIVERS. 


ing  up  the  affairs  after  the  de- 
termination of  the  partnership,  the 
court.  If  necessary,  interposes  on 
the  same  principle. 

In  Kirby  v.  Ingersoll,  1  Dougl. 
(Mich.)  477,  it  was  held  that  one 
partner  had  no  right,  without  the 
consent  of  his  copartners,  to  make 
an  assignment  and  thus  exclude 
the  others  where  it  appeared  that 
the  assignment  was  not  of  a 
pressing  necessity. 

In  Const.  V.  Harris,  1  Turn.  &  R. 
496  (525),  it  was  held  that  the 
circumstance  of  one  partner  hav- 
ing taken  upon  himself  the  power 
to  exclude  another  from  his  full 
share  in  the  management  of  the 
business,  authorizes  the  court  to 
appoint  a  receiver. 

In  Gowan  v.  Jeffries,  2  Ashm. 
(Pa.)  296,  it  was  held  to  be  an 
exclusion  where  just  and  fair 
books  were  not  kept  and  where 
one  partner  refused  to  furnish  ac- 
counts demanded. 

In  Speights  v.  Peters,  9  Gill 
(Md.)  472,  it  was  held  that  if  one 
partner  in  the  ordinary  course  of 
trade  seeks  to  exclude  another 
from  taking  that  part  in  the  con- 
cern which  he  is  entitled  to  take, 
a  receiver  should  be  appointed  on 
the  authority  of  Lord  Eldon  in 
Wilson  v.  Greenwood,  1  Swanst. 
481. 

In  Kershaw  v.  Matthews,  2  Russ. 
62,  where  by  the  article  of  agree- 
ment it  was  stipulated  that  upon 
the  death  of  one  partner  such  de- 
ceased partner  should  be  suc- 
ceeded in  business  by  some  other 
person,  or  by  his  executor,  and 
such  person  refused  to  act  it  was 
held  that  the  death  of  one  partner 
put  an  end  to  the  partnership  but 
that  in  such  case  it  was   not  an 


exclusion  for  the  reason  that  the 
latter  had  never  been  a  partner. 

In  Bilton  v.  Blakely,  6  Grant  Ch. 
(Out.)  575,  it  was  held  that  the 
representatives  of  a  deceased  part- 
ner had  a  right  to  inspect  the 
books  of  the  partnership  and  to  be 
informed  of  the  proceedings  of  the 
survivor,  and,  on  refusal  by  the 
latter,  were  entitled  to  a  receiver. 
Cf.  Steele  v.  Grossmith,  19  Grant 
Ch.  (Ont.)  141;  Wilcox  v.  Pratt, 
52  Hun  340,  5  N.  Y.   Supp.   361. 

In  Katz  V.  Brewington,  71  Md. 
79,  the  allegation  was  that  the 
defendant  had  excluded  the  plain- 
tiff from  all  control  over  the  busi- 
ness, and  had  refused  to  give 
information  regarding  it,  and  car- 
ried away  the  books  from  the  place 
of  business,  and  refused  to  dis- 
close the  place  in  which  they  were 
kept.  The  court  say:  "Each  part- 
ner has  an  equal  right  to  take 
management  of  the  business  al- 
though one  of  them  may  have  only 
an  interest  in  the  profits  and  not 
the  capital,  yet  his  rights  are  in- 
volved in  the  proper  conduct  of 
the  affairs  of  the  firm  so  the  prof- 
its may  be  made.  So  each  partner 
has  an  equal  right  to  information 
about  the  partnership  affairs  and 
free  access  to  the  books.  The 
complainant  has  a  right  to  learn 
from  the  books  whether  there 
were  profits  and  whether  there 
were  debts. 

In  Const  V.  Harris,  1  Turn.  &  R. 
496,  Lord  Eldon  said:  'The  most 
prominent  point  on  which  the 
court  acts  in  appointing  a  receiver 
of  the  partnership  concern  is  the 
circumstance  of  one  partner  hav- 
ing taken  upon  himself  the  power 
to  exclude  another  partner  from 
as  full  share  in   the  management 


MATTERS    ARISING   FROM   PARTNERSHIPS.  411 

an  early  case-  Lord  Eldon  said:  ''The  most  prominent 
point  in  which  the  court  acts  in  appointing  a  receiver  of 
a  partnership  concern  is  the  circumstance  of  one  part- 
ner having  taken  upon  himself  the  power  to  exclude  an- 
other partner  from  as  full  a  share  in  the  management  of 
the  partnership  as  he  who  assumes  that  power  himself 
enjoys." 

Of  course,  the  partners  may,  by  contract,  provide  for 
the  exclusion  of  one  copartner  from  full  or  even  partial 
participation  in  the  business  affairs  of  the  partnersliip, 
in  which  event  exclusion  will  not  be  ground  for  the  ap- 
pointment of  a  receiver.^  Laches  on  the  part  of  the  com- 
plaining partner  at  being  excluded  from  participating  in 
the  business  may  be  ground  for  refusing  to  appoint  a 
receiver.^ 

§  134.    Exclusion  by  Claims  of  Individual  Ownership.  ~\ 

In  addition  to  the  ordinary  form  of  exclusion  of  a  part- 
ner by  his  copartner  from  participation  in  the  affairs 
of  the  partnership  is  that  of  denying  that  the  alleged 
partnership  exists  and  hence  that  the  plaintiff  is  a  part- 
ner.^ And  one  partner  may  be  excluded  also  by  the  de- 
fendant claiming  to  own  individually  assets  claimed  by 
the  other  to  be  a  part  of  partnership  assets,-  and  in  such 

of  the  partnership  as  he  who  as-  been  operating  a  mine  and  plain- 

sumes  the  power  himself  enjoys.' "  tiff  took  no  interest  in  the  matter 

2  Const.  V.  Harris,  1  Turn.  &  imtil  the  mine  became  profitable. 
Russ.  496.  1  Peacock    v.    Peacock,    16    Ves. 

3  In  Blakeney  V.  Dufaur,  15  Beav.  49;  Blakeney  v.  Dufaur,  15  Beav. 
40,  it  is  said  that  exclusion  will  40.  In  this  connection,  see,  also, 
not  be  permitted  except  in  cases  §§  127  and  128,  supra. 

where  the  parties  themselves  have  In  Goulding  v.  Bain,  4  Sandf. 
provided  by  agreement  for  exclu-  (N.  Y.)  716,  the  court  refused  to 
sion  upon  the  happening  of  certain  appoint  a  receiver  where  the  ex- 
events.  Cf.  Terrell  v.  Goddard,  18  istence  of  a  partnership  was  de- 
Ga.  664;  Wolbert  v.  Harris,  7  N.  J.  nied,  the  court  holding  that  the 
Eq.  605;  Milbank  v.  Revett,  2  partnership  must  be  either  admit- 
Meriv.  405.  ted  or  established. 

4  Norway  v.  Rowe,  19  Ves.  143.  -  Wilson  v.  Greenwood,  1  Swans. 
In  this  case  the   partnership  had  (Eng.)  471. 


412 


LAW   OP    RECEIVERS. 


circumstances  a  receiver  will  be  appointed  if  there  is  a 
showing  of  danger  of  loss  of  the  property.  %n  such  cir- 
cumstances a  distinction  is  observed  by  the  cotirt  to  this 
extent  that  as  against  the  legal  title  or  a  strong  pre- 
sumptive title  in  the  defendant,  the  court  will  interfere 
by  the  appointment  of  a  receiver  very  reluctantly,  and 
only  where  the  jjroperty  is  in  danger  of  being  lost  or 
injured,  but  where  a  fund  is  prima  facie  the  proceeds  of 
a  partnership,  the  court  will  very  readily  take  charge  of 
it  by  means  of  a  receivership.^  And  likewise  where  the 
plaintiff  claims  the  property  in  litigation  as  his  own 
individual  property  and  defendant  likewise  claims  it  as 
his  own,  the  court  will  proceed  cautiously  in  appointing 
a  receiver  and  wdll  not  make  such  an  appointment  in  a 


In  Bryant  v.  Fitzsimmons,  106 
Md.  421,  67  Atl.  356,  a  receiver 
was  appointed  over  a  race  horse 
in  the  possession  of  the  defend- 
ant on  a  claim  that  it  was  part- 
nership property. 

In  Doupe  v.  Stewart,  13  Grant 
Ch.  (Ont.)  637,  where  after  a  disso- 
lution one  partner  claimed  greater 
portions  of  the  profits  as  his  own 
by  reason  of  certain  alleged  mis- 
conduct of  the  plaintiff,  and  made 
use  of  the  partnership  funds  in 
carrying  on  business  in  his  own 
behalf,  it  was  held  to  be  a  proper 
cause  for  a  receiver. 

Where  some  of  the  partners  on 
dissolution  hold  possession  of  the 
assets,  and  conduct  the  business 
under  claim  of  sole  ownership, 
and  not  for  the  purpose  of  wind- 
ing up  the  partnership,  wrongfully 
assuming  power  under  the  part- 
nership agreement  to  have  the  as- 
sets appraised  and  extinguish  the 
other  members'  interest  in  the  as- 
sets by  tendering  them  one-third 
of  the  amount  of  the- appraisement, 


the  excluded  members  are  entitled 
to  have  a  receiver  appointed.  Na- 
than v.  Bacon,  75  N.  J.  Eq.  401, 
72  Atl.  359. 

In  Clegg  V.  Fishwick,  1  Macn.  & 
G.  294  (298),  where  partners  were 
jointly  interested  with  others  in  a 
lease  which  was  subsequently  re- 
newed in  the  name  of  some  of  the 
partners  without  the  consent  of 
the  others,  it  was  held  to  be  an 
exclusion.  And  see  Leach  v.  Leach, 
18  Pick.  (35  Mass.)  68;  Clements 
v.  Hall,  2  DeG.  &  J.  173;  Clegg  v, 
Edmondson,  8  DeG.  M.  &  G.  787. 

Where  a  surviving  partner  sold 
the  entire  partnership  property  to 
a  newly  formed  corporation  com- 
posed of  himself  and  members  of 
his  family  and  refused  the  wife  of 
his  deceased  partner  access  to  the 
books,  claiming  that  her  husband's 
share  only  amounted  to  a  very 
small  interest,  a  receiver  should 
be  appointed  to  preserve  the  prop- 
erty. Miller  v.  Miller,  80  N.  J. 
Eq.  47,  82  Atl.  513. 

3  Speights  v.  Peters,  9  Gill  (Md.) 
472. 


MATTERS   ARISING   FROM    PARTNERSHIPS. 


413 


doubtful  case  nor  unless  there  is  imminent  danger  of 
loss  and  there  is  no  adequate  remedy  at  law.^ 


4  In  Bacon  v.  Engstrom,  129 
Minn.  229,  152  N.  W.  264,  537,  the 
court  said: 

"The  trial  court  was  right  in 
refusing  to  authorize  the  receiver 
to  take  possession  of  this  prop- 
erty. The  agreement  between 
these  parties  was  in  the  nature 
of  a  partnership  agreement,  but 
this  is  not  material.  There  is  no 
claim  that  this  property  was  part- 
nership property.  Plaintiff  claims 
it  as  his  own  individual  property, 
and  on  that  theory  replevied  it. 
Defendant  claims  it  as  his.  So  far 
as  this  property  is  concerned  the 
controversy  is  the  ordinary  con- 
flict between  parties,  each  of 
whom  claims  property  as  his  own. 
The  court  will  proceed  with  great 
caution  in  granting  an  application 
for  a  receiver  to  take  possession 
of  property  in  controversy  pen- 
dente lite.  Such  an  application  is 
addressed  to  the  discretion  of  the 
trial  court.  It  appeals  not  to  an 
arbitrary  discretion,  but  to  a  dis- 
cretion exercised  as  an  auxiliary 
to  the  attainment  of  the  ends  of 
justice.  34  Cyc.  19;  Beach  on 
Receivers,  §  48.  Such  an  appli- 
cation will  not  be  granted  in  a 
doubtful  case.  The  showing  must 
be  clear,  strong,  and  convincing. 
The  application  will  be  granted 
only  under  circumstances  requir- 
ing summary  relief  or  where  the 
coprt  is  satisfied  that  there  is  im- 
minent danger  of  loss,  and  where 
there  is  no  adequate  remedy  at 
law.  34  Cyc.  21  et  seq.;  Beach 
on  Receivers,  §  48;  Lowell  v.  Doe, 
44  Minn.  144,  46  N.  W.  297;  Na- 
tional Fire  Ins.  Co.  v.  Broadbent, 


77  Minn.  175,  79  N.  W.  676;  Libby 
V.  Libby,  68  App.  Div.  15,  74  N.  Y. 
Supp.  57.  The  court  will  not  ordi- 
narily appoint  a  receiver  to  take 
possession  of  property,  the  title  to 
which  is  in  dispute,  until  there  has 
been  a  determination  of  the  ques- 
tion of  title,  at  least  unless  the 
party  making  the  application  es- 
tablishes a  reasonable  probability 
of  his  ultimate  success.  34  Cyc. 
35;  Hayes  v.  Jasper  Land  Co.,  147 
Ala.  340,  41  So.  909;  Waterbury  v. 
Merchants  Union  Exp.  Co.,  50 
Barb.   (N.  Y.)   157,  159. 

"The  right  to  this  property  is 
not  clear.  The  court  committed 
no  error  in  refusing  to  take  it 
from  the  possession  of  the  defend- 
ant and  placing  it  in  the  hands  of 
a  receiver  before  the  title  to  it  is 
determined.  The  replevin  suit  is 
still  pending.  Plaintiff  himself 
commenced  it.  It  is  the  proper 
form  of  action  in  which  to  deter- 
mine which  of  two  contending 
parties  is  the  owner  of  personal 
property.  So  far  as  we  can  see  it 
furnishes  an  adequate  remedy. 
Plaintiff  should  not  be  permitted 
to  maintain  two  actions  to  estab- 
lish his  right  to  this  property. 

"Plaintiff  contends  the  action  of 
replevin  does  not  furnish  him  an 
adequate  remedy,  because  the  bond 
is  for  an  inadequate  sum.  Plain- 
tiff himself  fixed  the  amount  of 
the  bond  by  his  own  allegation  of 
the  value  of  the  property.  If  he 
has  made  a  mistake,  his  remedy  to 
correct  it  is  in  the  replevin  action. 
He  can  not  urge  his  own  mistake 
as  a  reason  for  the  appointment  of 
a  receiver." 


414  LAW  OF   RECEIVERS. 

3.    Termination  of  Partnership  ly  Death,  Insolvency,  or  Other 

Disahility. 

§135.   General  Rule  Respecting:  Termination  of  the  Partner- 
ship. 

The  mere  fact  that  a  partnership  has  terminated  is 
not  ground  for  the  appointment  of  a  receiver.  As  has 
been  shown  in  the  discussion  respecting  the  principles 
applicable  to  the  appointment  of  receivers  in  cases  of 
partnerships,  there  must  be  some  special  reason  for  the 
appointment  of  a  receiver  aside  from  the  mere  fact  that  j 
it  is  about  to  be  dissolved  or  is  in  a  state  of  dissolution.^  \ 

Courts,  however,  are  frequently  called  upon  to  appoint  ' 
a  receiver  in  the  interest  of  a  retiring  partner  where  the 
terms  of  the  dissolution  agreement  are  being  violated. 
Thus  where  a  partnership  has  been  dissolved  by  mutual 
agreement  and  by  the  terms  of  dissolution  the  remaining 
partners  continuing  the  business  assume  and  agree  to 
pay  the  outstanding  firm  liabilities  and  there  is  a  viola- 
tion of  the  agreement  in  this  regard,  the  court  may  prop- 
erly appoint  a  receiver,  at  least  of  so  much  of  the  firm 
assets  as  will  be  sufficient  to  discharge  the  remaining 
firm  indebtedness.^    This  is  based  upon  the  doctrine  of 

iln   Bufkin  v.   Boyce,   104   Ind.  Mich.   379,   8  N.  W.   68;    Cook  v. 

53,  3  N.  E.  615,  where  a  partner-  Detroit  &  M.  R.  Co.,  45  Mich.  453, 

ship  had  expired  by  limitation  and  8  N.  W.  74. 

neither    partner    desired    to    con-  2  West  v.  Chasten,  12  Fla.  315. 

tinue  the  business  it  was  held  that  The  court  held  that  so  long  as  the 

a  receiver  would  not  be  appointed  effects    are    impressed    with    the 

on  the  application  of  one  to  settle  character  of  partnership  property 

the  partnership  affairs  in  the  ah-  a  dissolution  can  not  destroy  the 

sence  of  any  showing  of  misman-  rights  each  partner  has  to  a  gen- 

agemeut  or  improper  conduct  on  eral   accounting,   the   payment   of 

the    part    of    the    person    against  the  partnership  debts,  and  a  divi- 

whom   the   relief   is   sought.     Cf.  sion  of  the  surplus,  according  to 

Shoemaker  v.   Smith,  74  Ind.   71;  their  respective  interests.    The  dis- 

Morey  v.  Grant,  48  Mich.  326,  12  solution  destroyed  the  relation  of 

N.  W.  202;  Baker  v.  Backus,  32  111.  partnership,  but  with  it  a  new  re- 

79;   Willis  v.  Corlies,  2  Edw.   Ch.  lation  was  created,  to-wit,  the  ob- 

(N.  Y.)    281;   Jones  v.   Schall,  -15  ligation  of  the  remaining  partner 


MATTERS   ARISING   FROM  PARTNERSHIPS. 


415 


principal  and  suretyship  or  perhaps  more  properly  upon 
the  relation  of  trusteeship.^   By  the  terms  of  the  disso- 


to  pay  the  debts  of  the  firm  from 
the  firm  assets  transferred  to  him 
for  that  purpose.   In  Drury  v.  Rob- 
erts,   2    Md.    Ch.    157,    where    the 
right  to  the  collection  of  the  firm 
assets  and  the  winding  up  of  the 
firm  business  was  delegated  to  one 
partner,    it    was    held    that    there 
must  be  an  abuse  of  this  delegated 
power  shown,  or  danger  in  order 
to  justify  the  court  in  appointing 
a  receiver.     If  he   is   wasting  or 
misapplying    the    property,    of    if 
there  is  danger  of  insolvency,  or 
fraud,  the  court  will  intercede.    If, 
.  however,  all  these  allegations  are 
denied  by  answer  the  necessity  is 
removed.   If  the  parties  on  dissolu- 
tion have  agreed  upon  the  method 
of  collection  of  the  accounts  and 
the  defendants  are  responsible  no 
sufficient   ground   is   shown   for   a 
receiver.      Simon    v.    Schloss,    48 
Mich.   233,  12  N.  W.   196;    Arnold 
v.    Bright,    41    Mich.    207,    210,    2 
N.  W.  16. 

In  Hayes  v.  Heyer,  4  Sandf.  Ch. 
(N.  Y.)  485,  a  bill  was  filed  by  one 
partner  against  another  partner 
and  his  assignee  seeking  to  set 
aside  an  alleged  fraudulent  assign- 
ment made  by  the  latter  for  the 
benefit  of  creditors,  without  prefer- 
ence, and  on  motion  for  a  receiver 
the  court  refused  to  appoint,  de- 
clining to  decide,  however,  as  to 
the  right  of  one  partner  to  make 
a  valid  assignment,  no  insolvency 
appearing.  (See  note  to  this  case 
as  to  the  power  of  one  partner  to 
make  an  assignment  without  the 
consent  of  the  other.)  Where  part- 
ners can  not  agree  as  to  the  mode 
of  liquidation,  the  court  will  ap- 
point  a   receiver;    and    if   on    the 


dissolution  the  partners  make  an 
agreement  as  to  the  mode  of  wind- 
ing up  the  affairs  and  select  one 
of  their  number  to  collect  the  as- 
sets, and  pay  the  debts  and  dis- 
tribute the  remainder,  a  court  of 
equity  will  not  interfere  and  ap- 
point a  receiver,  unless  the  parties 
prove  recreant  to  the  trust  im- 
posed upon  them  by  the  disso- 
lution agreement.  The  retiring 
partners  have  a  right  to  receive 
all  information  respecting  collec- 
tions made,  and  access  to  the 
books,  and  where,  by  reason  of 
bitter  enmity  between  the  parties, 
this  information  and  access  can 
not  reasonably  be  expected,  and 
money  that  should  be  applied  on 
firm  Indebtedness  is  diverted  or 
not  used  for  that  purpose  a  re- 
ceiver will  be  appointed.  White  v. 
Colfax,  1  Jones  &  S.  (N.  Y.)  297. 

3  In  AUyn  v.  Boorman,  30  Wis. 
684,  the  retiring  partner  is  held 
to  occupy  the  relation  of  surety 
and  entitled  to  the  rights  of  a 
surety.  In  Law  v.  Ford,  2  Paige 
(N.  Y.)  310,  it  was  held  that  where 
either  partner  has  a  right  to  dis- 
solve the  partnership,  and  there  is 
no  provision  as  to  a  settlement  the 
appointment  of  a  receiver  is  a  mat- 
ter of  course,  and  the  court  will 
direct  the  receiver  to  apply  the 
assets  ratably  and  without  prefer- 
ence. To  the  same  effect  is  Marten 
v.  Van  Schaick,  4  Paige  (X.  Y.) 
479.  On  a  creditor's  bill  against 
a  dissolved  firm  where  one  has  as- 
sumed the  indebtedness,  it  was 
held  that  a  receiver  should  be  ap- 
pointed over  the  separate  property 
of  the  remaining  partner  and  the 
partnership  property  but  not  over 


416  LAW   OP    RECEIVERS. 

liition  the  retiring  partner  transfers  to  tlie  remaining 
partner  the  legal  title  to  the  partnership  assets  and  the 
latter  in  consideration  of  such  transfer  undertakes  to 
discharge  the  firm  liabilities.  He  thus  holds  the  property 
of  the  late  firm  charged  A\ith  a  specific  purpose  and  the 
courts  jealously  protect  the  interests  of  the  retiring  part- 
ner therein.  There  may  also  be  a  violation  of  the  terms 
of  the  dissolution  agreement  in  other  important  par- 
ticulars which  will  be  ample  cause  for  the  intervention 
of  the  court  and  the  appointment  of  a  receiver.*  But  in 
this  class  of  receiverships,  as  in  others,  the  element  of 
danger  is  in  all  cases  a  necessary  element  in  the  absence 
of  which  the  court  will  refuse  to  act. 

§  136.    Effect  of  Death  of  One  Copartner  as  Ground  for  Re- 
ceiver. 

The  death  of  a  partner,  as  a  rule,  dissolves  the  part- 
nership, but  the  surviving  partner  or  partners  are  re- 
quired to  wind  up  the  partnership  business  and  for  the 
purpose  of  doing  so  are  entitled  to  remain  in  possession 
of  the  business  and  the  partnership  assets  for  a  reason- 
able time,  in  the  absence  of  a  statute,  to  close  up  the 
business  and  account  to  the  representatives  of  the  de- 
ceased partner  for  his  interest  in  the  concern.  During 
the  winding  up  of  the  partnership  business  by  the  sur^ 
viving  partner  or  partners  the  court  is  frequently  called 
upon  to  protect  the  interest  of  the  deceased  partner 
against  mismanagement  or  fraud  or  great  danger  of  loss, 

the  separate  property  of  the  retir-  per  and  personal  quarrels.   Conner 

ing  partner.     Henry  v.  Henry,   10  v.    Belden,    8    Daly    (N.    Y.)    257. 

Paige  (N.  Y.)  314.    In  the  absence  Cf.  Harding  v.  Glover,  18  Ves.  Jr. 

of  danger  the   court  will   not   ap-  281;    Peacock  v.  Peacock,  16  Ves. 

point   a   new    receiver   in    lieu   of  Jr.    49;    Wilson    v.    Greenwood,    1 

coreceivers    previously    appointed  Swanst.  471;   Butchart  v.  Dresser, 

by   consent   of  all   parties,   where  4  DeG.  M.   &  G.  542. 

the    only    cause    of    disagreement  4  White  v.  Colfax,  1  Jone^  &  S. 

was  their  incompatibility  of  tom-  (N.  Y.)  297;  also  preceding  note. 


MATTERS    ARISING   FROM    PARTNERSHIPS. 


417 


wliicli  is  usually  accomplished  by  the  appointment  of  a 
receiver.^ 


1  Baldwin  v.  Booth,  W.  N.,  1872, 
229. 

In  Connor  v.  Allen,  Harr.  Ch. 
(Mich.)  371,  it  is  held  that  a  sur- 
viving partner  has  a  legal  right  to 
the  possession  of  the  partnership 
property  and  the  court  will  not  de- 
prive him  of  that  right  except  upon 
proof  of  mismanagement  or  danger 
to  the  partnership  effects.  Cf. 
Walker  v.  House,  4  Md.  Ch.  39; 
Philips  V.  Atkinson,  2  Bro.  C.  C. 
272;  Jacquin  v.  Buisson,  11  How. 
Pr.  (N.  Y.)  385;  Davis  v.  Amer, 
3  Drew.  64;  Kirkpatrick  v.  Mc- 
Elroy,  41  N.  J.  Eq.  539,  7  Atl.  647; 
Murray  v.  Mumford,  6  Cow. 
(N.  Y.)  441;  Case  v.  Abeel,  1  Paige 
(N.  Y.)    393. 

If  the  survivor  does  not,  within 
a  reasonable  time,  account  with 
the  executor,  and  come  to  a  settle- 
ment, equity  will  interfere,  in  order 
to  prevent  loss,  and  appoint  a  re- 
ceiver. Hartz  v.  Schrader,  8  Ves. 
Jr.  317. 

The  court  will  not  interfere  in 
case  of  an  existing  partnership  ex- 
cept for  mismanagement  or  viola- 
tion of  the  partnership  agreement, 
and  where  one  partner  dies  the 
surviving  partner  has  a  right  to 
remain  in  possession  and  close  up 
the  partnership  business,  and  in 
such  case  the  court  will  not  inter- 
fere by  the  appointment  of  a 
receiver  in  the  absence  of  unfaith- 
fulness or  insolvency.  Where  by 
agreement  the  capital  in  the  busi- 
ness is  to  remain  for  a  given 
length  of  time,  the  acting  partner 
has  a  right  to  use  such  capital  and 
can  only  be  interfered  with  on 
such  ground  as  would  justify  a  dis- 
l  nec.--27 


solution  of  the  partnership  before 
the  time  limited  therefor.  Jacquin 
v.  Buisson,  11  How.  Pr.  (N.  Y.) 
385. 

A  receiver  should  not  be  ap- 
pointed over  partnership  assets 
while  in  the  possession  of  a  sur- 
viving partner  without  a  clear 
showing  of  mismanagement  or 
improper  conduct  and  danger  of 
ultimate  loss  to  the  estate  of  the 
deceased  partner.  Painter  v.  Pain- 
ter, 4  Cal.  Unrep.  636,  36  Pac.  865. 

The  surviving  partner  may  do 
everything  necessary  to  wind  up 
the  affairs  of  the  partnership.  Ber- 
son  V.  Ewing,  84  Cal.  89,  23  Pac. 
1112. 

The  right  to  wind  up  the  affairs 
of  the  partnership  becomes  vestei 
in  the  surviving  partner.  Mere  de- 
lay on  the  part  of  the  surviving 
partners  will  not  justify  the  ap- 
pointment of  a  receiver.  Collins 
V.  Young,  1  Macq.  385. 

Failure  of  surviving  partners  to 
close  out  the  partnership  business 
within  a  year  after  the  death  of 
one  of  the  partners,  as  provided 
for  in  the  articles  of  copartnership, 
will  not  require  the  appointment 
of  a  receiver,  where  they  acted  in 
good  faith  believing  that  such 
action  would  be  prejudicial  to  all 
concerned,  and  agree  to  close  out 
the  business  at  once  upon  the  com- 
mencement of  proceedings  for  an 
accounting.  Mason  v.  Dawson,  15 
Misc.  595,  37  N.  Y.  Supp.  90,  72 
N.  Y.  St.  Rep.  123. 

In  all  cases  it  is  held,  except 
where  the  partnership  agreement 
otherwise  provides,  that  the  death 
of  one  partner  operates  instanter 
as  a  dissolution  of  the  partnership. 


418 


LAW   OF   RECEIVERS. 


Where  the  defendant  partner  who  survives  the  part- 
nership sets  up  a  claim  to  the  whole  of  the  partnershix^ 
property  in  himself  a  receiver  was  appointed,-  and  a  re- 
ceiver will  likewise  be  appointed  where  one  partner  is 
dead  and  the  survivor  is  mismanaging  the  business^  or 
appropriating  the  assets  to  his  indi\ddual  use.^   If,  how- 


Ex  parte  Williams,  11  Ves.  Jr.  5; 
Vulliamy  v.  Noble,  3  Meriv.  614. 

2  After  the  death  of  one  partner 
a  receiver  will  be  appointed  only 
in  case  of  a  breach  of  duty  or  in 
a  breach  of  contract;  and  where  a 
surviving  partner  is  carrying  on 
the  business  on  his  own  account 
with  the  partnership  effects,  a  re- 
ceiver will  be  appointed.  Harding 
V.  Glover,  18  Ves.  Jr.  281. 

In  Madgwick  v.  Wimble,  6  Beav. 
495,  it  was  held  that  where  by 
partnership  stipulation  a  son  of 
one  partner,  or,  in  case  of  his 
minority,  the  executor,  should  on 
the  death  of  such  partner  succeed 
to  his  share  in  the  partnership 
business,  the  court  considered  it 
an  option  in  favor  of  such  son  or 
executor  and  not  an  obligation. 
Where  the  defendant  in  an  action 
for  dissolution  set  up  a  claim  to 
the  whole  of  the  partnership  prop- 
erty for  himself,  it  was  held  that 
it  was  unnecessary  to  allege  or 
show  misconduct  or  mismanage- 
ment on  his  part. 

3  Miller  v.  Jones,  39  111.  54;  Nel- 
son V.  Hayner,  66  111.  487;  Walker 
V.  House,  4  Md.  Ch.  39;  Renton  v. 
Chaplain,  9  N.  J.  Eq.  62;  Jacquin 
V.  Buisson,  11  How.  Pr.  (N.  Y.) 
385;  Hubbard  v.  Guild,  1  Duer 
(N.  Y.)  662;  Law  v.  Ford,  2  Paige 
(N.  Y.)  310;  Evans  v.  Evans,' ^) 
Paige  (N.  Y.)  178;  Gratz  v.  Bay- 
ard, 11  Serg.  &  R.  (Pa.)  41;  Madg- 
wick   V.    Wimble,    6    Beav.    495; 


Clegg  v.  Fishwick,  1  Macn.  &  G. 
264. 

Receiver  should  not  be  ap- 
pointed where  surviving  partner 
is  solvent  upon  allegation  that  it 
was  apprehended  he  had  disposed 
of  his  personal  assets.  Dickens  v. 
Dickens,  154  Ala.  440,  45  So.  630. 

A  receiver  may  be  appointed  of 
partnership  property  after  the 
death  of  one  partner  where  the 
surviving  partner  has  given  the 
administrator  of  the  deceased 
partner  notes  for  the  share  of  the 
deceased  partner  which  he  fails 
to  pay,  and  conducts  the  business 
in  such  a  manner  that  the  prop- 
erty is  greatly  depreciated  in 
value.  Adams  v.  Hannah,  97  Ga. 
515,  25  S.  E.  330. 

Where  a  surviving  partner  is 
carrying  on  the  business  and 
using  the  assets  of  the  deceased 
partner  therein,  a  receiver  may 
be  appointed.  Madgwick  v.  Wim- 
ble, 6  Beav.  495. 

4  In  Geortner  v.  Canajoharie,  2 
Barb.  (N.  Y.)  625,  it  appeared  that 
after  the  death  of  one  partner  the 
remaining  insolvent  partner  sold 
a  part  of  the  partnership  stock 
to  pay  his  individual  debts  and  the 
purchaser  had  knowledge  of  the 
insolvency  and  of  his  object  of 
making  the  sale,  it  was  held  that 
the  sale  was  void  and  that  each 
partner  had  a  right  to  have  the 
funds  applied  directly  to  the  dis- 
charge   of    the    partnership    debts 


MATTERS    ARISING   FROM   PARTNERSHIPS. 


419 


ever,  the  surviving  partner  in  charge  of  the  business  is 
acting  in  good  faith  and  responsible,  the  fact  that  he  re- 
sides in  another  county  and  manages  the  business 
through  an  agent  will  not  be  regarded  as  ground  for  the 
appointment  of  a  receiver.^ 

In  order  for  the  court  to  appoint  a  receiver  over  the 
estate  of  a  partnership  which  is  being  settled  by  the  sur- 
viving partner  a  very  strong  case  must  be  made  showing 
mismanagement  or  danger  of  loss.^ 


and  that  if  the  funds  were  not  so 
applied  a  receiver  would  be  ap- 
pointed. Where  a  receiver  is  ap- 
pointed after  the  death  of  one 
partner  such  receiver  succeeds  to 
the  rights  of  the  surviving  part- 
ner. Kirkpatrick  v.  McElroy,  41 
N.  J.  Eq.  539,  7  Atl.  539. 

Where  decedent's  estate  con- 
sisted mainly  of  his  interest  in  a 
partnership,  the  fact  that  the  sur- 
viving partner,  who  was  dece- 
dent's executor,  failed  to  account 
for  certain  assets,  of  which  the 
principal  item  was  the  good  will 
of  the  partnership  and  the  value 
of  the  use  of  the  firm  name,  which 
he  had  appropriated  for  a  new 
partnership,  did  not  justify  the 
appointment,  in  an  action  by  the 
daughter  and  executrix  of  dece- 
dent against  such  executor,  of  a 
receiver  pendente  lite  of  the  prop- 
erty of  the  old  firm,  where  it  was 
not  alleged  that  defendant  was 
insolvent,  or  likely  to  become  in- 
solvent. Joseph  v.  Herzig,  130 
App.  Div.  707,  115  N.  Y.  Supp.  33\. 

5  Evans  v.  Evans,  9  Paige 
(N.   Y.)    178. 

6  Painter  v.  Painter,  4  Cal. 
Unrep.  636,  36  Pac.  865;  Helme 
v.  Littlejohn,  12  La.  Ann.  298; 
Comstock  V.  McDonald,  113  Mich. 
626,    71    N.    W.    1087;     Miller    v. 


Miller,  80  N.  J.  Eq.  47,  82  Atl.  513; 
Booth  V.  Smith,  79  Hun  384,  29 
N.  Y.  Supp.  790,  61  N.  Y.  St.  Rep. 
496;  Dawson  v.  Parsons,  66  Hun 
628,  21  N.  Y.  Supp.  212  (affirming 
20  N.  Y.  Supp.  65),  46  N.  Y.  St. 
Rep.  721;  Brown  v.  Finch,  63  Hun 
235,  17  N.  Y.  Supp.  805,  28  Abb. 
N.  C.  36;  People's  Nat.  Bank  v. 
Hodgin,  129  N.  C.  247,  39  S.  E. 
959;  Holden  v.  McMakin,  1  Pars. 
Eq.  Cas.  (Pa.)  270;  Jennings  v. 
Chandler,  10  Wis.  21;  Madgwick 
V.  Wimble,  6  Beav.  495,  7  Jur.  661, 
14  L.  J.  Ch.  387;  Eraser  v.  Kre- 
shaw,  2  Jur.  (N.  S.)  880,  2  Kay 
&  J.  496,  25  L.  J.  Ch.  445,  4  W.  R. 
431;  Young  v.  Buckett,  51  L.  J.  Ch. 
504,  46  L.  T.  226,  30  W.  R.  511; 
Bilton  v.  Blakely,  6  Grant  Ch. 
(U.  C.)   575. 

A  receiver  of  partnership  prop- 
erty should  not  be  appointed 
because  of  the  objection  of  com- 
plainants, pending  a  suit  by  the 
surviving  partner  against  the  rep- 
resentative of  a  deceased  part- 
ner for  an  accounting  and  a  sale 
of  the  property  with  permission 
to  the  complainants  to  purchase 
to  enable  them  to  continue  the 
business  in  their  own  interests, 
where  the  complainants  appear  to 
be  abundantly  responsible  and 
able   to  do  justice   on   a   final  ac- 


420 


LAW   OF    RECEIVERS. 


The  mere  appointment  of  an  executor  or  administra- 
tor of  the  estate  of  a  deceased  partner  is  not  ground  for 
the  appointment  of  a  receiver.'^ 

§  137.    Agreements  Made  With  the  Deceased  or  His  Represen- 
tatives Respecting  the  Business. 

If  the  surviving  partner  fails  to  live  up  to  agreements 
made  with  the  deceased  partner  in  his  lifetime  or  his 
heirs  in  respect  to  a  dissolution  of  the  partnership  or  its 


counting,  and  the  appointment  of 
a  receiver  would  be  detrimental  to 
or  destructive  of  the  business. 
Comstock  V.  McDonald,  113  Mich. 
626,  71  N.  W.  10S7. 

In  case  of  the  death  of  one  of 
the  partners,  the  surviving  part- 
ner has  no  right  to  hold  and  min- 
gle the  partnership  assets  with 
his  own,  so  that  they  can  not 
be  distinguished,  unless  he  gives 
bond  and  also  conforms  to  the 
statutory  provisions,  and  the  ad- 
ministrator of  the  deceased  part- 
ner may  have  a  receiver  appointed, 
unless  such  bond  be  furnished. 
Jennings  v.  Chandler,  10  Wis.  21. 

Where  the  representative  of  a 
deceased  partner  makes  a  prima 
facie  showing  of  being  entitled  to 
share  in  a  renewed  lease  made 
after  the  death  of  the  testate 
partner,  a  receiver  may  be  ap- 
pointed until  the  rights  of  the 
parties  are  determined  by  the 
courts.  Clegg  v.  Fishwick,  1  Mac. 
&  G.  294.  But  see  Reinhardt  v. 
Reinhardt,  134  App.  Div.  440,  119 
N.  Y.  Supp.  285,  holding  insolvent 
condition  should  be  shown. 

Where  the  surviving  partner 
sells  the  partnership  property  to 
a  corporation  and  refuses  to  allow 
the  wife  of  his  deceased  partner 
access  to  the  books  or  knowledge 


of  the  condition  of  affairs,  it  is 
proper  to  appoint  a  receiver.  Mil- 
ler V.  Miller,  80  N.  J.  Eq.  47,  82 
Atl.  513. 

A  bill  by  a  distributee  of  the 
estate  of  a  deceased  member  of  a 
partnership  against  the  surviving 
partner,  who  is  also  administrator 
of  the  intestate's  estate,  charging 
him  with  misappropriation  and 
personal  sequestration  of  the  as- 
sets of  the  partnership,  in  viola- 
tion of  his  duty  to  wind  up  the 
business  without  delay  and  with 
due  regard  for  the  interests  of 
those  entitled  to  participate,  but 
which  shows  that  defendant  not 
only  owns  real  estate  sufficient  to 
protect  complainant  against  less 
because  of  such  misappropriation, 
but  that  he  will  be  entitled  to  one- 
third  of  the  aggregate  net  assets 
of  the  partnership,  does  not  war- 
rant the  appointment  of  a  receiver, 
even  though  it  is  further  charged, 
but  unsupported  by  the  facts 
pleaded,  that  defendant  has  at- 
tempted and  will  attempt  to  con- 
vert his  property  into  movable 
assets,  so  that  the  whole  may  be 
readily  concealed,  or  else  removed 
without  the  court's  jurisdiction. 
Dickens  v.  Dickens,  154  Ala.  440, 
45  So.  630. 

7  Helme    v.    Littlejohn,    12    La. 
Ann.  298. 


MATTERS    ARISING    FROM    PARTNERSHIPS.  421 

future  operation,  a  receiver  may  become  necessary.  Thus 
where  a  partnership  has  terminated  by  agreement  and  it 
is  part  of  the  terms  of  dissolution  that  a  third  person 
should  collect  the  outstanding  assets  and  afterward  one 
of  the  partners  dies,  the  survivor  can  not  repudiate  the 
agreement,  and  if  he  does  so  the  legal  representative  of 
the  deceased  partner  has  a  right  to  a  receiver.^ 

Likewise  where  a  surviving  partner  agreed  to  sell  the 
business  to  the  wife  and  son  of  his  deceased  partner 
who  were  to  operate  it  under  certain  conditions,  but  who 
after  the  death  of  the  surviving  partner  claimed  to  be 
the  owners  of  it,  a  receiver  was  appointed  at  the  in- 
stance of  a  partnership  creditor  on  a  showing  that  the 
assets  are  insufficient  to  pay  the  creditors.^ 

§  138.    Effect  Where  All  the  Partners  Are  Dead. 

Where  all  of  the  partners  are  dead  the  circumstances 
arising  from  such  a  condition  of  affairs  generally  make 
it  advisable  to  appoint  a  receiver.^  The  reason  assigned 
in  an  old  English  case  for  appointing  a  receiver  in  such 
circumstances  is  that,  although  the  mutual  confidence 
which  exists  between  partners  is  not  destroyed  in  respect 
to  a  surviving  partner  by  the  death  of  one  of  the  part- 
ners, when  all  of  the  partners  die  no  such  mutual  confi- 
dence survives  in  respect  to  the  legal  representatives  of 
the  partners.^ 

1  Davis  V.  Ames,  3  Drew  64.  Where  all  of  the   partners   die, 

2  Vermont  Marble  Co.  v.  Spaf-  the  partnership  assets  are  not  con- 
ford   162  Mich.  549,  127  N.  W.  669.      fused  with  the  estate  of  the  last 

1  Wilson  V.  Murphy's  Admr.,  33  survivor.    The  right  of  successors 

Ky    Law  Rep.  716,  110  S.  W.  893;  ^an  only  be  determined  in  equity. 

Philips  V.  Atkinson,   2   Bro.   C.  C.  Theller  v.  Such,  57  Cal.  447. 

272;      Wilson     v.     Greenwood,     1  2  Phillips  v.  Atkinson,  2  Brown's 

Swanst.  480;  Hall  v.  Hall.  3  Macn.  Ch.  Cas.  272.     Also  quoted  to  the 

&    G.    79.      See,    also,    Walker    v.  same  effect  in  Walker  v.   House, 

House,  4  Md.  Ch.'  39.  4  Md.  Ch.  39. 


422  LAW   OF   RECEIVERS. 

§  139.    Receivership  on  Behalf  of  Heirs  or  Legatees  of  De- 
ceased Partner. 

Altliougli  as  a  general  rule  the  surviving  partner  has  a 
right  to  settle  the  partnership  affairs  while  the  executor 
or  administrator  of  the  deceased  partner  is  only  entitled 
to  have  an  accounting  from  him,  still  if  the  surviving 
partner  so  conducts  affairs  as  to  show  danger  to  the 
assets  of  the  partnership  such  representative  of  the  de- 
ceased partner  may  have  a  receiver  appointed  under  the 
same  circumstances  as  the  deceased  partner  could  have 
done.^  Where  the  surviving  partner  refused  to  allow  a 
legatee  of  a  deceased  partner  to  receive  his  share  in  the 
partnership  on  the  ground  that  under  an  act  of  Parlia- 
ment the  legatee,  who  was  a  clergyman,  was  prohibited 
from  engaging  in  business,  the  court  appointed  a  re- 
ceiver.^ 

The  refusal  of  an  appointee  under  a  will  to  become  a 
partner  is  not  a  dissolution  arising  from  an  exclusion 
by  the  surviving  partner  and  will  not  furnish  ground  for 
the  appointment  of  a  receiver.^ 

§  140.    Effect  of  Insanity  of  One  Partner. 

Undoubtedly  the  fact  of  one  of  the  partners  becoming 
insane  and  being  thereby  incapacitated  from  attending 
to  his  duties  as  a  partner  would  be  cause  for  the  disso- 
lution of  the  partnership,  and  if  the  partner  in  charge 
of  the  partnership  business  is  guilty  of  conduct  in  the 
management  thereof  which  endangers  the  property,  a  re- 
ceiver will  be  appointed  pending  the  settlement  of  the 
business.^ 

1  Miller  v.  Jones,  39  III.  54;  3  Kershaw  v.  Matthews,  2  Russ. 
Jacquin  v.   Buisson,   11   How.    Pr.       62. 

(N.  Y.)  385,  394.  i  A  receiver  has  been  appointed 

The    executors    of    a    deceased  on  the  ground  of  a  partner's  in- 

partner  have  the  right  to  have  a  sanity.    Reynolds  v.  Austin,  4  Del. 

receiver  appointed^   Davis  v.  Amer,  Ch.   24. 

3  Drew.  64.  In    Rowlands    v.    Williams,    30 

2  Hale  V.  Hale,  4  Beav.  369.  Beav.    310,    the "  court   refused    to 


MATTERS   ARISING  FROM  PARTNERSHIPS. 


423 


§  141.    Sale  or  Assignment  of  Interest  of  One  Partner. 

A  sale  or  assignment  of  the  interest  of  one  member 
of  a  partnership  ordinarily  operates  as  a  dissolution  of 
the  partnership  and,  as  a  general  rule,  the  court  will  not 
interfere  by  the  appointment  of  a  receiver.  If,  however, 
the  remaining  partner  refuses  to  recognize  the  right 
of  the  assignee  to  have  an  accounting  in  respect  to  the 
rights  of  the  retiring  partner^  or  in  any  other  way  one 
party  or  the  other  excludes  a  party  entitled  to  partici- 
pate from  participation,^  a  receiver  may  be  appointed. 


appoint  a  receiver  or  manager,  as 
termed  in  the  English  practice,  to 
conduct  a  mine,  upon  one  of  the 
partners  becoming  insane,  but  or- 
dered a  sale,  with  a  manager  pend- 
ing such  sale. 

1  In  Seibert  v.  Seibert,  1  Brewst. 
(Pa.)  531,  one  partner  sold  his 
interest  to  another  member,  and 
it  was  held  that  the  sale  was  a 
dissolution  of  the  firm,  and  that 
the  vendee  bought  nothing  but  the 
right  to  account,  but  even  in  such 
case  the  remaining  partner  had  no 
right  to  exclude  the  selling  part- 
ner or  his  assignee  and  set  up  an 
adverse  interest.  The  court  say: 
"He  (the  remaining  partner)  can 
not  be  permitted  to  close  the  door 
in  the  face  of  one  who  holds  the 
undisputed  assignment  of  a  part- 
ner's share,  and  say  to  his  cestui 
que  trust  I  hold,  use,  and  trade 
with  all  the  property  as  my  own." 
Cf.  Hayes  v.  Heyer,  4  Sandf.  Ch. 
(N.  Y.)  485;  Rutter  v.  Tallis,  5 
Sandf.    (N.  Y.)    610. 

In  Kirby  v.  Ingersoll,  1  Dougl. 
(Mich.)  477,  it  was  held  that  the 
implied  authority  arising  from  the 
ordinary  contract  of  partnership 
does  not  authorize  one  partner 
•without  the  assent  of  the  other 
partners  to  make  a  general  assign- 


ment of  the  partnership  effects  to 
trustees   for   the   benefit   of   cred- 
itors,  giving   preference    to    some 
creditors  over  others;    and  where 
it  appears   that  such   assignment 
was   made   without   any   pressing 
necessity    therefor,    and    with    a 
view  of  dissolving  the  partnership 
and  thereby  depriving  other  part- 
ners   of   the   power   in   the    man- 
agement   and    disposition    of    the 
partnership  property  it  was  fraud- 
ulent and  void.    The  general  rule 
is  that  one  partner  has  no  right 
to    make    an    assignment    of    the 
partnership    effects    without    the 
consent  of  the  other  partner.  Dick- 
inson V.  Legare,  1  Desaus.  (S.  C.) 
537.     But  this   rule  probably   has 
an   exception   where   one    partner 
is    abroad    and    has    confided    the 
management  to  the  resident  part- 
ner.    Harrison  v.  Sterry,  &  U.  S. 
(5    Cranch)     289,    3    L.    Ed.    104; 
Cf.    Egberts    v.    Wood,    3    Paige 
(N.  Y.)  517,  24  Am.  Dec.  236;  the 
authority  in  such  case  would  prob- 
ably be  implied,  but  no  authority 
by    implication    can   arise    by    the 
simple     partnership     relationship. 
Havens  v.  Hussey,  5  Paige  (N.  Y.) 
30;  Hitchcock  v.  St.  John,  1  Hoffra. 
Ch.   (N.  Y.)   511. 

2  Davis  V.  Grove,  2  Robt.  (N.  Y.) 


424 


LAW    OF    RECEIVERS. 


A  receiver  may  likewise  be  appointed  in  such  circum- 
stances w^liere  the  remaining  partner  is  guilty  of  gross 
misconduct  in  respect  to  the  handling  of  the  partnership 
assets.^  The  power  of  dissolving  the  firm  and  at  the 
same  time  excluding  the  other  partners  from  all  partici- 


134,  635.  In  this  case  one  firm 
entered  into  an  agreement  with 
another  firm  to  do  business  on 
joint  account  in  the  purchase  and 
sale  of  sugar.  One  of  the  firms 
made  a  general  assignment  for  the 
benefit  of  creditors,  without  pref- 
erence. The  other  firm  filed  a  bill 
against  the  insolvent  firm  and  its 
assigns;  it  was  held  that  the  rela- 
tion of  the  two  firms  was  that  of 
partners,  on  the  authority  of 
Cumpston  v.  McNair,  1  Wend. 
(N.  Y.)  457;  Reynolds  v.  Cleve- 
land, 4  Cow.  (N.  Y.)  282,  15  Am. 
Dec.  369;  Mumford  v.  Nicoll,  20 
Johns.  (N.  Y.)  611;  and  Smith  v. 
AV right,  1  Abb.  Pr.  (N.  Y.)  243; 
that  the  interest  of  each  partner 
in  the  assets  and  stock  of  the 
partnership  was  subject  to  the  lien 
of  the  other  partners  for  payment 
beyond  their  share  of  the  debts  of 
the  company,  and  was  applicable 
to  the  payment  of  debts  not  paid, 
before  any  division  of  the  partner- 
ship property  (Addison  v.  Burck- 
myer,  4  Sandf.  Ch.  (N.  Y.)  498; 
Kirby  v.  Schoonmaker,  3  Barb.  Ch. 
(N.  Y.)  46;  Geortner  v.  Canajo- 
harie,  2  Barb.  (N.  Y.)  625;  that 
the  assignment  of  one  firm  only 
carried  that  residuary  interest,  as 
it  was  general  of  the  real  and 
personal  estate  of  the  assignors; 
that  the  attempt  of  the  assigning 
firm  to  appropriate  the  partner- 
ship assets  entitled  the  other  firm 
to  a  receiver.  Harding  v.  Glover, 
18  Ves.  Jr.  281;   Roberts  v.  Eber- 


hardt,  23  Eng.  L.  &  Eq.  245;  Wil- 
son v.  Greenwood,  1  Swanst.  471, 
580;  Const  v.  Harris,  Turn.  &  R. 
496;  Hubbard  v.  Guild,  1  Duer 
(N.  Y.)    662. 

In  Smith  v.  Brown,  50  Wash. 
240,  96  Pac.  1077,  the  plaintiff  part- 
ner sued  a  copartner  for  an  ac- 
counting. The  partnership  had 
been  formed  by  plaintiff  and  de- 
fendant and  two  others  to  publish 
a  book,  but  the  two  other  parties 
had  transferred  their  interests  in 
the  partnership  to  the  defendant, 
who  claimed  that  the  transfer  ter- 
minated the  partnership.  The  de- 
fendant thereupon  took  possession 
of  the  business  and  refused  to 
recognize  the  plaintiff  as  a  part- 
ner. It  was  not  shown  whether 
defendant  was  insolvent  or  that  a 
receiver  was  necessary  to  ascer- 
tain the  amount  due  plaintiff  in 
the  event  that  he  should  be  found 
to  be  entitled  to  a  share  in  the 
business,  and  on  the  contrary  it 
was  shown  that  the  appointment 
of  a  receiver  would  injure  the 
business.  The  court  refused  under 
the  circumstances  to  appoint  a  re- 
ceiver. 

3  In  Renton  v.  Chaplain,  9  N.  J. 
Eq.  62,  it  was  held  that  when  one 
partner's  interest  is  levied  on  and 
sold  it  works  a  dissolution  of  the 
firm,  but  the  court  will  not  appoint 
a  receiver  except  in  case  of  gross 
misconduct  of  the  remaining  part- 
ner. Heathcot  v.  Ravenscroft,  6 
N.  J.  Eq.  113. 


MATTERS    ARISING   FROM    PARTNERSHIPS.  425 

pation  in  tlie  administering  of  the  property  by  the  ap- 
pointment of  a  trustee  for  preferred  creditors  can  not 
be  presumed  among  the  powers  granted  by  partners  to 
each  other.  Power  beyond  this  may  be  given  in  particu- 
lar instances,  or  may  be  inferred  from  the  conduct  and 
course  of  business  of  the  partners.  The  circumstances  in 
which  one  partner  is  placed  may  some  times  give  him 
powder  to  do  what  otherwise  the  law  would  not  imply. 
The  circumstances  must  in  such  case  be  such  as  to  au- 
thorize the  presumption  that  such  power  was  conferred 
by  the  other  partners,  as  where  one  partner  is  abroad 
and  has  confided  tlie  management  of  the  business  to  the 
home  partner.  Hence,  where  one  of  the  partners  makes 
an  assignment  of  the  partnership  property  mth  the  in- 
tent of  excluding  his  copartner  from  his  rights  in  the 
partnership,  the  latter  may  seek  protection  by  the  ap- 
pointment of  a  receiver.^ 

But  where  certain  property  of  a  partnership  has  been 
assigned  to  the  plaintiff  partner  as  his  individual  prop- 
erty a  receiver  will  not  be  appointed  to  take  possession 
of  it  where  it  is  not  shown  that  his  right  to  the  property 
is  denied  or  his  right  to  the  possession  disturbed.^ 

§  142.    Where  Both  Partners  Have  Assigned  Their  Interests. 

Where  both  partners  have  assigned  their  respective  in- 
terests in  the  partnership  and  the  assignee  of  one  who  is 
in  possession  but  insolvent  refuses  to  recognize  the  rights 
of  the  other  assignee,  the  latter  may  procure  the  appoint- 
ment of  a  receiver  to  protect  his  interests.^ 

So  also  where  the  partners  have  attempted  to  make  a 
general  assignment  of  the  partnership  property  the  ap- 
pointment of  a  receiver  is  proper.^ 

4  Kirby    v.    Ingersoll,    1     Doug.  5  Buchanan     v.     Comstock,     57 

(Mich.)   477.     See,  also,  Anderson      Barb.    (N.   Y.)    579. 
V.    Tompkins,   Fed.    Cas.   No.    365,  i  Maynard  v.  Railey,  2  Nev.  313. 

1  Brock.  456.  2  Fox  v.   Curtis,  176  Pa.  St.   52, 

31  Atl.  952. 


426  LAW   OF    RECEIVERS. 

§  143.    Acceptance  of  Assignment  by  Remaining  Partner  and 
Assumption  of  Liability. 

Where  a  retiring  partner  upon  dissolution  of  the  part- 
nership assigns  his  interest  in  the  concern  to  his  co- 
partner upon  the  condition  that  the  latter  assume  and 
pay  all  the  debts  and  obligations  of  the  partnership  but 
the  continuing  partner  fraudulently  disposes  of  part  of 
the  funds  by  sending  them  beyond  the  jurisdiction  and 
failing  to  abide  by  his  covenant  with  the  partner,  who  is 
being  sued  for  partnership  debts,  a  receiver  may  be  ap- 
pointed upon  the  theory  that  the  relation  of  principal 
and  surety  was  created  between  the  partners  by  the  as- 
signment and  that  the  retiring  partner  had  an  inchoate 
lien  upon  the  partnership  assets  to  secure  their  proper 
application  toward  paying  off  the  obligations  of  the  part- 
nership.^ 

But  where  a  partnership  is  dissolved  and  the  partners 
charge  one  of  their  members  with  the  duty  of  settling 
its  affairs  and  he  makes  a  general  assignment  for  the 
benefit  of  all  of  the  partnership  creditors  without  giving 
preference  to  any  creditors  and  the  partner  so  making 
the  assignment  is  solvent,  the  appointment  of  a  receiver 
will  be  refused. - 

§  144.    Partnerships  Determinable  at  Will. 

Where  under  the  agreement  of  the  parties  the  partner- 
ship may  be  terminated  at  will  by  either  of  the  partners 
and  no  pro^dsion  is  made  for  dissolution,  the  court  will 
not  hesitate  at  appointing  a  receiver  to  mnd  up  the  part- 
nership where  the  partners  can  not  agree  in  relation  to 
such  winding  up.^ 

Some  misapprehension  has  arisen  as  to  several  of  the 
earlier  New  York  cases  which  are  frequently  cited  to  the 

1  West  V.  Chasten,  12  Fla.  315.  i  Law  v.  Ford,  2  Paige   (N.  Y.) 

2  Hayes  v.  Heyer,  4  Sandf.  Ch.  310;  Marten  v.  Van  Schaick,  4 
(N.  Y.)   485.  Paige  (N.  Y.)  479. 


MATTERS    ARISING    FROM    PARTNERSHIPS.  427 

effect  that  where  either  party  had  a  right  to  dissolve  the 
partnership  upon  a  bill  filed  for  the  purpose  of  closing 
its  affairs,  the  appointment  of  a  receiver  is  a  matter  of 
course.-  Although  these  cases  make  use  of  expressions 
Avhich  are  susceptible  of  the  broad  statements  referred 
to,  they  were  not  intended  to  operate  as  broadly  as 
stated.  The  true  rule  in  this  respect  was  explained  in  one 
of  the  earlier  cases^^  in  New  Jersey  by  Chancellor  Wil- 
liamson, in  which  he  said : 

''Where  the  copartnership  is  not  determinable  at  will 
and  the  court  is  resorted  to  for  the  purpose,  then  it  fol- 
lows that  a  receiver  will  be  appointed,  of  course.  The 
reason  is,  that  the  misconduct,  or  breach  of  trust,  or  the 
necessity,  whatever  it  may  be,  which  justifies  tlie 
court  in  decreeing  a  dissolution,  establishes  the  pro- 
priety of  appointing  a  receiver.  But  that  whenever 
a  partnership  is  dissolved  by  mutual  consent  or  de- 
termined by  the  will  of  either  party  a  Court  of  Chan- 
cery will,  as  of  course,  and  without  any  reason,  ex- 
cept that  such  is  the  wish  of  one  of  the  parties 
interested,    assume    the    control    of    the    business    and 

2  Law  V.  Ford,  2  Paige  (N.  Y.)  of  their  affairs,  and  be  subject  to 
310;  Marten  v.  Van  Schaick,  4  the  costs  and  charges  of  a  re- 
Paige  (N.  Y.)   479.  ceiver?     .     .     ." 

In  Cox  V.  Peters,  13  N.  J.  Eq.  39,  The    true    principle    is    that 

the    court,   after   referring  to   the  adopted  by  Chancellor  Williamson, 

New  York  cases  cited  above  and  viz.,  that   where  a   partnership   is 

the   principles   announced   by  dissolved    by    mutual    consent,    or 

them,  said:    "The  principle  must,  determined  by   the   will   of  either 

I    think,    be    adopted    with    some  party,  a  court  of  chancery  will  not, 

qualifications.      Upon    what    prin-  as  of  course,  assume  the  control 

ciple  is  it,  if  one  dissatisfied  part-  of  the  business  and  place  it  in  the 

ner  chooses  to  withdraw  from  the  hands   of   a  receiver.    A   receiver 

firm,  that  the  entire  management  will    be   appointed   only   where    it 

of   the   business   should   be   taken  appears  necessary  to  protect  the 

from  the  hands  of  other  partners  interest  of  the  parties.    Renton  v. 

and  vested  in  a  receiver  ?  If  the  Chaplain,  9  N.  J.  Eq.    (1   Stockt.) 

other  partners  are  open  to  no  im-  62;   Birdsall  v.  Colie,  10  N.  J.  Eq. 

peachment  on  the  ground  of  integ-  (2  Stockt.)   63. 

rity  or  responsibility,  why  should  3  Birdsall  v.  Colie,  10  N.  J.  Eq. 

they   be    deprived    of    the    control  63. 


428  LAW   OF    RECEIVERS. 

place  it  in  the  liands  of  a  mere  stranger,  appears  to  me 
a  rule  which,  in  its  general  application,  would  work 
great  injustice,  and  which  I  am  not  willing  to  adopt. 
Many  a  solvent  partnership  would  terminate  in  insol- 
vency if  its  affairs  were  suddenly  committed  to  the  hands 
of  a  stranger  unacquainted  with  the  intricacies  of  its 
business,  the  situation  of  its  assets,  and  the  character  of 
its  debtors." 

4.    Appointment  of  Receiver  in  Dissolution  Proceedings. 

§  145.    General  Nature  of  the  Dissolution  Proceedings. 

The  dissolution  proceedings  in  which  receivers  are 
sought  arise  either  by  reason  of  a  breach  of  the  part- 
nership duties  prior  to  a  termination  of  the  partnership 
relation^  or  as  an  auxiliary  to  dissolution  proceedings 
instituted  after  the  partnership  relation  has  terminated 
and  the  partners  can  not  agree  upon  a  settlement  of  its 
affairs.2 

In  a  dissolution  suit  the  appointment  of  a  receiver  is 
only  a  means  to  attain  the  end  contemplated  in  the  prin- 
cipal action.^ 

1  There  must  be  a  clear  showing  tation  to  such  misconduct,  abuse. 

of    mismanagement    or    improper  or  ill-faith,  but  there  must  be  an 

conduct  and  danger  of  loss  of  the  unequivocal      demonstration,      b  y 

property.      Painter    v.    Painter,    4  overt    acts    or    gross    departures 

Cal.  Unrep.  636,  36  Pac.  865.  from  duty,  that  the  danger  is  im- 

Where   the    partnership    is    not  minent  or  the  injury  already  ac- 

dissolved,  a  strong  showing  must  complished."    Citing  Story,  Partn., 

be  made  of  some  breach  of  duty  ?  288;  Williams  v.  Wilson,  4  Sandf. 

by  one   of  the   partners   or   some  Ch.  (N.  Y.)  379;  Harding  v.  Glover, 

violation  of  the  partnership  agree-  18  Ves.  Jr.  281. 
ment.     Bennett  v.  Smith,  108  Ga.  2  So,  also,  after  the  dissolution 

466,  34  S.  E.  156.  bas   taken  place,   but  the    copart- 

In  the  case  of  New  v.  Wright,  ners  can  not  agree  upon  a  settle- 

44  Miss.  202,  the  court  said:     "In  ment  of  its  affairs,  a  receiver  may 

order  to  justify  the  dissolution  of  be  appointed.    Fleming  v.  Carson, 

a    partnership    on    the    ground    of  37  Ore.  252,  62  Pac.  374. 
misconduct,   abuse,   or  ill-faith  of  3  Adams  v.  Woods,  8  Cal.  306. 

one  of  the  parties  it  is  not  suffl-  A  receiver  will  not  be  appointed 

cient  to  show  that  there  is  a  temp-  when  the  only  question  is  whether 


MATTERS   ARISING   FROM    PARTNERSHIPS.  429 

The  mere  fact  that  it  appears  tliat  the  partnership  will 
be  dissolved  at  the  trial  is  not  alone  sufficient  ground  for 
the  appointment  of  a  receiver.^ 

Likewise  the  mere  fact  that  a  complaining  partner 
prays  for  a  dissolution  of  the  partnership  in  his  pleadings 
will  not  be  sufficient  ground  for  the  appointment  of  a 
receiver.  In  order  to  be  entitled  to  such  relief  he  must 
show  such  a  state  of  facts  as  entitle  him  at  the  trial  to  a 
decree  of  dissolution,^ 

§  146.    Receivership  Before  Actual  Dissolution  of  Partnership. 

Where  the  partnership  has  not  been  already  dissolved 
by  agreement  or  otherwise  the  court  will  proceed  Avith 
great  caution  in  appointing  a  receiver  because  of  the 
effect  of  such  an  appointment  upon  the  partnership.^ 
The  general  rule  in  such  cases  being  that  a  receiver  will 
not  be  appointed  unless  a  dissolution  has  taken  place 
or  is  about  to  take  place  and  the  element  of  loss  or  dan- 
ger to  the  property  being  apparent.^    Where  the  part- 

a  partnership  has  been  dissolved.  4  Paige  (N.  Y.)  479;  McEIvey  v. 
Fairburn  v.  Pearson,  2  Macn.  &  G.       Lewis,  76  N.  Y.  373.     See  Jordan 

144.  V.  Miller,  75  Va.  442;   Harding  v. 

4  Harding  V.  Glover,  18  Yes.  281;  Glover,  18  Ves.  Jr.  281;  Smith  v. 
Fairburn  v.  Pearson,  2  Macn.  &  G.      Jeyes,   4   Beav.    503 ;    Chapman   v. 

145.  Beach,  1  Jac.  &  W.  589. 

5  Goodman  v.  Whitcomb,  1  J.  &  There  may  be  cases  independent 
W.  589;  Smith  v.  Jeyes,  4  Beav.  of  statutory  provisions  where  a 
503;  Roberts  v.  Eberhardt,  Kay  receiver  may  be  appointed  to 
148.  bridge  over  an  emergency  without 

1  Barnes  v.  Jones,  91  Ind.  161.  a   dissolution   of  the   partnership, 

2  Where  the  plaintiff  on  a  bill  but  the  general  rule  is  that  a  re- 
fer that  purpose  is  entitled  to  a  ceiver  for  the  business  of  a  firm 
dissolution,  a  receiver  may  be  ap-  will  not  be  appointed  unless  a 
pointed  if  danger  of  loss  is  shown.  dissolution  has  taken  place  or  is 
Williamson  v.  Wilson,  1  Bland  Ch.  about  to  take  place.  Dale  v.  Kent, 
(Md.)    418;    Wolbert  v.   Harris,   7  58  Ind.  584. 

N.  J.  Eq.  605;  Garretson  V.  Weaver,  In  Harding  v.  Glover,  IS  Ves. 
3  Edw.  Ch.  (N.  Y.)  385;  Henn  v.  Jr.  281,  it  was  held  that  a  re- 
Walsh,  2  Edw.  Ch.  (N.  Y.)  129;  ceiver  would  not  be  appointed 
Jackson  v.  DeForest,  14  How.  Pr.  upon  a  mere  dissolution  but  there 
(N.  Y.)  81;  Marten  v.  Van  Schaick,  must  be  some  breach  of  duty  of 


430 


LAW    OF   RECEIVERS. 


nersliip  lias  not  been  dissolved  by  the  agreement  of  the 
parties,  there  must  be  sufficient  grounds  for  the  dissolu- 
tion of  the  partnership  based  upon  misconduct  or  viola- 
tion of  duty  on  the  part  of  the  defendant  partner  in 
order  to  warrant  the  appointment  of  a  receiver.^  Tlie 
appointment  of  a  receiver  in  the  circumstances  shown  by 


a  partner  or  of  the  contract  of 
partnership.  In  this  case  the  de- 
fendant had  been  carrying  on  busi- 
ness on  his  own  account  with  the 
partnership  funds  and  a  receiver 
was  appointed. 

So  in  Estwiclc  v.  Coningsby,  1 
Vern.  118,  a  surviving  partner  was 
carrying  on  the  business  but  was 
neglecting  the  collection  of  the 
debts,  a  receiver  was  ordered  in 
default  of  security  required. 

In  Smith  v.  Jeyes,  4  Beav.  503, 
it  was  held  that  the  plaintiff  must 
show  a  dissolution  or  such  facts 
as  would  warrant  a  dissolution  be- 
fore the  court  would  interfere. 

A  receiver  will  not  be  appointed 
unless  the  partner  applying  there- 
for is  entitled  to  a  dissolution  of 
the  partnership.  Rische  v.  Rische, 
46  Tex.  Civ.  23,  101  S.  W.  849. 

3  A  receiver  will  not  be  ap- 
pointed where  it  does  not  appear 
that  on  final  decree  the  partnership 
will  be  dissolved.  Bufkin  v.  Boyce, 
104  Ind.  53,  3  N.  E.  615;  Whitman 
v.  Robinson,  21  Md.  30;  Garretson 
V.  Weaver,  3  Edw.  Ch.  (N.  Y.)  385; 
Jackson  v.  DeForest,  14  How.  Pr. 
(N.  Y.)  81;  Van  Rensselaer  v. 
Emery,  9  How.  Pr.  (N.  Y.)  135; 
Richards  v.  Baurman,  65  N.  C.  162; 
Roberts  v.  Eberhardt  or  Everhardt, 
1  Kay  148;  Hall  v.  Hall,  3  Macn. 
&  G.  79;  Goodman  v.  Whitcomb, 
1  Jac.  &  W.  589;  Chapman  v. 
Beach,  1  Jac.  &  W.  594;  Smith  v. 
Jeyes,  4  Beav.  503. 


In  Const  v.  Harris,  1  Turn.  & 
R.  496,  it  is  said  that  the  court 
will  sometimes  entertain  a  bill  to 
compel  partners  to  act  according 
to  the  partnership  agreement  and 
appoint  a  receiver;  but  the  gen- 
eral rule  announced  in  Smith  v. 
Jeyes,  4  Beav.  503,  is  that  there 
must  be  either  a  dissolution  or 
such  facts  alleged  which  if  proven 
at  the  hearing  would  entitle  the 
plaintiff  to  a  decree  for  dissolu- 
tion. Cf.  Roberts  v.  Eberhardt, 
Kay  148.  The  rule  laid  down  in 
Sieghortner  v.  Weissenborn,  20 
N.  J.  Eq.  172,  is  that  there  must 
be  a  cause  for  dissolution  shown 
and  as  to  what  is  a  sufficient 
cause,  it  may  be  shown  (1)  that 
the  business  of  the  partnership  is 
impracticable  and  can  not  be  car- 
ried on  except  at  a  loss.  Citing 
Baring  v.  Dix,  1  Cox  Ch.  213;  Jen- 
nings v.  Baddeley,  3  Kay  &  J.  78; 
Bailey  v.  Ford,  13  Sim.  495. 
(2)  That  all  confidence  between 
the  partners  has  been  destroyed  so 
that  they  can  not  proceed  to- 
gether; and  this  usually  follows 
where  one  partner  has  been  guilty 
of  mismanagement.  Citing  Harri- 
son v.  Tennant,  21  Beav.  482;  Bax- 
ter v.  Welsh,  1  De  G.  &  S.  173. 
See,  also,  Goodman  v.  Whitcomb, 
1  Jac.  &  W.  589. 

In  a  suit  by  one  partner  for  dis- 
solution, where  it  was  not  shown 
that  the  other  copartners  had  re- 
fused to  allow  the  plaintiff  to  par- 


llATll:^^    AiUslNG    FKOM    i'AUTNEUSHlPS. 


431 


the  complaining  partner  in  his  dissolution  proceedings  is 
a  matter  within  the  discretion  of  the  court.^  In  all  such 
cases  in  order  to  warrant  the  appointment  of  a  receiver, 
whether  under  the  usual  statutory  provisions  or  the  gen- 
eral rules  applicable  in  the  absence  of  a  statute,  there 
must  be  apprehension  of  danger  or  loss  to  the  partner- 
ship property^  from  the  actions  complained  of.     It  has 


licipate  in  partnership  affairs  or 
that  they  were  insolvent,  the  ap- 
pointment of  a  receiver  is  not 
necessary.  Wales  v.  Dennis,  9 
Wash.  308,  37  Pac.  450. 

If    both    partners    are    living    it 
must  appear  that  in  the  end,  or  on 
the  final  hearing  there   will  be  a 
dissolution    of    the    copartnership. 
Waters  v.  Taylor,  15  Ves.  Jr.  10; 
Peacock  v.  Peacock,  16  Ves.  Jr.  57. 
4  Gillett  v.  Higgins,  142  Ala.  444, 
4   Ann.  Cas.  459,  38  So.   664;    Sil- 
veira  v.  Reese,  7  Cal.  Unrep.  112, 
71  Pac.  515;  Robbins  v.  Reed,  174 
Ind.   291,  91   N.  E.   921;    Meyer  v. 
Meyer  Bros.,   116  La.   456,   40   So. 
794;    McNair  v.   Gourrier,   40    La. 
Ann.  353,  4  So.  310;   Pratt  v.  Mc- 
Hatton,  11  La.  Ann.  260;    Gridley 
V.  Conner,  2  La.  Ann.   87;   Bacon 
V.   Engstrom,    129    Minn.    229,   152 
N.  W.  264,  537;  Norton  v.  Sperry, 
113    Minn.    447,    129    N.    W.    843; 
Walsh  V.  St.  Paul  School  Furniture 
Co.,  60  Minn.  397,  62  N.  W.  383; 
Cox  V.  Volkert,  86  Mo.  505;  Rhodes 
V.  Wilson,  (N.  J.  Eq.)  19  Atl.  732; 
Wilson  V.  Fitcher,  11  N.  J.  Eq.  71; 
Birdsall  v.  Colie,  10  N.  J.  Eq.  63; 
Dunham  v.  Jarvis,  8  Barb.  (N.  Y.) 
88;   2  Edm.  Sel.  Cas.  (N.  Y.)  145; 
I^ratt  v.  Underwood,  4  N.  Y.  Civ. 
Proc.  R.  167 ;  Garretson  v.  Weaver, 
3-  Edw.    Ch.    (N.   Y.)    385;    Green- 
wald  v.  Gotham-Attucks  Music  Co., 
118  App.  Div.  29,  103  N.  Y.  Supp. 
123;    Bimberg    v.    Wagenhals,    53 


Misc.  Rep.  13,  102  N.  Y.  Supp.  925; 
Sarasohn  v.  Kamaiky,  110  App. 
Div.  713,  97  N.  Y.  Supp.  529;  Nolan 
v.  Nolan,  8  Lack.  Leg.  N.  (Pa.) 
291;  Spencer  v.  Emery,  8  Lack. 
Leg.  N.  (Pa.)  278;  Shulte  v.  Hoff- 
man, 18  Tex.  678;  Rische  v.  Rische, 
46  Tex.  Civ.  App.  23,  101  S.  W. 
849;  Webb  v.  Allen,  15  Tex.  Civ. 
App.  605,  40  S.  W.  342;  Martin  v. 
Wilson,  84  Wash.  625,  147  Pac. 
404;  Pini  v.  Roncoroni,  (1892)  1 
Ch.  633,  61  L.  J.  Ch.  218,  66  L.  T. 
255,  40  W.  R.  297. 

Under  the  English  practice  it 
was  held  that  if  the  court  was  in 
doubt  whether  the  trial  would  re- 
sult in  a  dissolution,  it  would 
refuse  to  appoint  a  receiver.  Good- 
man V.  Whitcomb,  1  J.  &  W.  589. 

5  Randall  v.  Morrell,  17  N.  J.  Eq. 
343,  was  a  case  where  the  defen- 
dant was  insolvent  and  a  receiver 
was  appointed. 

In  Page  v.  Van  Kirk,  1  Brewst. 
(Pa.)  282,  the  court  say:  "Al- 
though the  partnership  agreement 
provides  for  a  notice  of  six  months 
of  the  intention  of  dissolving  the 
partnership  and  a  clause  in  the 
agreement  provides  for  arbitration, 
yet  a  court  of  equity  in  a  proper 
case  will  appoint  a  receiver,  such 
as  excluding  one  partner  from  his 
share  in  the  management  of  the 
concern,  and  refusing  information; 
also  using  the  partnership  money 
for   private    purposes,   impractica- 


432 


LAW   OF   RECEIVERS. 


been  held  that  where  no  time  was  fixed  for  the  continu- 
ance of  the  partnership,  and  no  provision  made  for  a 


bility  of  carrying  on  the  business. 
In  this  case  the  court  ably  reviews 
all  of  the  authorities  authorizing 
a  dissolution  of  the  partnership  be- 
fore the  time  limited  therefor  by 
the    partnership    agreement,    and 
states  the  following  items  of  mis- 
management for  which  the  court 
will    decree    a    dissolution:     (1) 
where  one  of  the  partners  permits 
a  friend,   without  the   consent  of 
the   other  partner,   to   draw   upon 
the   concern   for   a  large   amount. 
Citing  Master  v.  Kirton,  3  Yes.  Jr. 
75.     (2)  Where  the  conduct  of  the 
parties    makes    it    impossible    to 
carry   on   the  business    upon   the 
terms  stipulated,  citing  Walters  v. 
Taylor,  2  Yes.  &  B.  304.    (3)  Where 
one   partner  refuses   another  per- 
mission to  inspect  the  books,  sells 
goods  for  an  inadequate  price,  and 
appropriates  partnership  funds  to 
his  own  use,  etc."   Citing  Goodman 
V.   Whitcomb,    1   Jac.    &    W.    589; 
Chapman  v.  Beach,   1   Jac.    &   W. 
594. 

But  it  has  also  been  held  that 
the  mere  fact  that  a  partnership 
business  is  unprofitable,  and 
should  be  discontinued  is  not  of 
itself  ground  for  a  receiver.  Moies 
V.  O'Neill,  23  N.  J.  Eq.  207.  Nor 
that  the  firm  is  largely  indebted 
and  is  not  making  money.  Shoe- 
maker V.  Smith,  74  Ind.  71.  Nor 
want  of  co-operation  between  the 
partners.  Roberts  v.  Eberhardt, 
Kay  148.  It  must  be  shown  in 
addition  that  one  partner  has  in- 
terfered so  as  to  prevent  the  busi- 
ness being  carried  on. 

And  where  a  dissolution  is  prob- 
able but  it  does  not  appear  that 


a  receiver  is  necessary  to  protect 
the  interests,  a  receiver  will  not 
be  appointed.  Birdsall  v.  Colie, 
10  N.  J.  Eq.  63;  Cox  v.  Peters, 
13  N.  J.  Eq.  39.  If  the  defendant 
offers  to  secure  the  plaintiff  a 
receiver  is  not  necessary.  Bu- 
chanan V.  ComiStock,  57  Barb. 
(N.  Y.)  568;  cf.  Saverios  v.  Levy, 
40  Hun  p39,  1  N.  Y.  St.  Rep.  758; 
Popper  V.  Scheider,  7  Abb.  Pr. 
N.  S.  (N.  Y.)  56;  Garretson  v. 
Weaver,  3  Edw.  Ch.  (N.  Y.)  385; 
Tomlinson  v.  Ward,  2  Conn.  396; 
Page  v.  Yankirk,  1  Brewst.  (Pa.) 
282,  290;  Slemmer's  Appeal,  58 
Pa.  168,  98  Am.  Dec.  255. 

In  a  suit  for  dissolution  of  a 
partnership,  an  ex  parte  order 
granting  a  receiver  and  an  injunc- 
tion against  the  managing  partner 
dispossessing  him  of  the  property, 
which  was  of  such  a  nature  that 
it  could  not  be  easily  converted  or 
dissipated,  was  a  nullity.  Gold- 
man V.  Manistee  Circuit  Judge, 
155  Mich.  47,  118  N.  W.  600. 

A  receiver  is  properly  appointed 
of  goods  belonging  to  a  firm  on 
which  there  are  three  mortgages, 
while  several  unsecured  creditors 
are  interested  and  the  partners  are 
unable  to  agree  and  have  applied 
for  a  dissolution  of  the  partner- 
ship. Rolfe  V.  Burnham,  110  Mich. 
660,  68  N.  W.  980. 

Under  Code  Civ.  Proc.  713, 
which  provides  that  a  receiver 
may  be  appointed  before  final 
judgment  where  there  is  danger 
that  the  property  will  be  removed 
beyond  the  jurisdiction,  materially 
injured  or  destroyed,  in  an  action 
for    dissolution    of    a   partuu.s"  ip 


MATTERS   ARISING    FROM    PARTNERSHIPS.  433 

settlement  upon  such  dissolution,  such  partnership  is  dis- 
solvable upon  the  will  of  one  partner  and  a  receiver  may 
be  appointed  in  a  proper  case.*^ 

But  a  court  will  not  appoint  a  receiver  over  a  partner- 
ship merely  because  the  partnership  is  dissolved  by  mu- 
tual consent  or  may  be  dissolved  at  the  ^dll  of  one  of  the 
partners.  A  necessity  to  protect  the  interests  of  either 
the  partners  or  the  creditors  must  appear  in  order  to  war- 
rant the  appointment.^ 

The  same  general  rules  apply  to  limited  partnerships.^ 

§  147.    Receivership  in  Case  of  Insolvency  of  the  Partnership. 

The  insolvency  of  a  member  of  a  partnership  in  pos- 
session of  the  property  of  a  partnership  in  the  course  of 
dissolution  naturally  jeopardizes  the  security  of  the 
property  in  respect  to  those  having  an  interest  in  seeing 
it  preserved  intact  and  consequently  furnishes  a  condi- 
tion of  affairs  in  which  a  receiver  is  properly  appointed.^ 

and  for  an  accounting,  where  it  (X.  Y.)  473,  the  court  appointed  a 
appears  that  defendant  had  entire  receiver  in  a  case  of  limited  part- 
management  of  the  partnership  nership  on  the  ground  of  disagree- 
business,  that  the  business  had  ment  of  partners  as  in  other  cases, 
been  very  successful  and  profit-  See,  also,  Van  Alstyne  v.  Cook,  25 
able,  that  plaintiff  had  drawn  more  N.  Y.  489. 

profits  than  defendant,  that  proper  i  Under    some    statutes   a    cred- 

books  of  account  were  kept,  that  itor  having  a  claim   of  a   certain 

no  moneys  were  paid  out  without  amount  may  have  a  receiver  ap- 

a    voucher,    that    defendant    was  pointed  where  the  defendant  is  in- 

financially    responsible,    and    that  solvent.      Citizens'    Nat.    Bank    v. 

plaintiff  was   financially  irrespon-  Minge,  49  Minn.  454,  52  N.  W.  44. 

sible,  a  receiver  before  final  judg-  In   a    suit    for   dissolution    of    a 

ment  will  not  be  appointed,  since  partnership    in    which   a    receiver 

there  is  no  necessity  for  the  ap-  has  been  appointed,  the  court  may 

pointment.      Cohn    v.    Wahn,    132  order  a  sale  of  the  property  where 

App.  Div.  849,  117  X.  Y»  Supp.  633.  the    partnership   is    insolvent  and 

6  Law  V.  Ford,  2  Paige  (X.  Y.)  the  business  is  being  carried  on  at 
310:  Marten  v.  Van  Schaick,  4  a  loss.  Wulff  v.  Superior  Court, 
Paige  (X.  Y.)  479;  McElvey  v.  110  Cal.  215,  52  Am.  St.  Rep.  78, 
Lewis,  76  X.  Y.  373.  42  Pac.  638. 

7  Cox  V.  Peters,  13  X.  J.  Eq.  39.  In  re  Hermanos,  L.  R.  24  Q.  B. 

8  In  Hogg  V.  Ellis,  8  How.  Pr.  Div.  640,  a  receiver  was  appointed 
IRec— 28 


434  LAW   OF    RECEIVERS. 

''While  insolvency  of  the  defendant  in  possession,  and 
against  whom  a  receiver  is  sought^  is  frequently  relied 
upon  by  the  court  as  a  ground  of  granting  the  relief,  it  is 
to  be  observed  that  insolvency  alone  will  not,  of  itself, 
warrant  a  court  in  appointing  a  receiver.  It  must  also 
appear  that  the  plaintiff  has  a  probable  cause  of  action 
against  the  defendant,  and  that  the  benefit  to  result 
from  his  recovery  will  either  be  wholly  lost  or  substan- 
tially impaired,  by  reason  of  the  insolvency,  unless  a 
receiver  is  appointed."^ 

The  reasons  which  actuate  courts  in  circumstances 
where  insolvency  appears  in  connection  with  a  partner- 
ship dissolution  case  were  set  forth  in  a  New  Jersey  case^ 
in  the  following  language : 

"The  circumstance  of  the  insolvency  of  one  of  the 
partners  in  addition  to  the  fact  of  the  dissolution  of  the 
firm,  would  under  ordinary  circumstances  induce  this 
court  to  assume  the  administration  of  the  partnership 
affairs,  I  think  admits  of  no  doubt.    And  it  seems  equally 

for  a  French  firm  having  a  branch  to  suit  for  their  debts  as  other  nat- 
office  in  England  and  having  sev-  ural  persons.  Their  creditors  are 
era!  members  living  in  England,  entitled  to  recover  judgment 
on  the  ground,  principally,  of  its  against  them  with  a  view  of  reach- 
having  been  declared  bankrupt  in  ing  the  individual  property  as  well 
the  French  courts.  as  partnership  property."    Speak- 

2  Lawrence    Iron   Works    Co.   v.  ing  of  the  nature  of  the  property 

Rockbridge  Co.,  47  Fed.  755.  of  a  limited  partnership  the  court 

In  Van  Alstyne  v.  Cook,  25  N.  Y.  further  say:  "They  are  not  trust 
489,  it  was  held  that  until  the  funds  in  the  hands  of  partners 
order  of  appointment  is  made  the  any  more  than  ordinary  partner- 
property  of  an  insolvent  limited  ships.  There  is  no  rule  of  equity 
partnership  is  liable  to  execution  which  makes  them  trust  funds  in 
of  a  creditor  recovering  judgment  any  other  sense  or  which  gives  a 
otherwise  than  by  confession,  and  court  of  equity  any  control  over 
such  creditor  may  thus  obtain  a  them,  or  which  forbids  any  cred- 
preference,  the  execution  binding  itor  of  the  copartnership,  or  of  any 
the  partnership  property  although  individual,  from  obtaining  a  lien 
the  judgment  is  against  the  gen-  on  them  by  due  process  of  law  in 
eral  partners  only.  "The  members  any  hostile  proceedings." 
of  a  limited  partnership  before  or  ^  Randall  v.  Morrell,  17  N.  J.  Eq. 
after  insolvency  are  just  as  liable  343. 


MATTERS    ARISING   FROM    PARTNERSHIPS.  435 

clear,  that  where  the  court  proceeds  on  this  consideration, 
an  injunction  is  an  ahnost  indispensable  auxiliary  to  a 
receiver.  The  insecurity  of  the  assets,  if  left  under  the 
power  of  an  insolvent  member  of  a  dissolved  firm,  is  the 
motive  in  such  case,  upon  which  the  judicial  action  is 
based ;  and  it  applies,  with  equal  force,  to  the  allowance 
of  an  injunction  as  to  the  appointment  of  a  receiver.  It 
is  only  by  the  united  efficacy  of  these  two  safeguards 
that,wheninsolvency  supervenes,  the  assets  of  the  copart- 
nership can  be  secured  and  preserved  for  the  benefit  of 
those  to  whom  they  equitably  belong." 

§  148.    Receivership  Where  the  Dissolution  Has  Occurred. 

When  there  has  been  a  dissolution  of  the  partnership 
by  limitation,  or  by  mutual  agreement,  or  otherwise,  and 
the  partnership  agreement  is  silent  as  to  the  method  of 
closing  up  the  business,  and  the  members  of  the  firm  can 
not  agree  in  reference  thereto,  a  receiver  may  be  ap- 
pointed if  such  an  appointment  is  necessary  to  preserve 
and  protect  the  partnership  property.^ 

rWhere    upon    dissolution    the  (Md.)  472,  where  after  dissolution 

firm  can  not  agree  upon  an  adjust-  the  partners  failed  to  agree  upon 

ment,  a  receiver  may  be  appointed.  an  adjustment,  the  funds  being  in 

Dunn   V.   McNaught,   38   Ga.    179;  the   hands   of  one   partner,   a  re- 

Saylor   v.    Mockbie,   9   Iowa   209;  ceiver  was  appointed. 

Van  Rensselaer  v.  Emery,  9  How.  It  was  held  that  it  was  not  al- 

Pr.  (N.  Y.)  135;  McElvey  v.  Lewis,  ways    necessary    that    the    court 

76  N.  Y.  373;  Law  v.  Ford,  2  Paige  should  be  satisfied  that  the  prop- 

(N.  Y.)    310;    Martin  v.  Smith,  21  erty  is  in  imminent  peril  and  that 

Jones  &  S.  (N.  Y.)  277;  Marten  v.  where  one  partner  in  the  ordinary 

Van  Schaick,  4  Paige  (N.  Y.)  479.  course  of  trade  seeks  to  exclude 

See,  also,  Reid  v.  Freed,  100  Miss.  another  from  taking  that  part  in 

48,  56  So.  278.  the  concern   which  he  is  entitled 

In  a  suit  to  close  the  affairs  of  to  take,  a  receiver  should  be  ap- 

a  partnership  admittedly  dissolved,  pointed.     And     after     dissolution 

a  receiver  will  be  appointed  only  takes  place,  or  is  intended,  if  one 

when  it  appears  necessary  to  pro-  partner  acts   against  the  interest 

tect  the   interests  of  the  parties.  of  the  other  or  carries  on   trade 

Nathan  v.  Bacon,  75  N.  J.  Eq.  401,  with  the  partnership  funds,  or  in 

72  Atl.  359.  any  other  manner  excludes  his  co- 

X  In    Speights    v.    Peters,    9    Gill  partner  from  that  share  to  which 


436 


LAW    OP    RECEIVERS. 


A  receiver  of  partnership  property  is  proper  in  a  suit 
for  the  settlement  of  partnership  affairs  where  the  part- 
nership has  expired  by  its  own  limitation  and  the  part- 
ners do  not  desire  to  continue  the  business  and  represen- 
tatives of  five-sixths  of  the"  interest  therein  request  such 
appointment.^ 

§  149.    Receivership  Where  the  Partners  Have  Agreed  as  to 
Method  of  Dissolution. 

Where  the  partners  have  agreed  among  themselves  not 
only  to  dissolve  their  partnership  but  also  as  to  the  man- 
ner in  which  the  atfairs  of  the  partnership  shall  be  set- 
tled, the  court  is  very  reluctant  to  appoint  a  receiver  at 
the  instance  of  one  of  the  partners.^  If,  however,  the  set- 


he  is  entitled  in  winding  up  the 
concern,  a  court  of  equity  will  ap- 
point a  receiver. 

i  In  Dunn  v.  McNaught,  38  Ga. 
179,  where  the  contract  provided 
that  upon  giving  six  months'  no- 
tice if  the  firm  did  not  pay  ten 
per  cent  profits  on  the  capital, 
the  firm  should  be  dissolved,  and 
the  evidence  showed  that  it  did 
not  pay  ten  per  cent,  the  partner- 
ship was  terminated  and  a  receiver 
appointed.  Cf.  Hamill  v.  Hamill, 
27  Md.  679. 

A  receiver  should  not  be  ap- 
pointed in  an  action  for  partner- 
ship dissolution  and  settlement, 
unless  necessary  to  protect  the 
property  or  the  interests  of  the 
parties.  But  a  receiver  should  not 
be  appointed  in  such  an  action 
where  there  were  no  debts,  and 
the  courts  had  definitely  settled 
the  accounts  of  the  parties,  and 
nothing  would  be  coming  to  plain- 
tiff. Albrecht  v.  Diamon,  125  Minn. 
283,  146  N.  W.  1101. 
\    A  receiver  may  be  appointed  to 


wind  up  the  affairs  and  distribute 
the  assets  of  persons  engaged  in  a 
manufacturing  enterprise,  who  be- 
came partners  through  an  invalid 
corporate  organization  and  there- 
after ceased  business.  Smith  v. 
Schoodcc  Pond  Packing  Co.,  109 
Me.  555,  84  Atl.  268. 

2  Witherbee  v.  W^itherbee,  17 
App.  Div.  181,  45  N.  Y.  Supp.  297. 

1  Fullenwider  v.  Bank  of  Waldo, 
101  Ark  259,  142  S.  W.  149;  Buf- 
kin  V.  Boyce,  104  Ind.  53,  3  N.  E. 
615;  Heflebower  v.  Buck,  64  Md. 
15,  20  Atl.  991;  Drury  v.  Roberts, 
2  Md.  Ch.  157;  Parkhurst  v.  Muir, 
7  N.  J.  Eq.  307;  Hoffman  v.  Haupt- 
ner,  135  App.  Div.  148,  119  N.  Y. 
Supp.  1022;  Meyer  v.  Reimers,  49 
App.  Div.  638,  63  N.  Y.  Supp.  1112, 
affirming  30  Misc.  307,  63  N.  Y. 
Supp.  681;  Rice  v.  Baggot,  54 
Hun  637,  7  N.  Y.  Supp.  518,  27 
N.  Y.  St.  Rep.  181,  4  Silv.  Sup. 
383,  affirmed.  Rice  v.  Baggot,  130 
N.  Y.  636,  29  N.  E.  151;  McDonald 
V.  Trojan  Button  Fastener  Co.,  56 
Hun  648,  10  N.  Y.  Supp.  91,  31 
N.  Y.   St.  374;    Law  v.  Garrett,  8 


MxVTTERS    ARISING   FROM    PARTNERSHIPS. 


437 


tlement  of  the  partnership  affairs  has  been  delegated  to 
one  or  more  of  the  partners  and  they  do  not  perform  it  as 
agreed  or  elements  of  bitterness  or  loss  of  confidence 
arise  in  connection  with  the  settlement  proceedings,  the 
court  may  appoint  a  receiver  to  close  the  matter.-  Like- 
wise where  the  partners  have  in  their  partnership  agree- 


Ch.   D.   26,   38   L.   T.   3,   26   W.   R. 

426. 

Where  the  precise  method  of  dis- 
solving the  partnership  is  agreed 
upon  in  the  copartnership  agree- 
ment and  provision  is  made  in  the 
agreement  for  tlie  appointment  of 
a  person  for  that  purpose,  the 
court  will  not  appoint  a  receiver. 
Meyer  v.  Reimers,  30  Misc.  Rep. 
307,  63  N.  Y.  Supp.  681. 

Where  a  partnership  is  dissolved 
by  mutual  consent  a  court  of 
chancery  will  not  place  it  in  the 
hands  of  a  receiver.  Cox  v.  Pe- 
ters, 13  N.  J.  Eq.  39. 

Where  the  partners  have  en- 
tered into  an  agreement  in  re- 
spect to  the  manner  of  dissolving 
their  partnership  affairs,  a  re- 
ceiver will  not  be  appointed  where 
no  danger  to  the  assets  is  shown 
and  the  defendant  is  financially 
responsible.  Simon  v.  Schloss,  48 
Mich.  233,  12  N.  W.  196. 

In  Martin  v.  Smith,  21  Jones  & 
S.  (N.  Y.)  277,  where  a  dissolu- 
tion had  been  made  by  agreement 
and  subsequently  one  of  the  mem- 
bers died,  it  was  held  that  his 
death  was  not  an  objection  to  the 
appointment  of  a  receiver. 

2  White  V.  Colfax,  1  Jones  &  S. 
(N.  Y.)  297.  Upon  the  dissolution, 
partners  may  make  such  an  agree- 
ment as  to  the  winding  up  as 
they  shall  deem  fit,  and  a  court 
of  equitv  will  not  interfere  and 
appoint  a  receiver  unless  the  par- 


ties prove  recreant  to  the  trust 
imposed  on  them.  When  such  an 
agreement  has  been  made  all  the 
members  of  the  firm  are  entitled 
to  have  supervision  over  the  acts 
of  those  selected,  to  receive  infor- 
mation from  them  respecting  col- 
lections made,  to  ask  for  and  have 
imparted  information  why  collec- 
tions are  not  pressed,  and  have 
access  to  the  books  of  the  firm; 
and  if  those  selected  deny  this 
right  or  unreasonably  interfere 
with  its  exercises,  or  even  if  the 
relations  of  the  parties  are  so 
changed  that  the  exercise  of  this 
right  would  reasonably  be  ex- 
pected to  be  attended  with  un- 
pleasantness or  embarrassment, 
the  court  will  appoint  a  receiver. 
In  this  case  the  feeling  of  friend- 
liness had  changed  into  bitter 
enmity  and  under  such  circum- 
stances it  would  be  imreasonable 
to  anticipate  that  the  plaintiff's 
right  of  supervision,  etc.,  could 
any  longer  be  exercised  without 
great  unpleasantness  and  embar. 
rassment,  if  indeed  it  could  be  ex> 
ercised  at  all. 

The  court  may  appoint  a  re- 
ceiver where  there  is  a  violation 
of  the  dissolution  agreement. 
Word  v.  Word,  90  Ala.  81,  7  So. 
412;  West  v.  Chasten,  12  Fla.  315; 
Miller  v.  Jones,  39  111.  54;  Drury 
V.  Roberts,  2  Md.  Ch.  157;  Berry 
v.  Folkes,  60  Miss.  576;  Ballard  v. 
Callison,  4  W.  Va.  326. 


438 


LAW   OF   RECEIVERS. 


merit  agreed  to  refer  matters  of  disagreement  between 
themselves  to  arbitrators,  the  court  will  not  as  a  rule 
interfere  by  appointing  a  receiver,^  but  where  they  have 
agreed  that  some  person  should  be  selected  to  settle  the 
partnership  affairs  upon  a  dissolution  but  they  fail  to 
agree  on  some  person,  the  court  may  solve  the  question 
by  appointing  a  receiver.^  But  where  the  partners  in 
their  partnership  agreement  have  provided  for  the 
method  of  closing  up  the  partnership  upon  its  termination 
by  lapse  of  time  and  the  plaintiff  who  is  seeking  the 
appointment  of  a  receiver  has  refused  to  abide  by  the 
agreement,  while  the  defendant  has  been  willing  to  do  so, 
the  court  will  refuse  to  make  the  appointment.^  The  part- 
ners can  not  by  their  agreement  interfere  with  the  rights 
of  the  creditors  to  obtain  payment  of  their  debts  from  the 
partnership  property  prior  to  a  distribution  to  the  part- 


3  In  Young  v.  Buckett,  51  L.  J. 
Ch.  504,  the  partnership  agree- 
ment provided  that  in  case  of  dis- 
putes between  the  partners  they 
should  be  settled  by  arbitration, 
yet  a  receiver  was  appointed. 

In  Law  V.  Garrett,  L.  R.  8  Ch. 
Div.  26,  the  court  refused  a  re- 
ceiver on  the  application  of  one 
partner  on  the  ground  that  the 
partners  by  an  agreement  had  re- 
ferred all  matters  in  dispute  to 
a  foreign  court,  and  although  the 
court  had  a  right  to  appoint  pend- 
ing an  arbitration  it  would  not  do 
so  unless  a  special  case  was  made, 
on  the  ground  that  it  would  inter- 
fere with  the  court  of  arbitration. 
Cf.  Semple  v.  Flynn  (N.  J.),  8 
Cent.  Rep.  549.  As  to  partnership 
as  between  the  parties,  see  Waugh 
V.  Carver,  2  H.  Bl.  235,  246. 

4  In  Mitchel  v.  Lister,  21  Ont. 
Rep.  22,  it  is  held  that  where  the 
partnership  articles  provided  that. 


on  dissolution,  the  partners  should 
select  a  person  to  collect  the  ac- 
counts and  settle  the  partnership 
affairs,  the  court  would,  upon  a 
failure  of  the  parties  to  agree  on 
some  person,  appoint  a  receiver. 
Cf.  Davis  V.  Amer,  5  Drew.  64; 
Law  V.  Garrett,  L.  R.  8  Ch.  Div. 
26;  Plewes  v.  Baker,  L.  R.  16  Eq. 
564. 

5  Where  articles  of  partnership 
provided  a  method  for  winding  up 
the  affairs  of  a  firm  on  termina- 
tion by  lapse  of  time,  and  the  de- 
fendant partner  followed  such 
method,  but  plaintiff  refused  to 
observe  it  and  it  appeared  that 
plaintiff  owned  no  part  of  the 
partnership  property,  but  was 
deeply  in  debt  to  it,  the  court 
should  not  appoint  a  receiver  at 
the  instance  of  the  plaintiff  in  an 
action  for  an  accounting.  Hoffman 
V.  Hauptner,  135  App.  Div.  148, 
119  N.  Y.  Supp.  1022. 


MATTERS    ARISING   FROM    PARTNERSHIPS.  439 

ners.^  And  where  a  partner,  upon  voluntary  dissolution 
of  a  partnership,  accepts  a  personal  covenant  of  his  co- 
partner to  pay  its  liabilities  and  account  to  him  for  his 
interest  in  the  assets,  he  is  not  entitled,  in  an  action  for 
an  accounting  and  the  recovery  of  the  amount  which  the 
copartner  agreed  to  pay  him,  to  the  appointment  of  a 
receiver  of  the  property.'^ 

5.    Receivership  on  Application  of  Creditors. 

§  150.    On  Application  of  Partnership  Creditors. 

In  matters  of  partnership  the  court  will  sometimes  ap- 
point a  receiver  in  an  action  brought  by  the  general  cred- 
itors of  the  firm  in  behalf  of  themselves  and  the  other 
creditors,  the  purpose  in  such  case  being  primarily  the 
appointment  of  a  receiver  and  ultimately  the  ratable  dis- 
tribution of  the  assets  of  the  firm.  But  in  this  class  of 
cases  there  must  be  mismanagement  or  insolvency  and 
threatened  loss  as  in  other  cases  of  what  are  commonly 
called  "creditors'  actions."^ 

6  If  the  court  should  appoint  a  of  a  receiver  over  a  partnership 
receiver  for  a  partnership  which  unless  he  can  show  that  he  will 
is  dissolved  by  agreement,  under  sustain  great  and  irreparable  in- 
which  one  of  the  partners  takes  jury  because  of  fraudulent  mis- 
possession  of  the  property  for  the  conduct  of  the  firm  or  of  some  of 
purpose  of  winding  up  the  firm,  the  partners.  Sanderson  v.  Stock- 
the  court  could  order  a  partial  dis-  dale,  11  Md.  563;  State  v.  Dickin- 
tribution  of  assets,  but  the  rule  son,  59  Neb.  753,  82  N.  W.  16; 
that  partnership  debts  must  be  Sobernheimer  v.  Wheeler.  45  N.  J. 
paid  before  distribution  to  part-  Eq.  614,  18  Atl.  234;  Jones  v. 
ners  would  still  obtain,  and  it  Meyer  Bros.  Drug  Co.,  25  Tex.  Civ. 
would  be  the  court's  duty  as  in  App.  234,  61  S.  W.  553. 
administration  of  estates  to  see  The  creditors  of  a  partnership 
that  the  partial  distribution  did  may  obtain  the  appointment  of  a 
not  interfere  with  the  payment  of  receiver  where  it  is  necessary  to 
debts  in  full.  Adams  v.  Carmony,  preserve  the  property.  Oliver  v. 
44  Ind.  App.  291,  87  N.  E.  708  (re-  Victor,  74  Ga.  543;  Staar  v.  Moy 
hearing  denied,  89  N.  E.  327).  Tong    Koon,    145    m.    App.    341; 

7  Alcott  V.  Vultee,  33  App.  Div.  Choppin    v.    Wilson,    27    La.    Ann. 
245,  53  N.  Y.  Supp.  474.  444;   Lawrence  Lumber  Co.  v.  A. 

1 A  general  creditor  is  not  en-  J.  Lyon  &  Co.,  93  Miss.  859,  47 
titled   to   obtain   the    appointment      So.   849;    Greenwood  v.  Brodhead, 


440 


LAW   OF    RECEIVERS. 


But  a  simple  partnership  creditor  of  a  copartnership 
has  no  such  lien  on  the  partnership  assets  as  entitles  him 


8  Barb.  (N.  Y.)  593;  Henry  v. 
Henry,  10  Paige  (N.  Y.)  314; 
Stone  Co.  v.  McLamb  &  Co.,  153 
N.  C.  373,  69  S.  E.  281. 

The  cases  of  Burgwyn  Bros.  To- 
bacco Co.  V.  Bentley,  90  Ga.  508, 
16  S.  E.  216,  and  Oliver  v.  Victor, 
74  Ga.  543,  were  actions  brought 
by  general  creditors.  In  the  latter 
case  suit  was  brought  to  set  aside 
a  voluntary  assignment  in  which 
a  receiver  was  appointed.  In 
Henry  v.  Henry,  10  Paige  (N.  Y.) 
314,  it  was  held  that  a  creditor 
was  not  entitled  to  a  receiver  of 
the  separate  property  of  one  of 
the  partners  who  had  sold  his  in- 
terest to  his  copartner,  the  latter 
assuming  the  payment  of  all  in- 
debtedness; that  the  receivership 
should  be  against  the  firm  prop- 
erty and  the  separate  property  of 
the  remaining  partner  unless  some 
valid  excuse  should  be  given  for 
not  doing  so. 

In  Greenwood  v.  Brodhead,  8 
Barb.  (N.  Y.)  593,  it  was  held 
that  creditors  at  large  must  have 
a  judgment  and  a  lien  either  legal 
or  equitable  and  to  be  in  a  posi- 
tion to  assert  such  lien.  In  Vena- 
ble  V.  Smith,  98  N.  C.  523,  4  S.  E. 
514,  it  was  held  that  before  a 
receiver  would  be  appointed  it 
must  be  manifest  that  there  is 
mismanagement  of  the  property 
and  that  it  is  in  danger  of  being 
lost  or  that  it  is  in  possession  of 
an  insolvent  or  unfit  trustee.  Cf. 
Dick  V.  Laird,  4  Cranch  C.  C.  667, 
Fed.  Cas.  No.  3891. 

Where  under  an  agreement  be- 
tween a  surviving  partner  and  the 
widow  and  son  of  his  deceased 
partner,  the  latter  carried  on  the 


business  under  a  contract  to  pur- 
chase it,  but  after  the  death  of 
the  surviving  partner  they  claimed 
to  own  the  partnership  property 
which  was  insufficient  to  pay  the 
partnership  creditors,  a  creditor 
may  obtain  the  appointment  of  a 
receiver  for  the  purpose  of  dis- 
tributing the  assets  ratably  among 
the  creditors.  Vermont  Marble 
Co.  V.  Spafford,  162  Mich.  549,  127 
N.  W.  669. 

In  Fechheimer  v.  Baum,  37  Fed. 
167,  2  L.  R.  A.  153,  the  court  say: 
"It  is  now  settled  that  the  courts 
of  the  United  States  may  admin- 
ister an  equitable  right  granted 
by  the  law  of  the  state  in  suits 
of  which,  from  other  reasons,  they 
have  jurisdiction.  It  was  urged 
that  creditors  without  judgment 
had  no  right  to  apply,  in  equity, 
for  the  appointment  of  a  receiver. 
That  this  is  the  general  rule  is 
undeniable,  but  there  are  excep- 
tions to  it,  and  one  of  these  ex- 
ceptions, of  apparently  clear  dis- 
tinctness, is  where  the  lawmaking 
power  has  enacted,  in  terms,  that 
the  debt  need  only  be  matured, 
with  payment  demanded  and  with 
a  refusal,  as  Is  the  law  in  Georgia. 
It  is  true  also — as  Is  held  in  this 
circuit  in  Jaffrey  v.  Brown,  29 
Fed.  476,  477— that  a  party  not 
intending  to  pay,  by  inducing  one 
to  sell  him  goods  on  credit, 
through  the  fraudulent  conceal- 
ment of  his  insolvency,  and  of  his 
intent  not  to  pay  for  them,  is 
guilty  of  a  fraud,  which  entitles 
the  vendor,  if  no  innocent  third 
party  has  acquired  an  interest  in 
them,  to  disaffirm  the  contract  and 
recover  the  goods."    Crittenden  v. 


MATTERS   ARISING   FROM    PARTNERSHIPS. 


441 


to  the  appointment  of  a  receiver  to  settle  up  the  partner- 
ship estate  upon  its  insolvency.^ 

In  order  to  maintain  an  action  for  the  appointment  of 
a  receiver  of  partnership  assets,  a  creditor  must  show 
that  he  can  not  enforce  payment  of  his  debt  by  judgment 
and  execution.  Hence  he  must  show,  not  only  the  insolv- 
ency of  the  partnership,  but  of  the  copartners  as  indi- 
viduals ;  and  even  then,  if  no  lien  nor  return  of  nulla  bona 
on  execution  has  been  obtained,  it  is  questionable  whether 
a  receiver  of  partnership  assets  should  be  granted,  except 
where  the  assignment  act  applies.^ 

Where  a  creditor  has  levied  an  execution  on  the  interest 
of  an  individual  partner,  the  court  will  not  appoint  a 
receiver  over  the  partnership  property  at  his  instance 


Coleman,  70  Ga.  293,  295;  Don- 
aldson V.  Farwell,  93  U.  S.  633, 
23  L.  Ed.  994.  Upon  the  question 
of  the  right  of  a  seller  to  disaffirm 
the  sale  and  retake  the  property 
sold  by  him,  upon  the  ground  of 
fraud  and  misrepresentation,  see 
note  to  Jaffrey  v.  Brown,  29  Fed. 
476,  485.  In  La  Chaise  v.  Lord, 
1  Abb.  Pr.  (N.  Y.)  213,  it  was 
held  that  the  court  would  not  ap- 
point a  receiver  where  the  appli- 
cation was  in  behalf  of  one  firm, 
out  of  a  large  number  of  creditors 
of  an  insolvent  firm.  Suit  must  be 
brought  by  all  the  creditors  of  the 
insolvent  firm  who  will  unite 
therein,  and  all  the  defendants 
sought  to  be  made  liable,  as  part- 
ners, should  admit  the  indebted- 
ness or,  in  other  words,  where  a 
receiver  is  asked  without  judg- 
ment the  indebtedness  must  be 
admitted.  See,  also,  Hardt  v.  Levy, 
72  Hun  225,  which  was  an  action 
by  the  general  creditors  and  all 
others  who  might  come  in  for  the 
purpose   of  procuring   a   receiver. 


In  this  case  it  was  held  that  such 
an  action  (without  judgment) 
could  not  be  maintained  against 
a  general  partnership  but  that  it 
might  be  maintained  against  a 
limited  partnership.  Cf.  Innes  v. 
Lansing,  7  Paige  (N.  Y.)  583;  Van 
Alstyne  v.  Cook,  25  N.  Y.  489. 

In  an  action  by  a  creditor  for 
the  appointment  of  a  receiver  of 
partnership  property,  where  evi- 
dence shows  waste,  mismanage- 
ment, and  collusion  on  the  part 
of  one  of  the  defendant  partners, 
and  probably  loss  to  another  de- 
fendant partner,  it  makes  a  prima 
facie  case  warranting  the  appoint- 
ment of  a  receiver.  Whilden  v. 
Chapman,  SO  S.  C.  84,  61  S.  E. 
249. 

2  Waples-Platter  Co.  v.  Mitchell, 
12  Tex.  Civ.  App.  90,  35  S.  W.  200. 

A  general  creditor  of  a  partner- 
ship has  ordinarily  no  right  to 
have  a  receiver  appointed.  Crip- 
pen  V.  Hudson,  13  N.  Y.  161. 

3  Whilden  v.  Chapman,  80  S.  C. 
84,  61   S.  E.  249. 


442  LAW   OF   RECEIVERS. 

without  a  strong   showing  of  inadequacy  of  his   legal 
remedy.^ 

§  151.    On  Attacking  Assignments   and   Conveyances   by   the 
Partnership. 

In  a  suit  by  creditors  attacking  an  assignment  by  a 
partnership  on  the  ground  that  it  was  giving  an  unlawful 
preference  to  certain  creditors,  it  is  proper  to  appoint  a 
receiver  pending  the  litigation.^ 

Likewise  an  unsecured  creditor  of  a  partnership,  which 
had  executed  deeds  of  trust  to  secure  creditors,  can  not 
obtain  an  ex  parte  appointment  of  a  receiver  of  a  part- 
nership by  merely  showing  the  execution  of  the  deeds  of 
tinist,  an  advertisement  for  the  sale  of  the  property  of 
the  partnership  under  the  deeds,  the  death  of  one  of  the 
partners,  and  the  failure  of  the  survivor  to  give  bond  for 
the  administration  of  the  partnership  estate,  without 
showing  the  insolvency  of  the  partnership  or  either  of 
the  partners,  or  of  the  creditor  secured  by  the  deeds  of 
trust,  and  without  showing  the  invalidity  of  the  deeds  of 
trust.^ 

And  where  a  partnership  executing  a  valid  mortgage 
with  the  right  of  the  mortgagee  to  sell  mortgaged  assets 
on  default  voluntarily  turned  over  the  assets  to  the  mort- 
gagee to  foreclose,  the  court  should  not  at  the  suit  of  an- 
other creditor  appoint  a  receiver  of  the  property  and 
deprive  the  mortgagee  of  his  right,  in  the  absence  of  any 

4  Staar  v.  Moy  Tong  Koon,  145  they  are  not  alleged  to  be  insolv- 
111.  App.  341.  ent,  and  the  property  consists  of 
1  Oliver  v,  Victor,  74  Ga.  543.  a  sawmill  and  fixtures  and  a  large 
A  receiver  of  property  conveyed  number  of  animals  used  there- 
by an  insolvent  partnership  to  one  with,  the  care  of  which  would  be 
of  the  firm  creditors  at  an  over-  a  great  expense  to  a  receiver, 
valuation,  to  hinder  and  defeat  Stillwell  v.  Savannah  Grocery  Co., 
other  creditors,  should  not  be  ap-  88  Ga.  100,  13  S.  E.  963. 
pointed  absolutely  without  giving  2  Lawrence  Lumber  Co.  v.  A.  J. 
the  purchasers  the  alternative  of  Lyon  &  Co.,  93  Miss.  859,  47  So. 
giving   bond   and   security,  where  849. 


MATTERS   ARISING   FROM    PARTNEItSHIPS.  443 

showing  of  insolvency,  of  the  mortgagee  or  mismanage- 
ment or  bad  faith  on  his  part ;  and  the  mere  fact  that  the 
partners  resmned  possession  of  the  property  without  the 
knowledge  of  the  mortgagee  by  means  of  a  tortious  act 
did  not  affect  the  right  to  appoint  a  receiver.-'^ 

§  152.    Effect  Where  Partners  Procure  Receivership  to  Defraud 
or  Delay  Creditors. 

A  receivership  in  an  action  to  dissolve  a  partnership 
will  be  set  aside  as  to  creditors  of  the  partnership  where 
made  wdth  intent  to  hinder,  delay,  and  defraud  them.^ 

Where  the  partners  procure  the  appointment  of  a  re- 
ceiver merely  to  allow  themselves  to  settle  their  affairs 
in  a  leisurely  way  and  thereby  delay  and  hinder  their 
creditors,  a  judgment  creditor  will  be  allowed  to  pursue 
the  remedies  arising  by  virtue  of  his  judgment.^ 

§  153.    Effect  of  Appointment  of  Receiver  on  Creditors. 

Upon  the  appointment  of  a  receiver  for  a  partnership 
its  entire  property  is  placed  in  the  custody  of  the  court 
appointing  the  receiver.  The  possession  of  the  receiver, 
being  that  of  the  court,  is  protected  from  interference 
from  both  the  creditors  of  the  partnership  and  from  the 
partners.^  The  receiver  of  the  partnership  property  does 

3  stone   Co.  v.   McLamb   &   Co.,  Ress,   60   Neb.   52,  82  N.  W.   116; 

153  N.  C.  378,  69  S.  E.  281.  Ross   v.    Titsworth,    37   N.   .T.    Eq. 

1  Metcalf  V.  Moses,  35  App.  Div.  33^;  Gross  v.  Gross,  128  App.  Div. 
596,  55  N.  Y.  Supp.  179.  429,  112  N.  Y.  Supp.  790;   Holmes 

2  Myers  v.  Myers,  15  App.  Div.  v.  McDowell,  76  N.  Y.  596,  affirm- 
448,  44  N.  Y.  Supp.  513.  ing  15   Hun  585;    Clapp  v.   Clapp, 

1  Adams  v.  Woods,  9  Cal.  24;  10  N.  Y.  St.  Rep.  733;  Barry  v. 
Naglee  v.  Minturn,  8  Cal.  540;  Kennedy,  11  Abb.  Pr.  (N.  S.) 
Adams  v.  Woods,  8  Cal.  152,  68  (N.  Y.)  421;  Waring  v.  Robinson, 
Am.  Dec.  313;  Adams  v.  Hackett,  1  Hoff.  Ch.  (N.  Y.)  524;  Foster  v. 
7  Cal.  187;  Jackson  v.  Lahee,  114  Field,  13  Okla.  230,  74  Pac.  190;  In 
III.  287,  2  N.  E.  172;  Wallace  v.  re  Hamilton,  26  Ore.  579,  38  Pac. 
Milligan,  110  Ind.  498,  11  N.  E.  1088;  Cole  v.  Price,  22  Wash.  18, 
599;  Andrew's  Succession,  16  La.  60  Pac.  153;  Patterson  v.  Patter- 
Ann.  197;  Mcintosh  v.  Perkins,  13  son,  182  Fed.  952;  Chater  v.  Mac- 
Mont.   143,   32   Pac.   653;    Veith  v.  lean,  3  Eq.  Rep.  375;    Prentiss  v. 


444 


LAW   OF   RECEIVERS. 


not  obtain  by  liis  appointment  any  rights  over  the  indi- 
vidual property  of  the  partners.-  And  he  takes  the  prop- 
erty subject  to  all  the  equities,  liens,  and  encumbrances 
existing  against  it  while  in  the  hands  of  the  partnership.^ 


Brennan,  1  Grant  Ch.  (U.  C.)  4S4; 
Helmore  v.  Smith,  35  Ch.  D.  449, 
55  L.   T.  72. 

In  Blakeney  v.  Dufaur,  15  Beav. 
40,  the  master  of  rolls  says:  "The 
province  of  this  court  upon  a  mo- 
tion for  a  receiver  is  quite  clear; 
its  duty  is  merely  to  protect  the 
property  and  not  to  decide  the 
ultimate  rights  between  the  par- 
ties." 

When  a  receiver  is  appointed 
over  the  property  of  a  partner- 
ship, its  assets  are  in  the  custody 
of  the  court  and  can  be  reached 
only  with  the  permission  of  the 
court.  Lawson  v.  Dunn,  (N.  J.) 
49  Atl.  1087. 

In  Waring  v.  Robinson,  1  Hoff. 
Ch.  (N.  Y.)  524,  it  was  held  that 
when  a  partnership  was  dissolved 
and  a  receiver  appointed,  notice 
of  which  was  published  in  a  paper 
circulating  in  the  town  where  the 
defendant  lived,  the  payment  of  a 
debt  to  one  of  the  partners  would 
be  void  if  he  had  notice  of  the  ap- 
pointment brought  home  to  the 
debtor;  and  that  the  filing  of  a  bill 
was  not  a  dissolution,  but  the  re- 
ceiver was  appointed  in  anticipa- 
tion that  a  dissolution  must  take 
place.  After  the  appointment  of  a 
receiver  one  partner  can  not  give 
preference  to  creditors  by  con- 
fessing judgment  in  his  favor. 

Where  a  judgment  is  obtained 
against  partners  and  a  receiver 
has  been  appointed  to  hold  the 
assets,  the  judgment  can  not  be 
enforced  by  an  execution  levied 
on  the  assets  in  the  hands  of  the 


receiver,  but  the  judgment  cred- 
itor may  share  in  the  assets  on  a 
proper  application  to  the  court. 
Bogert  V.  Turner,  135  App.  Div. 
530,  120  N.  Y.  Supp.  420. 

Ordinarily  a  levy  on  an  execu- 
tion or  attachment  subsequent  to 
the  appointment  will  be  subordi- 
nated to  the  title  of  the  receiver. 
Kuode  V.  Baldridge,  73  Ind.  54. 

2  Adams  v.  Hannah,  97  Ga.  515, 
25  S.  E.  330;  Wallace  v.  Milligan, 
110  Ind.  498,  11  N.  E.  599;  Saylor 
V.  Mockbie,  9  Iowa  209. 

3  Security  Title  &  T.  Co.  v. 
Schlender,  190  111.  609,  60  N.  E. 
854;  Gillam  v.  Nussbaum,  95  111. 
App.  277;  Rickman  v.  Rickman, 
180  Mich.  224,  146  N.  W.  609,  Ann. 
Cas.  1915C  1237. 

A  creditor  of  the  partnership 
having  a  lien  on  its  property  can 
not  be  deprived  of  it  by  means  of 
a  receivership.  Greenwood  v.  Brod- 
head,  8  Barb.  (N.  Y.)  593. 

In  Davenport  v.  Kelly,  42  N.  Y. 
193,  it  is  said  that  'a  judgment 
creditor  acquires  no  preference  by 
the  commencement  of  an  action 
iii  the  nature  of  a  creditor's  bill 
until  the  appointment  of  a  receiver 
therein  over  a  junior  judgment, 
as  to  personal  property  which  is 
the  subject  of  a  levy  and  sale  on 
execution.  Citing  Storm  v.  Wad- 
dell,  2  Sandf.  Ch.  (N.  Y.)  494,  516; 
Van  Alstyne  v.  Cook,  25  N.  Y.  489. 
It  is  very  clear  that  as  to  personal 
property  which  is  the  subject  of 
levy  and  sale  on  execution  a  cred- 
itor by  an  equity  suit  acquires  no 
preference  as  against  a  jud^.uent 


MATTERS   ARISING    FROM    PARTNERSHIPS.  445 

Hence  the  appointment  of  the  receiver  does  not  affect  the 
existing  rights  of  creditors  in  respect  to  the  partnership 
property.^  The  appointment  of  a  receiver  over  a  solvent 
partnership  at  the  instance  of  one  of  the  partners  will 
not  ordinarily  prevent  the  partnership  creditors  from 
securing  judgments  against  the  partnership.^  But  one 
who  purchases  the  interest  of  a  partner  subsequent  to 
the  appointment  of  a  receiver  over  the  partnership  is 
not  allowed  to  interfere  with  the  possession  of  the 
receiver.^ 

6.    'WJio  May  Be  Appointed  Receiver, 

§  154.    Eligibility  to  Be  Appointed. 

In  the  English  practice,  it  is  not  an  infrequent  practice 
to  appoint  one  of  the  partners  receiver  where  he  is 
familiar  ^^^th  the  business  and  not  guilty  of  misconduct 
which  would  tend  to  impeach  the  idea  of  the  property 
being  safe  in  his  hands.    But  under  such  an  appointment, 

creditor   of    the   debtor    until    the  proceed  to  obtain  a  judgment  and 

entry  of  an  order  appointing  a  re-  attachment  and  gain  priority  over 

ceiver   in    such   equity    suit.     The  other  creditors  before  a  final  de- 

vigilant  creditor,  who  by  his  exe-  cree  dissolving  the  partnership  in 

cution  seizes  and  sells  the  prop-  a  suit   for  that  purpose   and   the 

erty    of    his     debtor    before     the  appointment   of  a  receiver   since, 

appointment  of  a  receiver   in   an  until  such  final  decree  dissolving 

equity    action,    secures    a    prefer-  the    partnership,    it    can    not    be 

ence  which  the  law  sanctions  and  known  whether  the  partnership  is 

protects.  insolvent  or  not.    Adams  v.  Woods, 

4  Adams  v.  Woods,  9  Cal.  24;  8  Cal.  152,  67  Am.  Dec.  313;  Adams 
Stuparich  Mfg.  Co.  v.  Superior  v.  Woods,  9  Cal.  24;  Myers  v. 
Court,  123  Cal.  290,  55  Pac.  985,  Myers,  15  App.  Div.  448,  44  N.  Y. 
Norton  v.  Sperry,  113  Minn.  447,  Supp.  513;  Schloss  v.  Schloss,  14 
129  N.  W.  843;  Bird  v.  Austin,  40  App.  Div.  333,  43  N.  Y.  Supp.  788; 
N.  Y.  Super.  Ct.  109;  Van  Alstyne  Matter  of  Thompson,  10  Api).  Div. 
V.  Cook,  25  N.  Y.  489;  Higgins  v.  40,  41  N.  Y.  Supp.  7,  40,  75  N.  Y.  St.  ■ 
Bailey,  7  Rob.  (N.  Y.)  613;  Mc-  1133;  Bergin  v.  Deering,  70  Hun 
Grath  v.  Cowen,  57  Ohio  St.  385,  379,  24  N.  Y.  Supp.  36,  53  N.  Y. 
49  N.  E.  338;  Blakeney  v.  Dufaur,  St.  893.  But  see  in  this  connec- 
15  Beav.  40,  51  Eng.  Reprint  451.  tion:   Longstaff  v.  Hurd,  66  Conn. 

5  It  has   been  held  that  a  gen-  350,  34  Atl.  91. 

oral  creditor  of  a  partnership  may  t>  Noonan  v.  McNab,  30  Wis.  277. 


446 


LAW   OF   RECEIVERS. 


the  receiver  is  not  allowed  to  receive  a  salary  for  his 
services  as  receiver  and  he  is  required  to  furnish  a  bond 
conditioned  upon  his  accounting  for  the  property  and 
moneys  received  by  him.^ 

This  method  is  sometimes  followed  in  American  prac- 
tice and  especially  by  agreement  of  the  parties  to  the 
litigation,  as  in  such  circumstances  he  is  under  the  control 
and  direction  of  the  court,  so  that  no  interest  can  be 
prejudiced  and  the  bond  given  is  a  protection  as  to  the 
proceeds.^ 


1  Wilson  V.  Greenwood,  1  S.  W. 
471;  Sargent  v.  Read,  1  Ch.  D. 
600;  Collins  v.  Barker  (1893),  1 
Ch.  578. 

As  to  the  appointment  of  one 
of  the  parties  as  receiver  the  court 
in  Blakeney  v.  Dufaur,  15  Beav. 
40,  says:  "It  is  probable  that  if 
the  master  should  appoint  either 
of  the  partners  he  will  select  the 
one  who  is  at  present  in  posses- 
sion of  the  assets;  but  he  would 
then  be  in  possession  of  the  assets 
in  a  totally  different  character 
from  that  in  which  he  is  at  pres- 
ent. He  would  then  be  the  officer 
of  the  court,  having  given  due 
security  to  account  for  the  moneys 
he  shall  receive;  but  in  such  case 
it  is  without  salary. 

As  to  the  propriety  of  appoint- 
ing one  of  the  partners  receiver 
and  manager  the  master  of  rolls 
in  Sargant  v.  Read,  L.  R.  1  Ch. 
Div.  600,  608,  says:  "It  seems  the 
plaintiffs  are  entitled  on  the  un- 
disputed figures  to  rather  more 
than  three-fourths  of  the  capital; 
they  are  entitled  either  to  three- 
fourths  or  four-fifths  of  the  profit; 
and  they  are  the  original  owners 
of  the  business  who  have  been 
carrying  it  on  without  any  sub- 
stantial  interference   on   the   part 


of  the  defendant  for  upwards  of 
a  year.  It  appears  that  the  de- 
fendant was  unable  through  ill 
health  to  attend  to  business,  but 
that  does  not  at  all  affect  the 
fact  that  they  are  the  persons  who 
carried  it  on.  .  .  .  On  the  other 
hand  if  I  deprive  the  plaintiff  of 
the  opportunity  of  being  receiver 
I  might  inflict  most  serious  injury 
on  the  business."  Cf.  Collins  v. 
Barker  (1893),  1  Ch.  578. 

2  Conner  v.  Belden,  8  Daly 
(N.  Y.)  257;  Whitesides  v.  Laf- 
ferty,  3  Humph.  (Tenn.)  150;  Todd 
v.  Rich,  2  Tenn.  Ch.  107. 

In  Brien  v.  Harriman,  1  Tenn. 
Ch.  467,  it  was  held  to  be  unusual 
to  appoint  one  or  the  partners  re- 
ceiver, but  if  it  was  done  it  must 
be  without  salary,  citing  Wilson 
V.  Greenwood,  1  Swanst.  481. 
Where  a  partner  is  appointed  re- 
ceiver and  carries  on  the  business 
under  the  direction  of  the  court 
and  large  profits  accrue  therefrom, 
all  the  parties  are  permitted  to 
participate  in  such  profits.  Mc- 
Mahon  v.  McClernan,  10  W.  Va. 
419,  467;  but  see  Durbin  v.  Bar- 
ber,  14  Ohio  311;  Whitesides  v. 
Lafferty,  3  Humph.  (Tenn.)  150; 
Taylor  v.  Hutchison,  25  Graft. 
(Va.)    536,    18    Am.    Rep.    699.     In 


MATTERS   ARISING    FROM   PARTNERSHIPS.  447 

Where  a  partner  is  selected  as  receiver  of  the  partner- 
ship, he  thereupon  ceases  to  act  in  his  capacity  as  a  part- 
ner and  becomes  responsible  to  the  court  as  its  officer  in 
charge  of  the  property.^ 

Where  there  is  an  unreasonable  delay  on  the  part  of 
the  surviving  partner  in  winding  up  the  partnership  and 
there  is  waste  of  the  property  on  the  part  of  the  survivor, 
the  administrator  of  the  deceased  partner  may  be  ap- 
pointed receiver,  but  he  will  be  required  to  furnish  a  bond 
in  addition  to  his  regular  bond  as  administrator  ^ 

A  person  will  not  be  appointed  receiver  of  a  partner- 
ship who  is  interested  in  judgments  against  its  property 
and  w^ho  is  connected  by  marriage  with  parties  secured 
by  a  deed  of  assignment  for  the  benefit  of  its  creditors 
and  who  is  charged  with  knowledge  of  tlwi  fraudulent 
misapplication  of  assets  by  members  of  the  partnership.^ 
And  a  federal  court  will  not  appoint  a  person  receiver 
of  a  partnership  w^ho  resides  out  of  its  jurisdiction  in  a 
state  where  none  of  the  partnership  assets  are  located.^ 
Where  one  of  the  partners  has  been  appointed  receiver 
of  the  partnership  aiid  has  acted  in  such  capacity  for 
more  than  a  year,  the  plaintiff  in  the  litigation  is  estopped 

Beverley     v.     Brooke     and     Bev-  principle  and  authority.     In  such 

erley    v.    Scott.    4    Gratt.     (Va.)  case  there  can  be  no  rule  of  dili- 

187,  212,  it  is  said:    "During  such  gence  for  the  exclusive  appropria- 

controversy  the   rents   are   accru-  tion     of    the     rents."      See.    also, 

Ing  in   the   custody   of  the   court  Reynolds  v   Austin,  4  Del.  Ch.  24; 

ready  to  be  paid  over  to  the  party  Hubbard  v.  Guild,  2  Duer  (N.  Y.) 

ultimately    prevailing.      In    truth  662. 

from  the  time  of  the  order  of  ap-  3  Whitesides   v.   L  a  f  f  e  r  t  y,    3 

r.ointment  both  parties  are  in  pos-  Humph.    (Tenn.)    150;    Gridley   v. 

session  by  the  hand  of  the  receiver  Conner,  2  La.  Ann.  87;    Blakeney 

and  when  the  question  of  right  is  v.  Dufaur,  15  Beav.  40. 
ultimately  decided  the  possession  4  Miller  v.  Jones,  39  111.  54. 

of   the    party    prevailing   becomes  5  W^atson    v.    Bettman,    88    Fed. 

exclusive    throughout    the    whole  825. 

period  by  relation  to  the  date  of  6  Watson    v.    Bettman.    88    Fed. 

the  order.    This  is  clear  both  upon  825. 


448  LAW   OF    RECEIVERS. 

from  claiming  that  lie  is  disqualified  from  acting  because 
of  being  interested/ 

In  general,  however,  the  same  principles  are  applied  in 
selecting  a  receiver  for  a  partnership  as  are  employed  iu 
other  cases  of  receivership.^ 

7.    Eclating  to  the  Procedure  of  the  Appointment. 

§  155.    Nature  of  Pleadings  and  Notice  Necessary. 

A  receiver  will  not  be  appointed  over  property  claimed 
by  defendant  by  a  summary  order  of  the  court  upon  an 
affidavit  of  one  of  the  parties  to  an  action  for  dissolution 
of  partnership  that  the  property  is  partnership  prop- 
erty.^ In  proceedings  for  the  appointment  of  a  receiver 
facts  must  be  stated  in  the  complaint  showing  the  neces- 
sity or  propriety  for  the  appointment.^  And  a  receiver 
will  not  be  appointed  on  the  application  of  one  having 
but  a  small  interest,  where  the  appointment  would  affect 
large  interests  of  contractors  and  other  third  persons.^ 

It  has  been  held  that  a  partnership  creditor  may  main- 
tain a  bill  in  the  federal  court  to  settle  a  partnership  and 
subject  the  partnership  assets,  although  there  may  be  at 

7  In  an  action  to  dissolve,  an  ac-  In  Gregory  v.  Gregory,  1  Sweeny 

counting  was  had,  after  which  the  (N.  Y.)    613,  the  court  refused  to 

court  appointed  defendant  partner  appoint    a    receiver    over    specific 

as   receiver.    After  he  had   acted  property  without  satisfactory  proof 

...       .      ,  that  such   specific  property  is   in 

for  more  than  a  year  without  ob-  .         ,.                  . 

.   ,  fact  partnership  property, 

jection,  and  the  estate  was  mainly  ^^    ^.^^.^^    ^     ^^.^^^^    ^    ^^^^ 

settled,  plaintiff  objected  that  the  ^^  y.)  613,  it  was  held  improper 
receiver  was  interested  partly.  ^^^,  ^^^  ^^^^,^  ^^  appoint  a  receiver 
and  disqualified.  Held,  that  after  ^^^^^  motion  and  undertake  to  de- 
such  long  acquiescence  he  could  termine  what  is  partnership  prop- 
not  raise  the  question.  Reneau  v.  ^^.^^  ^^  between  the  partners  and 
Lawless,  79  Kan.  553,  100  Pac.  ^^^^^  persons. 
'^"9.  2  Tomlinson    v.    Ward,    2    Conn. 

8  In  this  connection  see  §§62  et  396;    Const  v.   Harris,   1   Turn.   & 

seq.,  supra.  R.   496. 

1  Stuparich  Mfg.  Co.  v.  Superior  3  Devlin    v.    Hope,    16   Abb.    Ff. 

Court,  123  Cal.  290,  55  Pac.  985.  (N.  Y.)  314. 


MATTERS    ARISING    FROM    PARTNERSHIPS. 


449 


the  same  time  a  bill  between  the  partners  to  settle  the 
partnership  pending  in  a  court  of  concurrent  jurisdiction 
of  the  state  wherein  the  property  is  in  the  hands  of  a 
receiver,  so  long  as  it  does  not  interfere  with  the  posses- 
sion of  the  receiver.^ 

A  court  of  equity  will  not  in  a  suit  between  partners 
appoint  a  receiver  of  the  partnership  where  there  is  no 
prayer  for  a  dissolution.^  In  such  proceedings,  it  is  neces- 
sary to  establish  the  existence  of  the  partnership  and  the 
facts  essential  to  the  jurisdiction  of  the  court.^ 

The  same  rules  respecting  notice  apply  to  members 
of  partnerships  in  proceedings  for  the  appointment  of  a 
receiver,  and  consequently  the  courts  are  reluctant  to 
appoint  a  receiver  without  notice  to  the  defendant,"  but 
where  some  of  the  partners  are  non-residents,  it  is  held 
not  necessary  to  serve  notice  upon  such  non-resident 
members  where  the  resident  members  appear  in  the  pro- 
ceeding.* 


4  Logan  V.  Greenlaw,  12  Fed.  10. 

5  Pirtle  V.  Penn,  3  Dana  (Ky.) 
247,  28  Am.  Dec.  70. 

6  Norton  v.  Sperry,  113  Minn. 
447,  129  N.  W.  843. 

7  McCarthy  v  Peake,  18  How. 
Pr.  (N.  Y.)  138,  9  Abb.  Pr.  164; 
Mann  v.  Gaddie,  158  Fed.  42,  88 
C.  C.  A.  1. 

Where  receivership  proceedings 
for  a  solvent  firm  were  in  fact 
the  proceedings  of  the  firm,  and 
the  court  acted  on  representation 
of  that  fact,  citation  to  the  part- 
ners was  not  necessary.  South- 
well V.  Church,  51  Tex.  Civ.  547, 
111  S.  W.  969. 

8  But  the  court  will  refuse  to 
appoint  a  receiver  over  the  inter- 
est of  a  non-resident  partner  in 
a  non-resident  partnership.  Har- 
vey V.  Varney,  104  Mass.  436. 

In  Alford  v,  Berkele,  29  Hun 
I  Rec. — 29 


633,  an  action  was  brought  for 
dissolution  where  the  resident 
partners  appeared  and  it  appeared 
that  no  notice  was  served  upon 
the  non-resident  defendant  part- 
ner, but  the  court  appointed  a  re- 
ceiver upon  the  authority  of  Peo- 
ple V.  Norton,  1  Paige  (N.  Y.)  16, 
17;  Verplanck  v.  Mercantile  Ins. 
Co.,  2  Paige  (N.  Y.)  438;  Blood- 
good  V.  Clark,  4  Paige  (N.  Y.) 
574. 

In  Ogden  v.  Warren,  36  Neb. 
715,  55  N.  W.  221,  a  receiver  was 
appointed  of  the  partnership  goods 
of  a  foreign  partnership  having 
effects  in  the  state  of  Nebraska. 

In  this  connection  see,  also.  In 
re  Hermanos,  L.  R.  24  Q.  B.  Div. 
640,  where  it  appeared  that  a 
Paris  firm  having  a  branch  office 
in  England  had  been  declared  a 
bankrupt    in    the    former    country 


450  LAW   OP    RECEIVERS. 

§  156.    Effect  of  Answer  Admitting  Allegations  of  Complaint. 

Where  in  a  suit  by  creditors  of  a  partnership  against 
its  survivors  for  its  business  and  tlie  appointment  of  a 
receiver,  the  answer  admits  all  of  the  material  allegations 
of  the  bill,  the  court  will  appoint  the  receiver^  if  there  is 
no  suspicion  of  collusion  between  the  parties  to  the  liti- 
gation. The  same  rules  apply  in  such  circumstances  as 
are  applicable  to  the  effects  of  pleadings  in  other  cases. 

§  157.    Effect  of  Allegations  of  Complaint  Being  Fully  Denied. 

The  court  will  not  as  a  rule  appoint  a  receiver  where 
the  allegations  of  the  bill  asking  for  the  appointment  are 
fully  denied  by  a  verified  answer.  This  is  in  accordance 
vnth.  the  practice  of  equity  courts  under  the  general 
equity  practice.^ 

The  court  will  naturally  refuse  to  appoint  a  receiver 
wdiere  the  allegations  of  the  bill  are  so  general  that  a 
charge  of  perjury  could  not  be  based  upon  them  and  the 
answer  is  very  clear  and  full  in  its  denials  of  the  general 
grounds  upon  which  the  appointment  of  the  receiver  is 
sought.  2 

where  a  syndicate  had  been  ap-  shown  to  be  the  domicile  of  the 
pointed  to  administer  the  estate.  debtors,  was  no  ground  for  stay- 
Subsequently  a  bankruptcy  peti-  ing  the  proceedings  in  England, 
tion  was  presented  in  England  i  Dick  v.  Laird,  4  Cranch.  C.  C. 
and  an  order  made  for  a  receiver.  667,  Fed.  Cas.  No.  3891. 
The  syndicate  appeared  in  court  i  Williamson  v.  Monroe,  3  Cal. 
and  moved  to  set  aside  all  further  383;  Rhodes  v.  Lee,  32  Ga.  470; 
proceedings.  There  was  no  evi-  Hottenstein  v.  Conrad,  9  Kan.  435; 
dence  as  to  the  domicile  of  the  Coddington  v.  Tappan,  26  N.  J.  Eq. 
firm  further  than  that  two  of  the  141;  Parkhurst  v.  Muir,  7  N.  J. 
parties  resided  in  England  where  Eq.  307;  Henn  v.  Walsh,  2  Edw. 
the  firm  had  large  assets.  The  Ch.  (N.  Y.)  129;  Popper  v.  Schei- 
court  held  that  it  had  jurisdic-  der,  7  Abb.  Pr.  N.  S.  (N.  Y.)  56; 
tion  to  appoint  a.  receiver,  and  Wales  v.  Dennis,  9  Wash.  308,  37 
that   the    fact   that   a   bankruptcy  Pac.  450. 

proceeding  had   been   commenced  2  Williamson  v.   Monroe,   3   Cal. 

prior    in    a    foreign    country    not  383. 


MATTERS   ARISING   FROM    PARTNERSHIPS.  451 

§  158.  Right  of  Creditor  to  Intervene  in  Partnership  Litigation. 
In  a  suit  to  dissolve  a  partnership  and  for  the  appoint- 
ment of  a  receiver,  a  creditor  of  the  partnership  hokling 
collateral  security  for  his  debt,  consisting  of  a  promis- 
sory note  containing  a  power  of  sale,  may  intervene  by  a 
petition,  asking  that  the  security  may  be  sold  and  the 
proceeds  applied  to  the  payment  of  his  debt  and  that  he 
may  be  admitted  to  prove  his  claim  for  the  residue,  and 
an  order  for  the  sale  of  the  security  is  within  the  author- 
ity of  the  court.^ 

§  159.  Determination  of  Disputed  Questions  of  Fact  by  Jury. 
Where  the  existence  of  the  partnership  over  which  it 
is  sought  by  the  plaintiff  to  obtain  a  receiver  is  denied, 
the  court  will  not  appoint  a  permanent  receiver  until  it 
is  determined  that  a  partnership  actually  did  exist  be- 
tween the  parties,  although  a  receiver  may  be  appointed 
to  preserve  the  property  if  in  danger  of  being  lost.^  Upon 
the  raising  of  such  an  issue  of  fact  the  court  may  direct 
it  to  be  tried  at  law  and  may  refuse  to  try  it  upon  a  mere 
motion  for  a  receiver.^ 

§  160.    What  Will  Be  Determined  in  the  Order  of  Appointment. 

The  court  will  not  pass  upon  the  ultimate  rights  of  the 
partners  as  between  themselves  upon  making  an  order 
appointing  a  receiver  pendente  lite,  since  the  only  object 
of  the  appointment  is  to  preserve  the  property  of  the 
partnership  pending  the  ultimate  decision  in  the  case.' 

1  White  V.  White,  169  Mass.  52,  i  Rische  v.  Rische,  46  Tex.  Civ. 

47   N.   E.  499.  23,    101    S.    W.    849;    Blakeney    v. 

1  See  §§  127  and  128,  supra.  Dufaur,  15  Beav.  40. 

2  Fairburn  v.  Pearson,  2  Mac.  In  Brush  v.  Jay,  113  N.  Y.  482, 
^  Q   144  21  N.   E.   184,   overruling  50   Hun 

Thus  where  there  is  an  issue  as  446,  3  N.  Y.  Supp.  332,  it  is  held 

to  whether  plaintiff  was  entitled  that  it  is  manifestly  improper  to 

to  participate  in  the  profits  of  the  determine   a  material   issue   upon 

business,    the    court    may    direct  affidavits    in    anticipation    of    the 

that  issue  to  be  tried  by  a  jury.  trial  and  determination  of  the  is- 

Feacock  v.  Peacock,  16  Ves.  49.  sues  joined.    The  court  say:    "We 


452  LAW    OF    RECEIVERS. 

Thus  in  a  suit  for  dissolution  of  a  partnership  and  an 
accounting  the  court  should  not  order  one  partner  to 
turn  over  firm  property  to  the  receiver  until  it  is  deter- 
mined that  he  has  property  belonging  +o  the  partnership 
in  his  possession,  since  the  object  of  the  suit  is  to  deter- 
mine the  equities  of  the  individual  parties  in  respect  to 
the  property  involved  in  making  up  the  final  judgment.- 

The  order  of  appointment  will  not  be  extended  so  as 
to  cover  property  which  is  alleged  to  belong  to  tlie 
partnership  where  it  is  denied  that  it  is  partnership  prop- 
erty and  the  issue  has  not  been  heard  by  the  court.^ 

As  a  general  rule,  the  appointing  court  ^^dll  not  deter- 
mine in  its  order  of  appointment  what  particular  prop- 
erty belongs  to  the  partnership  but  \vi\\  direct  the  receiver 
to  determine  such  questions  in  proceedings  in  which  the 
claimants  of  the  property  are  the  litigants.^ 

The  question  of  whether  a  partnership  exists  in  fact 
being  one  going  to  the  jurisdiction  of  the  court  is  natu- 
rally covered  by  the  order  of  appointment.^ 

Where  the  appointment  of  the  receiver  is  not  made 
until  the  final  determination  of  the  litigation,  the  court 

know  of  no  practice  which  author-  in  an  action  for  dissolution  of  a 

izes   the  court  in  this  manner  to  partnership   and   for   the   appoint- 

defeat  the  object  of  the  litigation  ment  of  a  receiver  to  wind  up  the 

and  place  the  subject  of  the  action  firm  affairs  is  merely  preliminary 

beyond  the  reach  of  the  court  ulti-  to    a   hearing   and   adjustment   of 

mately  to  award  it  to  those  show-  all    differences    upon    which    the 

ing  title  thereto.   We  do  not  think  partners  may  be  thereafter  heard. 

the  special  term  had  authority  to  Norton  v.   Sperry,   113  Minn.   447, 

take  up  on  motion  one  of  the  ma-  129  N.  W.  843. 

terial  issues  of  the  case  and  under  2  Gross  v.  Gross,  128  App.  Div. 

objection    by    one    of   the    parties  429,  112  N.  Y.  Supp.  790. 

make  an  order  which  was  practi-  3  Gregory  v.  Gregory,  1  Sweeny 

cally  a  final  judgment  in  respect  (N.  Y.)  613. 

to  the  property  involved   in  such  4  Higgins     v.     Bailey,     7     Rob. 

issue."  (N.  Y.)  613. 

The  appointment  of  a  receiver  5  See  §  127,  supra. 


MATTERS   ARISING   FROM    PARTNERSHIPS.  453 

naturally  will  determine  all  of  the  issues  raised  by  the 
litigation.^ 

§161.    How   the   Partnersliip   Property   Is   Described   in   the 
Order, 

The  property  of  the  partnership  which  is  placed  in  the 
hands  of  a  receiver  should  be  described  Avdth  reasonable 
certainty.  If  the  property  can  only  be  ascertained  from 
an  inspection  of  the  books  and  accounts  of  the  partner- 
ship, it  will  be  sufficient  to  describe  it  in  a  general  way 
as  ''notes,  accounts,  personal  property,  and  lands"  of  the 
partnership.^  It  is  immaterial  if  the  legal  title  to  prop- 
erty of  the  partnership  is  in  the  name  of  a  third  person, 
such  as  a  corporation.  The  court  may  appoint  a  receiver 
of  the  property  notwithstanding  that  the  legal  title  to  it 
is  held  in  the  name  of  such  third  person.^ 

§  162.    Furnishing  of  Bond  by  the  Receiver. 

The  same  general  rules  in  respect  to  the  necessity 
of  the  receiver  furnishing  a  bond  apply  to  receivers  for 
partnerships.  The  necessity  for  furnishing  such  a  bond 
is  generally  fixed  by  the  statutes  of  the  several  states.^  A 
bond  on  behalf  of  the  receiver  ought  to  be  exacted  even 
though  the  statute  does  not  require  one,  and  it  should 
be  broad  enough  in  its  terms  to  protect  all  of  the  assets 

6  Morey  v.  Grant,  48  Mich.  326,  cerning  the  appointment  and  dis- 

12  N  W   202  charge  of  receiver."   And  the  find- 

-TTT.,            o.    xnT^c-h  ins  of  such  good  cause  should  be 

1  Martin    v.    Wilson,    84    Wash.  .^^^^^^^^^^    .^   ,^^  „,^^r  of   ap- 

625,  147  Pac.  404.  pointment.      Staar    v.    Moy    Tong 

2  Fischer  v.   Superior  Court,  98      j^^on,  145  111.  App.  341. 

Cal.    67,    32    Pac.    875.      See,    also,  rpj^g  English  partnership  act  of 

P.ufkin    V.    Boyce,    104    Ind.    53,    3  ^ggo    which    allows    a    judgment 

N.  E.  615.  creditor  of  a  partner  to  obtain  a 

1  Before  a  receiver  is  appointed,  receiver    of    his    interest    in    the 

it  is  essential  that  the  complain-  partnership  business  applies  to  a 

ant    should    either    give    bond    or  foreign    partnership    having    a 

upon  good  cause  shown  should  be  branch  house  of  business  in  Eng- 

exempted   from   so  doing,   as   pro-  land.     Brown  v.  Hutchinson  (1895), 

vided  by  act  May   15,  1903,  "con-  1  Q.  B.  737. 


454  LAW   OF   RECEIVERS. 

of  the  partnership.-  The  duty  of  furnishing  such  a  bond 
may,  however,  be  waived  by  the  failure  of  the  parties  to 
be  benefited  thereby  not  requiring  one  to  be  furnished.^ 

§  163.    Denial  of  Application  for  Receiver  as  Bar  to  Subsequent 
Application. 

The  denial  of  an  application  for  a  receiver  in  a  suit 
for  an  accounting  instituted  by  one  of  the  partners  but 
w^hich  suit  was  dismissed  upon  the  plaintiff's  own  motion, 
is  not  a  bar  to  a  subsequent  application  for  a  receiver 
by  the  same  partner  since  such  an  application  is  merely 
ancillary  to  the  principal  relief  sought  in  the  suit  itself.^ 

The  refusal  to  grant,  on  application  of  one  of  two  cor- 
porations which  had  formed  a  partnership  to  publish  a 
newspaper,  an  injunction  restraining  its  business  man- 
ager, who  was  a  large  stockholder  in  the  other  corpora- 
tion, from  further  activity  in  the  partnership  affairs, 
made  by  a  judge  in  vacation  on  the  ground  that  the  part- 
nership contract  between  the  corporations  was  ultra 
vires,  was  not  res  judicata  of  the  issues  in  another  suit 
between  the  parties  asking  for  a  receiver  and  a  distribu- 
tion of  assets  of  the  partnership.^ 

§  164.    Allowance  of  Costs  and  Fees. 

The  allowance  of  costs  and  of  fees  of  the  receiver  in 
proceedings  for  the  dissolution  of  a  partnership  are  mat- 
ters within  the  sound  discretion  of  the  court. ^  As  has 
been  before  stated,  the  practice  is  where  one  of  the  part- 

2  Where  a  partner  recovering  ing  of  the  bond.  Larsen  v.  Win- 
possession  of  property  from  a  re-      der,  20  Wash.  419,  55  Pac.  563. 


ceiver  held  by  him  as  partnership 


3  Shulte  V.  Hoffman,  18  Tex.  678. 

1  Anderson  v.  Powell,  44  Iowa  20. 
property  gives  a  bond  conditioned  ^  News-Register  Co.  v.  Rocking- 

upon   his    accounting    for    all    the      ^^^  p^^   (.^^  ^^^  y^   ;^4q^  86  S.  E. 
assets   and   property   of  the   part-      gy^ 

nership     as    ascertained    by    the  i  The  allowance  of  costs  in  pro- 

court,   book   accounts  or   cash  on      ceef'ings  for  dissolution  of  a  part- 
hand  are  assets  within  the  mean-      nership  is  in  the  discretion  of  the 


MATTERS    ARISING   FROM   PARTNERSHIPS. 


455 


ners  is  appointed  receiver  to  require  that  he  act  in  that 
capacity  without  compensation.^ 

§  165.    Venue  of  the  Suit  to  Appoint  a  Receiver. 

In  a  suit  to  dissolve  a  partnership,  the  venue  is  dc  ter- 
mined  by  the  residence  of  parties,  and  not  by  the  locality 
of  the  firm  assets,  even  when  such  assets  include  real 
estate ;  and  hence  the  initial  proceedings  for  the  dissolu- 
tion of  a  partnership  and  the  appointment  of  a  receiver 
should  be  had  in  the  place  of  the  partner's  domicile.^ 

And  it  has  been  held  that  the  jurisdiction  of  a  court  of 
equity  in  an  action  to  wind  up  a  partnership  is  not  local 
merely,  but  extends  so  far  as  to  authorize  the  appoint- 
ment of  a  receiver  to  sell  real  property  constituting  a 
part  of  the  partnership  assets  even  though  it  may  be  situ- 
ated in  another  state.^ 


court.  Costello  v.  Scott,  30  Nev. 
43,  93  Pac.  1,  94  Pac.  222. 

The  allowance  of  fees  of  the  re- 
ceiver as  costs  in  the  proceedings 
for  dissolution  of  partnership  is 
a  matter  in  the  legal  discretion  of 
the  trial  court.  Costello  v.  Scott, 
30  Nev.  43,  94  Pac.  222  (judgment 
in  93  Pac.  1  modified  on  rehear- 
ing). 

Where,  both  members  of  a  part- 
nership having  died,  a  representa- 
tive of  its  principal  creditors  was 
appointed  receiver  of  the  partner- 
ship property,  which  consisted  of 
a  whisky  distillery,  in  a  suit 
brought  for  that  purpose  by  agree- 
ment between  the  creditors  and 
the  devisees  and  heirs  of  each 
partner,  and  the  attorney  for  such 
creditors  thereafter  acted  as  attor- 


ney for  the  receiver,  each  of  the 
partner's  estates  being  repre- 
sented by  attorneys,  on  the  ques- 
tion as  to  whether  the  attorney's 
fees  for  services  to  the  receiver 
should  be  paid  out  of  the  partner- 
ship funds  or  by  such  principal 
creditors,  evidence  held  to  show 
that  such  services  were  for  the 
benefit  of  the  partnership  prop- 
erty, and  that  his  fee  was  properly 
payable  out  of  the  partnership 
funds.  Wilson  v.  Murphy's  Admr., 
33  Ky.  Law  Rep.  716;  110  S.  W. 
893. 

2  In   this   connection   see    §  154, 
supra. 

1  Williams  v.  Williams,  83  Misc. 
Rep.  560,  145  N.  Y.  Supp.  564. 

2  Dunlap  V.  Byers,  110  Mich.  109, 
67  N.  W.  1067. 


45G 


LAW    OF    RECEIVERS. 

8.    Powers  and  Duties  of  the  Receiver, 


§  163.    General  Effect  of  the  Appointment. 

The  general  effect  of  the  appointment  of  a  receiver  is 
to  place  the  property  of  the  partnership  in  the  custody 
of  the  court. ^  Where  a  partnership  is  insolvent,  the  ap- 
pointment of  a  receiver  is  in  effect  an  equitable  assign- 
ment for  the  benefit  of  creditors.^  Where  the  suit  in  which 
the  receiver  is  appointed  is  not  one  affecting  creditors 
particularly,  and  is  merely  a  litigation  between  the  part- 
ners which  is  subject  to  being  settled  or  dismissed  at 
any  time  by  the  partners,  then  the  effect  of  the  receiver- 
ship is  not  like  that  of  an  assignment  for  the  benefit  of 
creditors  and  in  such  circumstances  a  creditor  may  pur- 
sue independent  remedies.^ 


1  See  §  153,  supi^a. 

The  receivership  funds  not  sub- 
ject to  garnishment  or  attachment. 
Longstaff  v.  Hurd,  66  Conn.  350, 
34  Atl.  91.  But  see  Adams  v.  Hack- 
ett,  7  Cal.  187,  and  Adams  v. 
Woods,  8  Cal.  152,  68  Am.  Dec.  313. 

2  Winslow  V.  Wallace,  116  Ind. 
317,  1  L.  R.  A.  179,  17  N.  E.  923; 
Re  Hamilton,  26  Ore.  579,  38  Pac. 
1088. 

In  a  suit  for  the  dissolution  of 
an  insolvent  partnership  the  ap- 
pointment of  a  receiver  places  the 
assets  of  the  partnership  under 
the  control  of  the  court  for  pro 
rata  distribution  among  the  gen- 
eral creditors  where  the  insol- 
vency is  clearly  set  forth  in  the 
pleadings.  Myers  v.  Myers,  18 
Misc.  Rep.  663,  43  N.  Y.  Supp.  737 
(affirmed  in  15  App.  Div.  448,  44 
N.  Y.  Supp.  513). 

A  receiver  of  an  insolvent  part- 
nership appointed  for  the  purpose 
of  winding  up  its  affairs  is  the 
representative  of  the  partnership 
creditors.     Brockhurst  v.  Cox,  72 


N.  J.  Eq.  950,  73  Atl.  1117  (affirm- 
ing 71  N.  J.  Eq.  703,  64  Atl.  182). 

3  See  I  153  for  discussion  of 
effect  of  the  appointment  on  cred- 
itors. 

In  Chase's  Case,  1  Bland  Ch. 
(Md.)  206,  213,  17  Am.  Dec.  277, 
it  was  held  that  the  appointment 
does  not  involve  the  determination 
of  any  right,  or  affect  the  title  of 
either  party  in  any  manner  what- 
ever. "From  this  case  it  seems  to 
be  settled,"  the  court  say,  "that 
until  a  dissolution  has  been  judi- 
cially declared  and  a  receiver  or- 
dered to  make  a  pro  rata  distribu- 
tion of  the  partnership  assets 
among  the  creditors  they  are  not 
prevented  from  resorting  to  ad- 
verse proceedings  and  that  when 
a  creditor  does  resort  to  such  pro- 
ceedings he  may  thereby  gain  a 
preference  over  other  creditors 
who  are  less  diligent."  The  rea- 
son of  the  above  rule  is  based 
upon  the  fact  that  the  proceeding 
is  between  partners  and  the  plain- 
tiff may  at  any  time  dismiss  his 


MATTERS    ARISING   FROM   PARTNERSHIPS. 


457 


In  a  proceeding  to  dissolve  a  partnership  the  receiver, 
it  has  been  said,  takes  the  equitable  title  without  an  as- 
signment.'' In  a  strict  sense,  however,  the  receiver  ac- 
quires no  title  but  only  the  right  of  possession  as  an 
officer  of  the  court  for  the  purpose  of  preser^dng  the 
property  and  handling  it  in  accordance  with  the  orders 
of  the  court.^    He  takes  the  partnership  property,  as 


bill.    But  see  Waring  v.  Robinson, 
1  Hoff.  Ch.   (N.  Y.)   524. 

Where  the  receivership  is  not 
one  arising  out  of  a  creditors' 
action  but  in  a  suit  between  the 
partners,  the  receiver  is  not  a  rep- 
resentative of  the  creditors  and 
can  assert  no  greater  rights  in 
respect  to  the  partnership  prop- 
erty than  could  the  partners.  Se- 
curity Title  etc.  Co.  v.  Schlender, 
190  111.  609,  60  N.  E.  854;  Weber 
V.  Weber,  90  Wis.  467,  63  N.  W. 
757. 

The  appointment  of  a  receiver 
does  not  absolve  the  partners 
from  their  partnership  debts,  nor 
stay  or  prevent  action  against  the 
members  of  the  partnership  for 
the  recovery  of  the  debts.  Bogert 
V.  Turner,  135  App.  Div.  530,  120 
N.  Y.  Supp.  420. 

4  Tillinghast  v.  Champlin,  4  R.  I. 
173,  67  Am.  Dec.  510. 

In  Wallace  v.  Yeager,  4  Phila. 
(Pa.)  251,  it  was  held  that  the 
receiver  succeeds  not  only  to  the 
legal  title  of  the  partners  as  joint 
tenants,  but  also  to  the  equitable 
rights  and  remedies  of  the  firm. 
Pearce  v.  Gamble,  72  Ala.  341; 
Smith  V.  Danvers,  5  Sandf.  (N.  Y.) 
669.  Cf.  Cox  v.  Volkert,  86  Mo. 
505. 

5  In  Keeney  v.  Home  Ins.  Co., 
71  N.  Y.  396,  27  Am.  Rep.  60,  an 
action  was  brought  to  dissolve  the 
partnership  and  it  was  held  that 


the  receiver  took  no  title  to  the 
property;  the  court  say:  "A  re- 
ceiver pendente  lite  is  a  person 
appointed  to  take  charge  of  the 
fund  or  property  to  which  the  re- 
ceivership extends  while  the  case 
remains  undecided.  The  title  of 
the  property  is  not  changed  by  the 
appointment.  The  receiver  ac- 
quires no  title  and  only  the  right 
of  possession  as  an  officer  of  the 
court.  The  title  remains  in  those 
in  whom  it  was  vested  when  the 
appointment  was  made.  The  ob- 
ject of  the  appointment  is  to 
secure  the  property  pending  the 
litigation  so  that  it  may  be  appro- 
priated in  accordance  with  the 
rights  of  the  parties  as  may  be 
determined  by  the  judgment  in  the 
action."  Citing  Skip  v.  Harwood. 
3  Atk.  564;  Gresley  v.  Adderly,  1 
Swanst.  573;  Thomas  v.  Brig- 
stocke,  4  Russ.  65;  Bertrand  v. 
Davies,  31  Beav.  436;  Green  v. 
Bostwick,  1  Sandf.  Ch.  (N.  Y.) 
185;  Singerly  v.  Fox,  75  Pa.  112; 
Kirkpatrick  v.  Corning,  38  N.  J. 
Eq.  234. 

After  a  receiver  is  appointed  the 
property  is  in  the  control  of  the 
court  and  can  not  be  levied  on  by 
attachment  or  other  judicial  proc- 
ess. Jackson  v.  Lahee,  114  111.  287, 
2  N.  E.  172;  McGowan  v.  Myers, 
66  Iowa  99,  23  N.  W.  282. 

If,  however,  the  partnership  has 
been  wound  up  and  there  is  a  bal- 


458 


LAW   OF    RECEIVERS. 


we  have  sliown  before,  subject  to  existing  liens  and  equi- 
ties,«  but  has  a  priority  of  right  in  respect  to  liens  or 
judgments  obtained  subsequent  to  his  appointments 


ance  in  the  hands  of  a  receiver 
which  belongs  to  one  partner  it  is 
subject  to  the  rights  of  creditors. 
Willard  v.  Decatur,  59  N.  H.  137. 

A  purchaser  of  one  partner's  in- 
terests after  the  appointment  is 
subject  to  tlie  rights  of  the  re- 
ceiver. Noonan  v.  McNab,  30  Wis. 
277. 

A  receiver  of  a  partnership  ap- 
pointed in  an  action  by  one  part- 
ner against  the  other  can  not  be 
garnished  in  an  action  by  a  cred- 
itor of  the  firm  without  leave  of 
the  court  appointing  him.  Blum  v. 
Van  Vechten,  92  Wis.  378,  66  N.  W. 
507. 

6  See  §  153,  supra. 

A  receiver  of  a  firm  takes  only 
the  rights  of  the  firm,  and  is 
affected  by  all  claims  and  liens 
and  equities  which  would  prevail 
against  the  firm.  Rickman  v.  Rick- 
man,  180  Mich.  224,  Ann.  Cas. 
1915C,  1237,  146  N.  W.  609. 

The  receivership  court  should, 
however,  pending  an  action  for  the 
dissolution  of  a  solvent  partner- 
ship, upon  application  permit  the 
levy  of  an  execution  upon  the  as- 
sets in  the  hands  of  the  receiver 
under  a  judgment  against  the  part- 
ners. Re  Thompson,  10  App.  Div. 
40,  41  N.  Y.  Supp.  740. 

A  receiver  of  a  partnership  for 
the  purpose  of  distributing  its  as- 
sets pro  rata  among  its  creditors 
will  not  be  required  to  permit  a 
levy  on  the  partnership  property 
of  a  writ  of  attachment  by  a  firm 
creditor  issued  before  the  proceed- 
ing for  the  dissolution  of  the  part- 


nership were  commenced.  Myers 
V.  Myers,  15  App.  Div.  448,  44  N.  Y. 
Supp.  513. 

A  receiver  of  a  partnership  ap- 
pointed on  the  same  day  that  a 
bank  balance  in  the  name  of  the 
firm  was  appointed  by  the  bank, 
under  an  agreement  with  the  de- 
positor in  payment  of  sums  due  it, 
is  not  entitled  to  the  fund  as 
against  the  bank  unless  it  appears 
that  he  was  appointed  before  the 
account  was  closed.  London  etc. 
Bank  v.  Hanover  Nat.  Bank,  36 
App.  Div.  487,  55  N.  Y.  Supp.  941. 

A  receiver,  who  is  placed  in 
charge  of  a  drug  business  in  an 
action  between  the  partners,  is 
properly  required  to  pay  over  to 
the  postmaster  a  fund  deposited 
by  one  of  the  partners  derived 
from  a  branch  postal  station  busi- 
ness and  deposited  in  the  firm 
name  in  a  separate  account.  Sachs 
v.  Sachs,  181  111.  App.  296. 

7  A  judgment  rendered  against 
a  partnership  after  the  appoint- 
ment of  a  receiver  upon  an  indebt- 
edness incurred  prior  to  the  re- 
ceivership is  not  a  preferred  claim. 
Williams  v.  Groat,  73  Fed.  59. 

Where  partnership  assets  are  in 
the  possession  of  a  receiver  they 
are  not  subject  to  levy  under  an 
execution  on  a  judgment  rendered 
subsequent  to  the  appointment. 
Jackson  v.  Lahee,  114  111.  287, 
2  N.  E.  172.  But  the  rule  is  other- 
wise when  the  judgment  was  ren- 
dered prior  to  the  appointment. 
Chautauqua  County  Bank  v.  Ris- 
ley,  19  N.  Y.  369,  75  Am.  Dec.  347. 


MATTERS    ARISING    FROM    PARTNERSHIPS. 


459 


He  has,  however,  no  greater  power  concerning  the 
winding  up  of  the  partnership  business  than  the  partners 
possessed.** 

Where  a  receiver  is  appointed  over  the  property  of  a 
partnership  after  the  death  of  one  of  the  partners,  he 
naturally  supplants  the  survi\dng  partner  in  respect  to 
administering  its  affairs." 

§  167.    General  Powers  and  Duties  of  the  Receiver. 

The  general  powers  and  duties  of  a  receiver  of  a  part- 
nership are  not  materially  different  from  those  of  re- 
ceivers generally.  He  naturally  must  look  to  the  order 
of  appointment  to  ascertain  the  general  scope  of  his  pow- 
ers.^ 

He  must  use  ordinary  and  reasonable  diligence  in  the 
execution  of  his  trust.-   And  he  must,  of  course,  act  with 


8  Niemann  v.  Niemann,  L.  R.  43 
Ch.  Div.  198;  Wiekersham's  Case, 
L.  R.  8  Ch.  831,  28  L.  T.  653. 

it  Klrkpatrick  v.  McElroy,  41  N.  J. 
Eq.  539,  7  Atl.  647;  Helme  v.  Little- 
john,  12  La.  Ann.  298. 

Where  a  receiver  is  appointed 
at  the  instance  of  an  administra- 
tor of  a  deceased  partner,  he  is 
clothed  with  the  rights  of  the  de- 
ceased partner  in  respect  to  ad- 
ministering the  partnership  for  the 
benefit  of  the  creditors  of  the  part- 
nership. Tillinghast  v.  Champlin, 
4  R.  I.  173,  67  Am.  Dec.  510. 

1  The  disposition  of  a  fund  in 
the  hands  of  a  receiver,  in  a  suit 
to  dissolve  a  partnership  and  dis- 
tribute its  assets,  can  not  be 
affected  by  any  action  of  the  par- 
ties to  the  suit  so  as  to  deprive 
the  court  of  power  to  control  it. 
Adams  v.  Haskell,  6  Cal.  113,  65 
Am.  Dec.  491. 

The  receiver  may  do  everything 
necessary  to  wind  up  the  firm  busi- 


ness in  the  ordinary  manner,  and 
is  not  compelled  to  follow  the  di- 
rections of  any  of  the  partners. 
Holloway  v.  Turner,  61  Md.  217; 
Dixon  V.  Dixon,  (1904)  1  Ch.  161, 
73  L.  J.  Ch.  103. 

In  Fincke  v.  Funke,  25  Hun 
(N.  Y.)  616,  where  an  action  was 
commenced  by  an  administrator 
against  the  two  remaining  part- 
ners, after  a  receiver  was  ap- 
pointed. The  court  held  that  the 
receiver  had  no  specific  authority 
conferred  upon  him  to  bring 
actions  and  that  the  title  of  the 
property  did  not  vest  in  him;  that 
the  receiver  in  a  partnership  case 
is  vested  only  with  such  power  as 
is  conferred  upon  him  by  the 
order;  that  he  is  merely  a  com- 
mon law  receiver  whose  duty  Is 
only  to  protect  the  property,  the 
title  therein  remaining  in  the  part- 
nership. 

2  Johnston  v.  Keener,  23  IIU 
App.  220, 


460 


LAW   OF    RECEIVERS. 


the  utmost  good  faith  in  respect  to  his  handling  of  the 
receivership  property. 

He  can  not  loan  the  receivership  funds  to  himself  or  to 
the  firm  of  which  he  is  a  member.^ 

A  receiver  ordinarily  is  the  representative  of  the  in- 
terests of  all  parties  concerned,  and  the  special  represen- 
tative of  none* 

But  where  a  receiver  has  been  appointed  for  an  in- 
solvent partnership  for  the  purpose  of  winding  up  its 
affairs,  he  is  in  effect  the  representative  of  the  partner- 
ship creditors  and  it  is  his  duty  to  set  aside  mortgages 
or  conveyances  made  in  fraud  of  their  rights.^ 

§  168.    Duties  of  the  Receiver  Respecting  the  Collection  of  Part- 
nership Assets. 

It  is,  of  course,  one  of  the  duties  of  a  receiver  to  collect 
the  debts  and  assets  of  the  partnership.^  And  he  may  by 


3  Ryan  v.  Morrill,  83  Ky.  352. 

4  Tillinghast  v.  Champlin,  4  R.  I. 
173   (189),  67  Am.  Dec.  510. 

Where  the  receiver  is  appointed 
at  the  instance  of  one  of  the  part- 
ners, he  does  not,  like  a  receiver 
in  insolvency,  represent  the  cred- 
itors in  such  a  manner  as  to  avoid 
a  partnership  mortgage  which 
was  not  filed  of  record.  Berlin 
Mach.  Works  v.  Security  Trust 
Co.,  60  Minn.  161,  61  N.  W.  1131. 

He  is  a  trustee  for  all  the  part- 
ners (Honore  v.  Colmesnil,  1  J.  J. 
Marsh  (Ky.)  506),  but  has  no 
power  to  bind  them  to  a  new  ob- 
ligation. Lake  v.  Munford,  4 
Smedes  &  M.  (Miss.)  312. 

A  receiver  of  a  partnership  rep- 
resents not  only  the  members  of 
the  firm,  but  also  all  the  creditors 
in  an  action  brought  by  him.  Lees 
V.  Dobson,  26  App.  Div.  624,  49 
N.  Y.  Supp.  902, 


But  he  does  not  represent  cred- 
itors to  such  an  extent  as  to  at- 
tack a  chattel  mortgage  given  by 
the  firm.  Walsh  v.  St.  Paul  School 
etc.  Co.,  60  Minn.  397,  62  N.  W. 
383. 

5  A  receiver  of  an  insolvent 
partnership,  appointed  for  the 
purpose  of  winding  up  the  affairs 
of  the  partnership  and  distrib- 
uting its  assets  to  its  creditors, 
is  the  representative  of  the  part- 
nership creditors,  and  as  such  he 
may  by  suit  or  defense  avoid  a 
cl>attel  mortgage  given  by  the 
partnership  which  is  void  as 
against  them.  Brockhurst  v.  Cox, 
72  N.  J.  Eq.  950,  73  Atl.  1117, 
affirming  71  N.  J.  Eq.  703,  64  Atl. 
182. 

1  Jackson  v.  De  Forest,  14  How. 
Pr.  (N.  Y.)  81. 

The  partners  may  be  compelled 
to  turn  over  to  the  receiver  mon- 


-% 


MATTERS   ARISING   PROM    PARTNERSHIPS. 


461 


virtue  of  his  appointment  sue  the  debtors  of  the  part- 
nership if  necessary  to  do  so  in  order  to  collect  debts.- 
And  he  may  sue  to  recover  unpaid  subscriptions  to  the 
capital  of  the  partnership.^ 

A  receiver  appointed  in  a  litigation  between  the  part- 
ners and  not  occupying  the  position  of  a  receiver  ap- 
pointed in  a  creditors'  suit,  can  not  sue  to  set  aside  a 
fraudulent  conveyance  made  by  the  partnership  prior  to 
the  appointment  of  the  receiver.-* 


eys  collected  by  them  just  prior 
to  the  appointment  of  the  re- 
ceiver. Murphy  v.  Du  Berg,  11 
Abb.  N.  C.  (N.  Y.)   112. 

A  receiver  of  a  partnership  may 
upon  his  own  motion  and  without 
leave  of  court  sue  to  recover  prop- 
erty belonging  to  the  partnership. 
Tillinghast  v.  Champlin,  4  R.  I. 
173,  67  Am.  Dec.  510. 

2  Helme  v.  Littlejohn,  12  La. 
Ann.  298;  Nealis  v.  Lissner,  52 
Hun  503,  5  N.  Y.  Supp.  6S2,  24 
N.  Y.  St.  196;  Fincke  v.  Funke, 
25  Hun  (N.  Y.)  616;  Prentiss  v. 
Brennan,  2  Grant  Ch.  (U.  C  )  274. 
But  see  McBride  v.  Ricketts,  98 
Iowa  539,  67  N.  W.  410. 

Ordinarily,  however,  he  is  not 
permitted  to  sue  to  recover  debts 
without  leave  of  court.  Fincke  v. 
Funke,  25  Hun    (N.  Y.)    616. 

He  generally  may  sue  in  his 
own  name  to  collect  all  debts. 
Kenning  v.  Raymond,  35  Minn. 
303,  29  N.  W.  132. 

3  Torbe  v.  Strauss,  155  Wis.  518, 
144  N.  W.  184  (rehearing  denied, 
144  N.  W.  1136). 

4  Weber  v.  Weber,  90  Wis.  467, 
63  N.  W.  757. 

A  receiver  of  partnership  assets 
appointed  in  a  suit  for  an  account- 
ing between  partners  has  no  au- 


thority to  compel  one  of  the  part- 
ners to  regain  and  turn  over  to 
him  property  which  has  passed 
out  of  his  hands  long  before.  Fer- 
guson v.  Bruckman,  23  App.  Div. 
182,  48  N.  Y.  Supp.  887. 

Ordinarily  he  has  no  right  to 
bring  an  action  to  set  aside  trans- 
actions of  the  partners,  such  as 
the  conveyance  of  firm  property, 
as  in  fraud  of  creditors.  Walsh 
V.  St.  Paul  School  Furniture  Co.. 
60  Minn.  397,  62  N.  W.  383;  Ber- 
lin Mach.  Works  v.  Security  Trust 
Co.,  60  Minn.  161,  61  N.  W.  1131. 

A  common  law  receiver,  ap- 
pointed under  the  court's  equi- 
table powers  to  hold  the  assets 
of  a  partnership  and  dispose  of 
them  as  the  court  shall  direct, 
may  refuse  to  sue  to  set  aside 
a  conveyance  by  a  partner  until 
indemnity  for  costs  and  expenses 
is  given,  where  the  cause  of  action 
is  the  sole  asset  of  the  firm.  Flinn 
V.  Hanbury,  157  App.  Div.  207,  141 
N.  Y.  Supp.  844. 

Where  the  receiver  is  appointed 
in  a  litigation  between  the  part- 
ners, he  merely  occupies  the  posi- 
tion of  the  partnership  in  respect 
to  its  property  and  can  not  exer- 
cise greater  rights  in  relation 
thereto  than  the  partners  them- 
selves could  assert.   Security  Title 


462 


LAW   OF    RECEIVERS. 


A  receiver  appointed  in  supplementary  proceedings  is 
only  entitled  to  retain  out  of  property  or  funds  enough 
to  pay  the  judgment  upon  which  he  was  appointed  re- 
ceiver and  the  expenses  of  the  receivership.^ 

Equity  will  not  at  the  suit  of  receiver  of  a  partnership 
compel  a  reconveyance  of  property  conveyed  by  the  firm 
to  another  to  enable  him  to  borrow  money  thereon  for 
the  firm's  benefit  without  relie\ang  the  mortgagor  of  all 
personal  liability.^ 


etc.  Co.  V.  Schlender,  190  111.  609, 
60  N.  E.  854. 

The  receiver  succeeds  to  the 
equitable  rights  and  remedies  of 
the  partners  and  their  creditors 
when  he  is  appointed  over  an  in- 
solvent partnership.  Pearce  v. 
Gamble,  72  Ala.  341. 

The  appointment  of  a  receiver 
of  a  partnership  because  of  its 
insolvency  operates  as  an  assign- 
ment for  the  benefit  of  creditors. 
Winslow  V.  Wallace,  116  Ind.  317, 
1  L.  R.  A.  179,  17  N.  E.  923. 

But  it  has  been  held  that  he 
may  maintain  an  action  in  another 
state  to  set  aside  an  assignment 
made  by  one  partner  to  a  creditor 
in  fraud  of  another  creditor  where 
there  are  no  local  creditors  hav- 
ing rights  affected  thereby.  So- 
bernheimer  v.  Wheeler,  45  N.  J. 
Eq.  614,  18  Atl.  234;  Sloan  v. 
Moore,  37  Pa.  217. 

A  receiver  of  a  partnership  ordi- 
narily has  no  greater  powers  than 
the  partners  possessed.  Niemann 
V.  Niemann,  43  Ch.  D.  198. 

o  Appointment  of  a  receiver  in 
supplementary  proceedings  held 
to  dissolve  a  partnership  of  which 
debtor  was  a  member  and  to  en- 
title the  receiver  to  withdraw  the 
debtor's  share  of  the  property  to 
apply    on    the    judgment,     under 


Code  Civ.  Proc,  §  2468,  vesting 
the  debtor's  property  in  the  re- 
ceiver. Lovins  V.  Laub,  85  Misc. 
Rep.  336,  147  N.  Y.  Supp.  304. 

A  receiver  appointed  in  supple- 
mentary proceedings  against  a 
partnership  who  brings  an  action 
to  set  aside  a  transfer  by  the 
partnership  when  insolvent  with 
intent  to  prefer  certain  creditors, 
in  violation  of  1  N.  Y.  Rev.  Stats., 
p.  766,  §  20,  is  not  entitled  to  all 
the  proceeds  of  the  property  so 
transferred,  without  regard  to  its 
amount,  but  only  to  a  sufficient 
amount  to  pay  the  judgments 
upon  which  he  was  appointed  re- 
ceiver and  the  expenses  of  the 
receivership.  Stiefel  v.  Berlin,  28 
App.  Div.  103,  51  N.  Y.  Supp.  147. 

6  Security  Trust  Co.  v.  Dins- 
more,  186  Mich.  273,  152  N.  W. 
964. 

In  the  above  case  Mr.  Justice 
Ostrander  said:  "Courts  of  equity 
do  not,  for  receivers  or  for  other 
parties  complainant,  divest  citi- 
zens of  property  which  it  is  ad- 
mitted they  rightfully  hold  as 
security,  at  least  not  without 
actually  relieving  them  of  the  ob- 
ligation to  secure  which  the  prop- 
erty was  pledged  to  them.  It  is 
obvious  that  the  partners  could 
not  secure  a  reconveyance  of  the 


MATTERS    ARISING    FROM    PARTNERSHIPS.  463 

The  individual  property  of  members  of  the  partnership 
is  not  within  the  control  of  a  receiver  of  the  partner- 
ship." But  where  real  property  is  held  by  the  partners 
as  tenants  in  common  but  used  for  partnership  purposes 
and  was  improved  with  partnership  funds  and  regarded 
by  them  as  partnership  property,  it  was  held  to  pass  to 
the  receiver  of  the  partnership.* 

The  receiver  of  a  partnership  is  entitled  to  recover 
from  the  surviving  member  of  the  partnership  the  pos- 
session of  all  funds,  evidences  of  indebtedness,  personal 
property,  and  choses  in  action  belonging  to  the  partner- 
ship. His  right  of  possession  is  superior  to  that  of  tlie 
surviving  partner.^ 

But  a  receiver  ought  not  to  be  authorized  in  advance 
to  prosecute  and  defend  without  further  order  of  the 
court  any  actions  brought  by  or  against  the  partners 
pertaining  to  the  partnership  business.^*^ 

§  169.    Rights  of  Receiver  of  Individual  Partner. 

A  receiver  of  an  individual  partner,  who  has  absconded, 
appointed  in  a  divorce  suit,  has  no  right  to  interfere  wdtli 

property   upon   the  theory  of  the  tain   such   a  bill — whether   it   can 
bill,    unless    they    paid    the    debt  tender  to  defendant  the  relief  he 
which  they  gave  the   property  to  is  entitled  to  if  complainant's  con- 
secure,   or  wholly   relieved   defen-  tention  is  sustained." 
dant  from  liability  therefor.     It  is  7  Hiles    v.    Dunn,    61    N.    J.    Eq. 
equally    obvious    that    the    holder  391,  48  Atl.  315;  Wallace  v.  Milli- 
and  owner  of  defendant's  note  and  gan,  110  Ind.  498,  11  N.  E.  599. 
of  the  mortgage  he  gave  to  secure  Where  the  property  in  the  pos- 
it, and  the  holder  of  the  collateral  session  of  a  receiver  of  partner- 
pledged    by    defendant    to    secure  ship    property    is    in    fact    the    in- 
the  other  note,  which  is  brought  dividual    property    of   one    of    the 
in  question,  are  not  bound  by  the  partners,    that   individual    partner 
decree.      In    considering    whether  may  assign  it.     Weinrich  v.  Koel- 
the    bill    can    be    amended,    this  ling,  21  Mo.  App.  133. 
court  can  not  know  whether  the  8  Smith    v.    Danvers,    5    Sandf. 
complainant    desires    to    maintain  (N.  Y.)  669. 
the    bill   as   a   bill   to    redeem,   or  9  Miller  v.  Jones,  39  111.  54. 
whether  the  court  appointing  the  lo  Witherbee    v.    Witherbee,    17 
receiver    will    permit   it   to   main-  App.  Div.  181,  45  N.  Y.  Supp.  297. 


464  LAW    OF    RECEIVERS. 

the  interests  of  the  absconding  partner  in  the  partner- 
ship in  the  absence  of  waste  or  other  equitable  grounds 
for  a  receiver  over  the  partnership.^ 

§  170.    Effect  of  One  of  the  Partners  Being  Appointed  Receiver. 

Where  one  of  the  partners  has  been  appointed  receiver 
over  the  partnership  he  will  not  be  permitted  to  retain 
funds  collected  by  himself  in  his  receivership  capacity 
upon  the  plea  that  they  were  due  him  personally.  The 
disposition  of  the  funds  collected  by  him  is  a  matter 
within  the  control  of  the  court  since  the  funds  when  col- 
lected are  in  the  custody  of  the  court.^ 

And  where  one  of  the  partners  is  appointed  receiver 
of  the  partnership,  his  possession  of  the  partnership 
property  thereupon  becomes  that  of  the  court,  and  if  he 
uses  such  property  for  his  private  benefit  or  profit  he 
must  account  to  the  court  and  not  to  his  copartner.- 

§  171.    Suing  and  Being  Sued. 

The  same  general  rules  in  respect  to  the  necessity  of 
obtaining  leave  of  court  to  sue  a  receiver  apply  to  re- 
ceivers of  partnerships.  They  can  not  ordinarily  be  sued 
without  the  permission  of  the  court.^ 

Unless  restricted  by  order  of  court,  the  receiver  in  an 
action  to  liquidate  partnership  affairs  may  intervene  in  a 
suit  against  the  firm  and  set  up  as  many  defenses  as  he 
may  have  reason  to  believe  can  be  sustained,  notwith- 

1  Hamill  v.  Hamill,  27  Md.   679.  A     common     law     receiver     ap- 

1  Gridley  v.  Conner,  2  La.  Ann.  pointed      in      pursuance      of     the 

87.  court's    equitable   powers    to   hold 

2Whitesides  v.  Lafferty,   3  the  assets  of  a  firm  pendente  lite 

Humph.  (Tenn.)  150.  and  dispose  of  them  as  the  court 

1  Robinson     v.     Hodgkins,     168  shall  direct  can  not  be  sued  fov  a 

Mass.  465,  47  N.  E.  195;    Blum  v.  partnership  debt.     Bogert  v.  Tur- 

Van    Vechten,    92    Wis.    378,    60  ner,  135  App.  Div.  530,   120  N.  Y. 

N.  W.  507.  Supp.  420. 


MATTERS   ARISING   FROM    PARTNERSHIPS. 


465 


standing  such  defenses  might  inure  to  the  benefit  of  the 
members  of  the  firm,  though  not  jjleaded  by  them.- 

The  receiver  may  generally  sue  without  leave  of  court 
where  he  is  doing  so  for  the  purpose  of  recovering  pos- 
session of  partnership  property  with  the  intent  of  apply- 
ing it  to  the  purposes  of  the  receivership.^ 

§  172.    Binding-  Force  of  Previous  Orders  or  Judgments  Upon 
Receiver. 

In  a  suit  by  a  receiver  of  a  partnership  to  foreclose  a 
vendor's  lien  on  property  sold  by  him  the  defendants 
can  not  assert  as  a  defense  that  one  of  the  partners  was 
not  a  party  to  the  litigation  in  which  the  receiver  was 
appointed  where  it  is  not  shown  that  he  was  in  fact  alive 
or  within  the  jurisdiction  of  the  court. ^  A  receiver  in  a 
suit  between  partners  for  dissolution  can  not  question 
judgments  confessed  by  the  firm  to  give  preferences.^ 


2  Honegger  v.  W^ettstein,  15 
Jones   &   S.    (N.   Y.)    125. 

3  A  partnership  receiver,  ap- 
pointed in  a  suit  by  a  representa- 
tive of  a  deceased  partner  against 
the  surviving  partner  to  compel 
a  settlement  of  the  affairs  of  the 
partnership,  and  the  application 
of  its  property  to  its  debts,  is  an 
officer  of  the  court,  invested  with 
the  whole  equitable  title  to  the 
firm  assets  without  an  assign- 
ment; represents,  in  any  suit  af- 
fecting the  partnership  property, 
the  interests  therein  of  all  parties 
to  the  suit  in  which  he  was  ap- 
pointed, if  not  of  persons  who  are 
not  parties;  is  clothed  with  all 
the  rights  and  equities  of  the  de- 
ceased partner  for  the  purposes  of 
his  trust;  and  may  sue,  without 
leave,  in  this  country,  to  obtain 
possession  of  the  partnership 
property  for  the  purpose  of  ap- 
plying it  to  the  partnership  debts, 
1  Uec. — uU 


and  need  not,  on  a  bill  filed  for 
that  purpose,  join  the  representa- 
tive of  the  deceased  partner  as  a 
party.  Tillinghast  v.  Champlin, 
4  R.  I.  173,  67  Am.  Dec,  510. 

1  Stelzer  v.  LaRose,  79  Ind.  435. 
An  order  made  under  Code  Civ. 

Proc,  §  564,  authorizing  a  receiv- 
ership in  certain  actions  between 
partners,  can  not  be  attacked  in 
an  action  by  the  receiver  except 
for  want  of  jurisdiction  to  make  it, 
since  in  such  action  the  appoint- 
ment is  only  collaterally  involved. 
Title  Ins.  &  Trust  Co.  v.  Grider, 
152  Cal.  746,  94  Pac.  601. 

2  The  appointment  of  a  receiver 
of  a  partnership  at  the  instance 
of  an  attaching  creditor  does  not 
prevent  the  issuance  of  another 
order  of  attachment  without  a 
new  affidavit  or  bond,  to  another 
county,  against  land  belonging  to 
one  of  the  partners.  Runner  v. 
Scott,  150  Ind.  441,  50  N.  E.  479; 


466  LAW   OF   RECEIVERS. 

A  judgment  against  the  receiver  of  a  partnership  in 
a  suit  commenced  under  leave  of  court  on  a  claim  in 
the  nature  of  costs  incurred  by  the  receiver  in  the  man- 
agement and  conduct  of  the  business  during  his  receiver- 
ship and  the  estate  under  receivership  was  chargeable 
with  its  payment.  The  receiver  represented  all  persons 
interested  in  the  estate  and  the  judgment  was  conclusive 
upon  them  and  was  conclusive  against  the  surviving  part- 
ner and  creditors  whether  made  parties  to  the  action  or 
not.^ 

§  173.    Receiver  Is  Bound  by  Equities  Against  Partnership. 

The  receiver  is  under  the  general  rule  bound  to  rec- 
ognize the  equities  and  liens  existing  against  the  part- 
nership. 

Thus  where  a  retiring  member  of  a  partnership  sold 
his  interest  in  the  business  to  his  copartners  upon 
consideration  that  they  would  pay  certain  partnership 
notes  but  he,  nevertheless,  was  compelled  to  pay  them, 
he  may  recover  the  amount  so  paid  by  him  from  the  re- 
ceiver of  the  new  firm  made  up  of  the  remaining  part- 
ners since  his  rights  of  reimbursement  were  the  same 
against  the  new  partnership  as  they  were,  had  the  old 
partnership  not  been  discontinued.^ 

But  the  fact  that  creditors  of  a  partnership  had  from 
time  to  time  deposited  money  w^th  it  as  security  for  ad- 
vances vriW  not  require  the  receiver  of  the  partnership 

Weber  v.  Weber,  90  Wis.  467,  63      nership   business    through    its    re- 

j^   -^    75Y  ceiver    after    the    termination    of 

'      '        '  .  ,  ^         v;„      the   partnership    for   the    purpose 

The   receiver   of   a  partnership  /       .         /  „^i„„  >,„„; 

of  disposing  of  it  as  a  going  busi- 
engaged  in  the  brewing  business      ^^^^  ^^^^^  .^  .^  ^^  ^^^  ^^^^  .^^^^. 

may  be  directed  by  the  court  to  ^^^^   ^^  ^^^  interested  parties   to 

take  charge  of  the  stock  in  trade  ^^  ^^      Taylor  v.  Neate,  39  Ch.  D. 

and  continue  the  business  with  a  533 

view  to   closing  it  up.     Skipp   v.  3  Painter    v.    Painter,    138    Cal. 

Harwood,  Dick  114.  231,  94  Am.  St.  Rep.  47,  71  Pac.  90. 

The  court  may  continue  a  part-  1  Allyn  v.  Doorman,  30  Wis.  684. 


MATTERS    ARISING   FROM    PARTNERSHIPS. 


467 


after  its  insolvency  to  pay  moneys  so  received  in  full 
where  the  deposits  were  not  special  ones  and  the  moneys 
were  not  kept  separate  since  in  the  circumstances  the 
creditors  had  no  special  lien  upon  the  funds.- 
§  174.  Conducting  of  the  Partnership  Business  by  the  Receiver. 
A  receiver  will  not  be  appointed  over  a  partnership 
for  the  mere  purpose  of  carrying  on  the  business.  The 
carrying  on  of  business  operations  by  the  receiver  must 
be  incidental  to  the  receivership.^    A  court  will  not  per- 


2  Butler  V.  Sprague,  66  N.  Y. 
392;  Attorney-General  v.  Conti- 
nental Life  Ins.  Co.,  71  N.  Y.  325, 
27  Am.  Rep.  55. 

1  Scliloss  V.  Schloss,  14  App. 
Div.  333,  43  N.  Y.  Supp.  788. 

In  Hall  V.  Hall,  3  Macn.  &  G.  79, 
the  purpose  of  the  suit  was  to 
continue  the  business  through  a 
receiver.  It  was  held  that  the 
object  being  to  continue  the  part- 
nership it  was  not  according  to 
the  practice  of  the  court  to  ap- 
point a  i-eceiver.  See,  also,  Wil- 
son V.  Greenwood,  1  Swanst.  471; 
Goodman  v.  Whitcomb,  1  Jac.  & 
W.  589;  Walworth  v.  Holt,  4  Myl. 
&  C.  619;  Const  v.  Harris,  Turn. 
&  R.  496.  "The  conclusion,"  the 
court  says,  "I  com<i  to  is  that  by 
the  rule  and  practice  of  this  court, 
a  receiver  or  manager  is  only 
granted  where  it  is  ancillary  to 
the  object  of  dissolution." 

In  Roberts  v.  Eberhardt,  Kay 
148,  it  is  said  that  where  the  pur- 
pose is  the  appointing  of  a  re- 
ceiver to  continue  the  business 
the  court  does  not  readily  grant 
the  order. 

In  Jackson  v.  De  Forest,  14 
How.  Pr.  (N.  Y.)  81,  it  was  held 
that  the  court  would  not  take 
upon  itself  the  responsibility  of 
carrying  on  the  partnership  busi- 


ness. In  some  cases  where  it 
may  be  necessary  to  secure  the 
good  will  of  the  partnership  busi- 
ness to  the  purchaser  and  the  full 
value  of  the  partnership  property 
to  the  partners  on  the  sale  a  re- 
ceiver is  allowed  to  carry  on  the 
business  until  he  can  make  a  fa- 
vorable sale  of  the  property.  Cf. 
Dayton  v.  Wilkes,  17  How.  Pr. 
(N.  Y.)  510,  where  sufficient  time 
was  allowed  to  dispose  of  the 
property  advantageously.  Marten 
v.  Van  Schaick,  4  Paige  (N.  Y.) 
479,  is  to  the  same  effect. 

In  Allen  v.  Hawley,  6  Fla.  142 
(164),  63  Am.  Dec.  198,  it  is  said 
that  it  could  never  have  been  con- 
templated that  a  court  of  chan- 
cery should  become  the  superin- 
tendent of  the  private  affairs  of 
individuals.  Its  legitimate  pur- 
pose is  to  adjust  the  rights  and 
settle  the  disagreements  of  the 
parties  growing  out  of  such  trans- 
actions. See,  also.  Wolbert  v.  Har- 
ris, 7  N.  J.  Eq.  605. 

In  Waters  v.  Taylor,  15  Ves.  .Jr. 
10.  the  Lord  Chancellor  (Eldon) 
said.  "Then  considering  the  na- 
ture of  this  property  can  the  plain- 
tiff call  upon  the  court  to  assume 
the  management  of  the  theater? 
My  opinion  is  that  this 
court  has  no  jurisdiction  to  man- 


470  LAW   OF   RECEIVERS. 

§  175.    Whether  Receiver  of  a  Lav^^  Firm  May  Continue  the 
Law  Practice  of  the  Firm. 

There  is  a  strong  intimation  in  a  case  decided  by  the 
Supreme  Court  of  the  State  of  Washington^  to  the  effect 
that  a  receiver  could  not  be  authorized  to  attend  to  the 
practice  of  a  law  partnership  in  the  courts.  The  de- 
cision, however,  was  based  upon  the  form  of  the  order 
appointing  the  receiver,  wdiich  merely  authorized  the 
receiver  *  *  to  take  charge  of  anj^  and  all  business  of  every 
kind  and  nature  belonging  to  said  firm,"  and  which 
the  court  held  was  not  broad  enough  to  authorize  the 
receiver  to  attend  to  the  law^  practice  of  the  partners  in 
the  courts,  the  court  in  this  respect  saying : 

''It  is  finally  contended  that  the  court  appointed  a 
receiver  to  take  charge  of  the  cases  now  pending  in 
the  Superior  Court  of  Lincoln  County,  in  which  the 
parties  to  this  action  have  been  employed  as  attorneys. 
It  is  true  that,  in  the  affidavit  filed  by  the  respondent, 
he  says  that  it  is  necessary  that  a  receiver  be  appointed 
to  take  charge  of  the  business  of  the  firm  now  pending 
in  the  courts,  but  the  order  appointing  a  receiver  does 
not  go  that  far.  The  receiver  is  directed  to  take  charge 
of  the  property  of  the  parties  pending  an  accounting 
which  must  necessarily  follow.  It  is  true  that  the  order 
directs  that  the  receiver  shall  take  charge  of  all  business 
of  the  firm,  but  this  follow^s  directly  after  a  direction  to 
'collect  any  and  all  outstanding  accounts,  notes,  and 
obligations  of  every  kind  and  nature  due  said  firm,  and 
to  report  the  same  to  this  court,  especially  giving  him 
power  and  authority  to  assemble  said  property  and  to 
bring  suit  for  the  collection  of  any  obligations  due  said 
firm,'  thus  'and  in  short  to  take  charge  of  any  and  all 
business   of  every  kind   and  nature  belonging   to   said 

1  Martin    v.    Wilson,    84    Wash.  a   lack   of   harmony    between    the 

625,  147  Pac.  404.  partners  and  the  exclusion  of  one 

In  the  above  case  the  receiver  partner    from    the    affairs    of    the 

was  appointed  upon  the  ground  of  partnership. 


MATTERS    ARISING   FROM   PARTNERSHIPS.  471 

firm,'  etc.  When  read  together,  we  think  it  is  sufficiently 
clear  that  the  court  had  no  intention,  as  he  probably  had 
no  power,  to  appoint  a  receiver  to  attend  to  the  practice 
of  the  parties  in  the  courts  of  this  state. ' ' 

§  176.    Joint  Operation  of  Two  Railroads  by  Receiver  of  One 
of  Them  Constitutes  No  Partnership. 

No  partnership  exists  between  two  railroads  either  as 
between  the  parties  or  as  to  third  persons  merely  be- 
cause the  receiver  of  one  of  the  companies  operates  both 
roads  jointly  and  part  of  the  gross  receipts  is  paid  to 
the  other  company.^ 

§  177.    Liability  of  Receiver  for  Torts. 

A  receiver  of  a  partnership  is  not  liable  for  a  tort  com- 
mitted by  it  before  his  appointment.^  We  do  not,  how- 
ever, understand  that  the  person  who  has  suffered  by 
reason  of  a  tort  committed  prior  to  the  receivership 
is  deprived  from  suing  for  the  tort  and  subjecting  the 
property  of  the  receivership  toward  payment  of  his 
judgment  with  other  general  creditors. ^ 

§  178.    Sale  of  the  Partnership  Assets  by  the  Receiver. 

A  sale  of  partnership  property  in  the  hands  of  a 
receivership  will  not  be  ordered  in  advance  of  a  final 
hearing  where  one  of  the  issues  to  be  determined  in  the 
receivership  is  the  title  to  the  property.^ 

And  a  trial  court  should  not  order  a  sale  of  the  part- 
nership assets  pending  an  appeal  upon  the  question 
whether  the  court  had  jurisdiction  to  appoint  a  receiver.- 

1  Houston    etc.    Ry.    Co.    v.    Mc-  The   receiver   of   a   partnership 

Fadden,  91  Tex.  194,  40  S.  W.  216,  which  had  wrongfully  cut  timber 
42  S.  W.  593.  upon  land  of  the  plaintiff  was  held 

T^  T-.  ..^     -.„   ,,,     „,-„       properly  sued  for  such  acts.     Ev- 

1  Emory  v.  Faith,  113   Md.   253,  '  ^  „„    „..       ,^,     ^„ 

erett    v.    Gores,    89    Wis.    421,    02 
Ann.  Cas.  1912A,  586,  77  Atl.  386.      ^^^    ^    ^^ 

2  See  §  58,  supra,  for  general  lia-  i  Brush  v.  Jay,  113  N.  Y.  482,  21 
bility  of  the  receivership  for  torts      N.  E.  184. 

and  negligence.  2  McNab  v.  Noonan,  28  Wis.  434. 


4G8 


LAW   OF   RECEIVERS. 


mit  its  receiver  to  continue  the  business  unless  the 
failure  to  do  so  will  result  in  a  serious  loss  because  of 
loss  of  the  good  will  attached  to  it  or  where  the  nature 
of  the  business  is  such  that  its  principal  value  consists 
in  its  existence  as  a  going  business.  Under  such  circum- 
stance the  maintenance  of  the  business  by  the  receiver 
will  be  incidental  to  the  duty  of  the  receiver  to  preserve 
the  receivership  property  for  the  benefit  of  those  ulti- 
mately entitled  to  it.-    Where  a  business  is  not  at  the 


age  this  concern  merely  for  the 
purpose  of  carrying  it  on.  The 
court  will  order  it  to  be  sold  or 
foreclosed;  will  deal  with  it  as 
property,  but  no  further.  ...  I 
do  not  see  my  way  to  make  such 
an  order,  and  if  I  did  I  must,  by 
acting,  ruin  all  concerned.  They 
have  still  the  locus  poenltentiae, 
and  if  they  will  not  settle  their 
own  interests,  it  is  immaterial, 
whether  the  consequences  shall  be 
produced  by  their  own  acts  or  by 
mine."  See,  also,  Niemann  v.  Nie- 
mann, L.  R.  43  Ch.  Div.  198,  where 
it  is  held  that  a  receiver  will  not 
be  appointed  over  a  partnership, 
and  authorized  to  do  acts  in  the 
nature  of  a  compromise  or  settle- 
ment which  the  partners  were  not 
authorized  to  do. 

The  liquidator  of  a  partnership 
or  corporation  which  has  been  dis- 
solved by  vote  of  the  parties  in 
interest  and  gone  into  liquidation 
is  without  authority  to  continue 
its  business  as  a  going  concern, 
and  will  be  held  to  strict  responsi- 
bility for  so  doing.  In  re  Browne 
&  Jenkins  Co.,  106  La.  4S6,  31 
So.  67. 

See  §  61,  supra,  in  respect  to 
general  rule  as  to  conducting  the 
receivership  as  a  going  business. 

2  Rochat  V.  Gee,  137  Cal.  497,  70 


Pac.  478;  Allen  v.  Hawley,  6  Fla. 
142,  164,  63  Am.  Dec.  198;  Gillam 
V.  Nussbaum,  95  111.  App.  277; 
Blythe  v.  Gibbons,  141  Ind.  332,  35 
N.  E.  557;  Levi  v.  Karrick,  8  Iowa 
150;  Wolbert  v.  Harris,  7  N.  J.  Eq. 
605;  Crane  v.  Ford,  1  Hopk.  Ch. 
(N.  Y.)  114;  Jackson  v.  DeForest, 
14  How.  Pr.  (N.  Y.)  81;  Marten  v. 
Van  Schaick,  4  Paige  (N.  Y.)  479; 
Heatherton  v.  Hastings,  5  Hun 
(N.  Y.)  459;  Henn  v.  Walsh,  2 
Edw.  Ch.  (N.  Y.)  129,  130;  Wil- 
liams V.  Wilson,  4  Sandf.  Ch. 
(N.  Y.)  379;  Witherbee  v.  Wither- 
bee,  17  App.  Div.  181,  45  N.  Y. 
Supp.  297. 

The  value  of  a  business  engaged 
in  publishing  a  newspaper  is  so 
largely  dependent  upon  its  being 
continued  as  a  going  concern  that 
a  receiver  will  generally  be  per- 
mitted to  continue  it.  Dayton  v. 
Wilkes,  17  How.  Pr.  (N.  Y.)  510; 
Marten  v.  Van  Schaick,  4  Paige 
(N.  Y.)  479. 

The  receiver  of  a  partnership 
appointed  in  an  action  for  dissolu- 
tion has  authority  to  sell  manu- 
factured articles  on  hand.  Mont- 
ross  V.  Mabie,  30  Fed.  234. 

In  Heatherton  v.  Hastings,  5 
Hun  (N.  Y.)  459,  the  court  said: 
"Although  ordinarily  a  court  of 
equity  will  not  undertake  to  carry 


MATTERS    ARISING   FROM    PARTNERSHIPS. 


469 


time  of  the  appointment  of  a  receiver  a  going  business 
the  court  will  not  ordinarily  authorize  a  receiver  to  start 
the  business  and  continue  it  in  operation.^ 

But  where  at  the  time  of  the  appointment  of  a  re- 
ceiver for  a  partnership  the  partners  were  engaged  in 
carrying  out  a  contract  to  furnish  a  certain  amount  of 
lumber  to  another  concern,  the  receiver  very  properly 
was  permitted  to  complete  the  contract  by  manufactur- 
ing the  lumber  where  done  at  the  request  of  the  part- 
ners.^ 

The  creditors  of  a  receiver  who  is  conducting  the  part- 
nership business  with  the  consent  of  the  creditors  of 
the  partners  are  entitled  to  priority  in  respect  to  their 
claims  against  the  receivership.^ 


on  the  business  of  contending  par- 
ties by  means  of  a  receiver,  yet 
cases  sometimes  arise  where  the 
refusal  to  do  that  for  a  limited 
period  would  result  in  great  loss 
to  the  persons  interested.  That 
such  cases  are  exceptional  and 
justify,  as  well  as  require,  the  ex- 
ercise of  authority  which,  under 
other  circumstances,  would  be 
plainly  improper." 

3  In  Merrell  v.  Pemberton,  62 
Ga.  29,  the  defendant  had  no  place 
of  business,  and  if  the  plaintiff 
had  any  it  was  beyond  the  limits 
of  the  state.  The  court  refused  to 
appoint  a  receiver  for  the  purpose 
of  opening  up  a  house  for  the  man- 
ufacture and  sale  of  medicines,  on 
the  ground  that  it  is  only  where 
a  place  of  business  is  established 
that  the  court  will  appoint  a  man- 
ager. 

4  Rochat  V.  Gee,  137  Cal.  497,  70 
Pac.  478. 

It  is  within  the  province  of  a 
court  of  equity,  in  a  suit  to  wind 


up  the  business  of  a  partnership 
which  had  been  formed  to  carry 
out  a  contract  for  the  construction 
of  a  public  work,  to  appoint  re- 
ceivers to  complete  the  contract, 
shown  to  be  for  the  benefit  of  the 
firm's  creditors;  and  a  creditor, 
who  subsequently  recovered  judg- 
ment on  his  claim,  will  not  be  per- 
mitted to  enforce  his  judgment  by 
a  levy,  where  it  would  defeat  the 
purpose  of  the  receivership  and  be 
to  the  detriment  of  all  other  cred- 
itors. Patterson  v.  Patterson,  182 
Fed.  952. 

r>  Ivie  V.  Blum  &  Bitting,  159 
N.  C.  121,  74  S.  E.  807. 

Where  a  partnership  was  em- 
ployed as  a  del  credere  factor  to 
sell  a  cargo  of  lumber,  and  a  re- 
ceiver of  the  partnership,  subse- 
quently appointed,  guaranteed  a 
certain  amount,  the  principal  is 
entitled  to  such  amount,  though 
the  lumber  sold  for  less.  In  re 
Federal  Union  Surety  Co.,  73  Misc. 
Rep.  28,  132  N.  Y.  Supp.  19G, 


470  LAW   OF   RECEIVERS. 

§  175.    Whether  Receiver  of  a  Law  Firm  May  Continue  the 
Law  Practice  of  the  Firm. 

There  is  a  strong  intimation  in  a  case  decided  by  the 
Supreme  Court  of  the  State  of  Washington^  to  the  effect 
that  a  receiver  could  not  be  authorized  to  attend  to  the 
practice  of  a  law  partnership  in  the  courts.  The  de- 
cision, however,  was  based  upon  the  form  of  the  order 
appointing  the  receiver,  w^iich  merely  authorized  the 
receiver  "to  take  charge  of  any  and  all  business  of  every 
kind  and  nature  belonging  to  said  firm,"  and  which 
the  court  held  was  not  broad  enough  to  authorize  the 
receiver  to  attend  to  the  law  practice  of  the  partners  in 
the  courts,  the  court  in  this  respect  saying ; 

"It  is  finally  contended  that  the  court  appointed  a 
receiver  to  take  charge  of  the  cases  now  pending  in 
the  Superior  Court  of  Lincoln  County,  in  which  the 
parties  to  this  action  have  been  employed  as  attorneys. 
It  is  true  that,  in  the  affidavit  filed  by  the  respondent, 
he  says  that  it  is  necessary  that  a  receiver  be  appointed 
to  take  charge  of  the  business  of  the  firm  now  pending 
in  the  courts,  but  the  order  appointing  a  receiver  does 
not  go  that  far.  The  receiver  is  directed  to  take  charge 
of  the  property  of  the  parties  pending  an  accounting 
which  must  necessarily  follow.  It  is  true  that  the  order 
directs  that  the  receiver  shall  take  charge  of  all  business 
of  the  firm,  but  this  follows  directly  after  a  direction  to 
*  collect  any  and  all  outstanding  accounts,  notes,  and 
obligations  of  every  kind  and  nature  due  said  firm,  and 
to  report  the  same  to  this  court,  especially  giving  him 
power  and  authority  to  assemble  said  property  and  to 
bring  suit  for  the  collection  of  any  obligations  due  said 
firm,'  thus  'and  in  short  to  take  charge  of  any  and  all 
business   of  every  kind   and  nature  belonging  to   said 

1  Martin    v.    Wilson,    84    W^ash.  a   lack   of  harmony   between   the 

625,  147  Pac.  404.  ])artners  and  the  exclusion  of  one 

In  the  above   case  the  receiver  partner    from    the    affairs    of    the 

was  appointed  upon  the  ground  of  partnership. 


MATTERS   ARISING   FROM   PARTNERSHIPS.  471 

firm,'  etc.  When  read  together,  we  think  it  is  sufficiently 
clear  that  the  court  had  no  intention,  as  he  probably  had 
no  power,  to  appoint  a  receiver  to  attend  to  the  practice 
of  the  parties  in  the  courts  of  this  state. ' ' 

§176.    Joint  Operation  of  Two  Railroads  by  Receiver  of  One 
of  Them  Constitutes  No  Partnership. 

No  partnership  exists  between  two  railroads  either  as 
between  the  parties  or  as  to  third  persons  merely  be- 
cause the  receiver  of  one  of  the  companies  operates  both 
roads  jointly  and  part  of  the  gross  receipts  is  paid  to 
the  other  company.^ 

§  177.    Liability  of  Receiver  for  Torts. 

A  receiver  of  a  partnership  is  not  liable  for  a  tort  com- 
mitted by  it  before  his  appointment.^  We  do  not,  liow- 
ever,  understand  that  the  person  who  has  suffered  by 
reason  of  a  tort  committed  prior  to  the  receivership 
is  deprived  from  suing  for  the  tort  and  subjecting  the 
property  of  the  receivership  toward  payment  of  his 
judgment  with  other  general  creditors. ^ 

§  178.    Sale  of  the  Partnership  Assets  by  the  Receiver. 

A  sale  of  partnership  property  in  the  hands  of  a 
receivership  will  not  be  ordered  in  advance  of  a  final 
hearing  where  one  of  the  issues  to  be  determined  in  the 
receivership  is  the  title  to  the  property.^ 

And  a  trial  court  should  not  order  a  sale  of  the  part- 
nership assets  pending  an  appeal  upon  the  question 
whether  the  court  had  jurisdiction  to  appoint  a  receiver.^ 

1  Houston    etc.    Ry.    Co.    v.    Mc-  The   receiver    of   a   partnership 

Fadden,  91  Tex.  194,  40  S.  W.  216,      which  had  wrongfully  cut  timber 

42  S.  W.  593.  upon  land  of  the  plaintiff  was  held 

^  1^  .  ,      ^.„   ,    ,     «^«       properly  sued  for  such  acts.     Ev- 

1  Emory  v.  Faith,   113   Md.   253,      "^     '  _  ,,.    „,.       ,.^,     ^„ 

erett    v.    Gores,    89    ^\  is.    421,    G2 
Ann.  Cas.  1912A,  586,  77  Atl.  386.      j^.    ^    ^^ 

1  See  §  58,  supra,  for  general  lia-  i  Brush  v.  Jay,  113  N.  Y.  482,  21 

bility  of  the  receivership  for  torts      N.  E.  184. 
and  negligence.  2  McNab  v.  Noonan,  28  Wis.  434. 


472  LAW    OF    RECEIVERS. 

The  general  rules  in  respect  to  sales  of  tlie  receiver- 
ship property  will  be  treated  in  the  chapter  devoted  to 
the  general  subject.  If  the  partnership  has  been  licensed 
to  sell  patented  articles,  the  receiver  in  closing  up  its 
affairs  will  be  permitted  to  sell  such  patented  articles  as 
the  partnership  had  on  hand.^ 

Where  the  business  of  the  partnership  has  a  valuable 
good  \\411  attached  to  it  it  has  been  held  that  the  re- 
ceiver should  dispose  of  it.  His  failure  to  do  so  will 
make  him  liable  to  account  for  it.^ 

So,  also,  where  the  good  will  of  a  business  is  one  of  the 
principal  assets  of  a  partnership  the  court  may  direct 
the  receiver  of  the  partnership  to  sell  the  lease  of  the 
place  where  the  business  was  conducted,  together  with 
the  good  wdll,  and  the  court  will  protect  the  purchaser 
by  restraining  the  partners  from  interfering  with  it. 
And  if  it  appears  that  the  good  will  can  be  sold  more  ad- 
vantageously to  one  of  the  partners,  the  court  mil  allow 
the  individual  partners  to  buy  it.^  The  purchaser  of  the 
partnership  assets  and  contract  rights  is  protected  as 
against  interference  by  the  partners.*^ 

3  Where  a  partnership  over  which  5  Williams  v.  Wilson,  4  Sandf. 
a  receiver  is  appointed  has  a  li-  Ch.  (N.  Y.)  379.  In  this  case  the 
cense  to  sell  patented  stoves,  its  business  consisted  of  an  insane 
receiver  in   closing  up   its   affairs  hospital. 

may   sell    such    stoves    as    are   on  '  ^here  an  execution  against  a 

partnership  M^as  returned  unsatis- 
fied, and  a  receiver  was  appointed 
who  took   charge  of  and  sold   all 

4  Mechanics-  Nat.  Bank  v.  Lan-  jtg  assets  and  contract  rights,  the 
dauer,  68  Wis.  44,  31  N.  W.  160.  ti^ie  to   such  assets  and  contract 

The  good  will  may  be  sold,  at  rights  by  the  sale  passed  to  the 
receiver's  sale  or  otherwise,  sepa-  purchasers,  and  one  of  the  part- 
rate  and  apart  from  the  assets  of  ners  could  not  thereafter  maintain 
the  firm,  and  there  is  no  rule  ot  an  action  upon  one  of  such  con- 
law  disqualifying  partners  from  tracts.  Weinstein  v.  Welden,  160 
bidding  upon  the  good  will  at  pub-  App.  Div.  554,  145  N.  Y.  Supp. 
lie  auction.  Cook  v.  Collingridge,  772  (reversing  80  Misc.  Rep.  348, 
Jac.  607.  142  N.  Y.  Supp.  406). 


hand.    Montross  v.  Mabie,  30  Fed 
234. 


MATTERS   ARISING    FROM    PARTNERSHIPS.  473 

§  179.    Right  to  Sell  Partnership  Assets  Outside  of  State. 

Where  the  partners  are  within  the  jurisdiction  of  the 
court  and  the  court  has  acquired  jurisdiction  over  their 
persons,  a  receiver  appointed  over  the  partnership,  wlio 
is  authorized  to  sell  all  property,  choses  in  action,  and 
other  effects  of  tlie  partnership  within  the  jurisdiction 
of  the  court,  may  sell  choses  in  action  and  accounts  due 
the  partnership  from  persons  residing  outside  of  the 
state. ^ 

§180.    Duty    of    Receiver   to   Pay    the    Debts    and    Account 
Therefor. 

The  duty  of  the  receiver  ordinarily  is  to  take  charge  of 
the  partnership  assets,  collect  the  outstanding  debts,  and 
use  the  funds  collected  to  pay  the  expenses  of  the  re- 
ceivership and  liquidate  the  partnership  creditors.^ 

Where  the  receiver  was  appointed  with  the  consent  of 
the  partners,  it  was  held  allowable  for  him  to  pay  debts 
of  the  partnership  out  of  funds  collected  without  first  re- 
porting to  the  court.2 

Where  a  receiver  is  appointed  in  a  suit  for  dissolu- 
tion to  collect  the  debts  owing  to  the  partnership  he  may 
be  directed  by  the  court  to  pay  over  to  the  plaintiff  such 
portion  of  the  sums  collected  as  belong  pro  rata  to  hiuL^* 

A  receiver  of  a  partnership  may  be  required  to  allow 
the  interested  parties  to  examine  his  books  of  account 

1  Loney    v.    Penniman,    43    Md.  so   as    to   permit  the    receiver   to 

■j^oQ  pay  the   debts,   and  to  direct  the 

1  Wallace   v.   Milligan,    110    Ind.  referee  appointed  to  pass  on  the 

498    11  N.  E.  599;   Fogg  v.  Tyler,  receiver's  accounts  to  take  proof 

111' Me.  546,  90  At'l.  481.  of  all  payments  of  firm  liabilities 

Where   an   interlocutory    decree  theretofore  made  by  him.     Kliger 

dissolving   a   partnership    and   ap-  v.    Rosenfeld,    130    App.    Div.    421, 

pointing  a   receiver   gave   the   re-  114  N.  Y.  Supp.  1006. 

ceiver   no    authority   to    pay    firm  2  Kellar     v.     Williams,     3     Rob. 

debts,    the    court    had    power    to  (La.)   321. 

amend  the  decree  nunc  pro  tunc,  3  Maher  v.  Bull,  44  111.  97. 


474  LAW   OF   RECEIVERS. 

showing  his  conduct  of  the  business  of  the  receivership,^ 
since  it  is  his  duty  to  render  an  account  of  his  receiver- 
ship.^ 

After  a  receiver  has  been  appointed  the  partners  are 
not  entitled  to  any  portion  of  the  money  into  which  part- 
nership assets  have  been  converted  until  all  partnership 
debts  have  been  paid.^ 

§  181.    Disposition  of  Earnings  and  Meeting  Losses  in  Opera- 
tions by  Receiver. 

Funds  earned  by  a  receiver  after  dissolution  of  a  firm 
should  not  be  credited  to  the  capital  account,  but  should 
be  paid  into  the  general  fund  to  be  applied  with  other 
assets  to  capital  and  profits,  according  to  the  proportion 
that  the  original  capital  bore  to  the  profits  earned.^ 

If  a  judgment  is  recovered  against  a  receiver  of  a  part- 
nership for  funds  advanced  to  him  to  publish  a  directory, 
and  the  publication  results  in  a  loss,  it  is  proper  to  order 

4  Maund  v.  Allies,  4  Myl.  &  Cr.  in   the   action   to   apply   for   such 

503.  relief,  he  not  being  a  party  and 

W^here  a  receiver  of  partnership  not  standing  in  the  shoes  of  the 

property   was   appointed,   and   the  copartners,   and,  though  he  could 

parties  were  ordered  to  deliver  to  apply  to  the  court  for  instructions 

him  all  the  partnership  books  and  as  to  whether  he  should  obey  the 

papers,  which  were  to  be  open  to  subpoena,    he    could    not    seek    a 

the  inspection  of  the  parties  and  modification    of   the    order   which 

their    attorneys    and    accountants  did  not  concern  him.    In  re  Foster, 

only,   and    a   paper   purporting   to  139  App.  Div.  769,  124  N.  Y.  Supp. 

be   a  subpoena  duces  tecum   was  667  (affirming  order,  68  Misc.  Rep. 

served  upon  the  receiver  requiring  120,  123  N.  Y.  Supp.  465). 

him  to  appear  before  the  commis-  5  Gridley  v.  Conner,  2  La.  Ann. 

sioner    of    accounts    and    produce  87;    Clapp  v.   Clapp,   10   N.   Y.   St. 

all  of  the  books,  etc.,  an  order  to  Rep.  733. 

show   cause,    directed   to  the   par-  Ve  Rochat  v.  Gee,  137  Cal.  497,  70 

ties,  why  the  order  directing  the  Pas.  478;    Bishop  v.  Pendley,  138 

parties  to  deliver  the  books,  etc.,  Ga.  738,  76  S.  E.  63;  Slater  v.  Sla- 

to    the    receiver    should    not    be  ter,    78    App.    Div.    449,    80    N.    Y. 

amended   to   permit  him   to   obey  Supp.  363. 

the     subpoena,     was     improperly  i  Kennedy  v.  Hill,  89  S.  C.  4G2, 

made,  since   he   had   no   standing  71  S.  E.  974. 


MATTERS   ARISING   FROM    PARTNERSHIPS.  475 

the  judgment  satisfied  out  .of  any  of  the  assets  of  the  firm 
except  the  directory  business.- 

§  182.    Vacation  of  the  Appointment. 

The  general  rules  applicable  to  the  vacation  of  orders 
appointing  receivers  will  be  treated  in  a  subsequent 
chapter. 

Where,  however,  receivers  have  been  appointed  in  a 
suit  between  partners  to  wind  up  a  partnership  formed 
to  carry  out  a  contract  for  the  construction  of  a  public 
work,  on  a  bill  alleging  insolvency  and  that  the  com- 
pletion of  the  contract  by  receivers  will  be  for  the  ben- 
efit of  creditors,  to  which  the  majority  of  the  creditors 
have  consented,  an  affidavit  of  the  attorney  for  a  single 
judgment  creditor,  stating  his  belief  merely  that  the  firm 
is  solvent  and  that  the  receivership  was  obtained  for  the 
purpose  of  hindering  and  delaying  the  creditors,  and  for 
the  benefit  of  the  partners,  is  insufficient  to  justify  the 
vacation  of  the  receivership  or  the  granting  of  leave  to 
such  creditor  to  is?ue  an  execution  and  levy  the  same  on 
partnership  property  in  the  hands  of  the  receivers.^ 

2  Painter    v.    Painter,    138    Cal.  i  Patterson     v.     Patterson,     184 

231,  94  Am.  St.  Rep.  47,  71  Pac.  90.      Fed.  547. 


CHAPTER  VIII. 

RECEIVER  IN  RELATION  TO  JOINT  ADVENTURES. 

§  183.    When  Receiver  Will  Be  Appointed, 

A  receiver  vnll  not  be  appointed  in  a  suit  by  one  of  the 
parties  to  a  joint  adventure  without  a  showing  of  fraud 
or  mismanagement  or  damage  to  the  joint  assets.^ 

Thus  a  receiver  has  been  appointed  to  take  possession 
of  a  race  horse  of  great  value,  and  to  sell  it  and  divide 
the  proceeds  among  those  entitled  thereto,  where  one  of 
the  several  owners  of  the  horse  secured  a  third  party  to 
attach  the  horse  and  it  was  appraised  at  a  low  value  and 
was  about  to  be  sold.^ 

But  where,  in  a  suit  for  dissolution  of  a  joint  adven- 
ture and  for  an  accounting,  there  was  a  sharp  contest 
between  the  parties  as  to  the  nature  of  the  agreement, 
and  the  question  of  whether  the  relationship  existed  was 
contested  and  the  business  was  of  such  a  nature  that  the 
court  could  not  carry  it  on  under  a  receivership,  and  tlio 
defendants  were  solvent  and  able  to  respond  in  damages, 
the  application  for  a  receiver  Mali  be  denied.^ 

1  Warwick  v.  Stockton,  55  N.  J.      court  of  equity  and  that  a  receiver 

Eq.  61,  36  Atl.  488.  was   necessary   to  final   and   com- 

A    receiver    of    uncollected    ac-      P^^te    relief.    See    same    case    on 

joint  relationship  of  the  parties  in 


counts   due   in    a  joint  enterprise 
was  appointed.     Candler  v.  Cand- 


109  N.  Y.  267,  16  N.  E.  332. 

Receiver  may  be  appointed  in  a 

Ipr     Tap    9''"^ 

lei,  .jctv..  ^-u.  partition   suit  whenever  facts   ap- 

In  King  v.  Barnes,  51  Hun  550,  pear  which  justify  such  an  appoint- 

4  N.  Y.  Supp.  247,  the  action  was  ment.     Goodale  v.  Fifteenth  Dist. 

brought  to  establish  and   enforce  Court,   56  Cal.   26;    Reas  v.   Clem- 

the  rights  of  the  parties  who  had  ence,  173  Cal.  106,  159  Pac.  432. 

advanced  money  and  incurred  lia-  2  Shehan     v.     Mahar,     17     Hun 

bilitles  in  reliance  upon  the  agree-  (N.  Y.)  129.    See,  also,  Andrews  v. 

ment  for  a  joint  enterprise,  and  it  Betts,  8  Hun   (N.  Y.)    322. 

was  held  that  the  case  was  pecu-  3  Bernitt   v.    Smith-Powers    Log- 

liarly  within  the  jurisdiction  of  a  ging  Co.,  184  Fed.  139. 

(476) 


RECEIVER  IN  RELATION  TO  JOINT  ADVENTURES.       477 

One  of  tlie  parties  to  an  action  for  the  appointment  of 
a  receiver,  who  concedes  that  it  is  proper  to  appoint  a 
receiver  to  take  charge  of  and  sell  property  belonging- 
jointly  to  the  parties,  and  divide  the  proceeds  between 
them,  may  properly  be  required  to  pay  over  to  the 
receiver  money  in  his  hands,  arising  from  a  sale  by  him 
of  other  property  which  had  belonged  to  himself  and  the 
other  party,  the  title  to  which  they  had  derived  by  virtue 
of  the  same  transaction  as  that  by  which  they  acquired 
the  ownership  of  the  property  turned  over  to  the  receiver, 
where  there  has  been  no  accounting  and  settlement  as  to 
the  property  sold.^ 

4  Whitley  v.  Berry,  105  Ga.  251,  31  S.  E.  171. 


*r-x 


CHAPTER  IX. 


RECEIVERS  IX  PARTITION  PROCEEDINGS. 


§  184.    In  General. 

Receivers  are  frequently  appointed  in  suits  for  parti- 
tion,^ but  ordinarily  in  a  partition  suit  there  is  less  occa- 


1  Goodale  v.  Fifteenth  Dist. 
Court,  56  Cal.  26;  Baughman  v. 
Reed,  75  Cal.  319,  7  Am.  St.  Rep, 
170,  17  Pac.  222;  Mesnager  v.  De 
Leonis,  140  Cal.  402,  73  Pac.  1052; 
Rutherford  v.  Jones,  14  Ga.  521, 
60  Am.  Dec.  655;  Ames  v.  Ames, 
148  111.  321,  36  N.  E.  110;  Rapp  v. 
Reehling,  122  Ind.  255,  23  N.  E.  68; 
Davidson  v.  I.  &  M.  Davidson  Real 
Estate  etc.  Co.,  226  Mo.  1,  136 
Am.  St.  Rep.  615,  125  S.  W.  1143; 
Weise  v.  Welsh,  30  N.  J.  Eq.  431; 
Goldberg  v.  Richards,  5  Misc.  Rep. 
419,  26  N.  Y.  Supp.  335;  Mesnig  v. 
Mesnig,  81  Misc.  Rep.  290,  143 
N.  Y.  Supp.  219;  Verplanck  v.  Ver- 
planck,  22  Hun  (N.  Y.)  104;  Christ 
Church  V.  F^shburne,  83  S.  C.  304, 
65  S.  E.  238;  Ohio  Fuel  Oil  Co.  v. 
Burdett,  72  W.  Va.  803,  Ann.  Cas. 
1915D,  1033,  79  S.  E.  667;  Heinze 
V.  Butte  &  B.  Cons.  Min.  Co.,  126 
Fed.  1,  61  C.  C.  A.  63. 

In  Heinze  v.  Kleinschmidt,  25 
Mont.  89,  63  Pac.  927,  the  court 
applied  the  rule  applicable  to 
cases  of  tenants  in  common  in  a 
partition  suit  over  a  mining  prop- 
erty, namely,  that  a  receiver  will 
be  appointed  in  such  cases  (a) 
where  one  tenant  is  in  possession 
and  excludes  his  co-tenant  from 
participation  in  the  possession  or 
income;    (b)   where  the  tenant  in 

(4 


possession  is  insolvent  and  refuses 
to  account  to  his  co-tenant;  (c) 
where  one  tenant  refuses  to  join 
his  co-tenant  in  the  execution  of 
necessary  leases  for  the  property 
owned  in  common,  or  interferes 
in  the  collection  of  rents  with  the 
tenants  in  possession;  (d)  where 
the  court  can  see  from  the  show- 
ing made  that  the  appointment  of 
a  receiver  is  required  in  order  to 
properly  protect  the  interests  of 
the  parties. 

A  receiver  may  be  appointed  in 
a  suit  for  partition  to  take  charge 
of  the  real  estate  and  collect  its 
rents  and  profits  pending  the  liti- 
gation. Jones  V.  Abbott,  228  111. 
34,  119  Am.  St.  Rep.  412,  81  N.  E. 
791. 

Pending  a  suit  for  partition,  the 
court  may  appoint  a  receiver  to 
lease  the  property  and  collect  the 
rents  and  profits.  Weeks  v.  Weeks, 
106  N.  Y.  626,  13  N.  E.  96. 

Under  the  early  English  prac- 
tice, the  court  would  not  appoint  a 
receiver  in  a  partition  proceeding 
except  under  exceptional  circum- 
stances. Norway  v.  Rowe,  19  Ves. 
144,  159;  Milbank  v.  Revett,  2 
Meriv.  405.  The  cases  of  this  char- 
acter in  which  receivers  were  ap- 
pointed do  not  generally  go  into 
any  detail  as  to  the  reasons  for 
■8) 


BECEIVERS   IN   PARTITION   PROCEEDINGS. 


479 


sion  for  the  appointment  of  a  receiver  than  in  a  foreclos- 
ure proceeding  since  the  person  in  charge  of  the  property 
having  an  interest  in  it  can  be  charged  in  the  final  judg- 
ment with  the  amounts  of  the  rents  received  by  him.  The 
party  applying  for  the  appointment  of  a  receiver  in  a 
partition  suit  must  show  a  clear  case  and  that  his  rights 
will  be  jeopardized  unless  the  receiver  is  appointed.-  In 
other  words  it  is  essential  in  cases  of  this  sort,  as  in  other 
classes  of  cases,  that  it  appear  to  be  reasonably  neces- 
sary to  a  preservation  of  the  rights  of  the  parties  that  the 
receiver  be  appointed.^ 


the  appointment.  Calvert  v. 
Adams,  2  Dick.  478;  Evelyn  v. 
Evelyn,  2  Dick.  800;  Street  v.  An- 
derton,  4  Bro.   C.  C.  414. 

2  Patterson  v.  McCunn,.46  How. 
Pr.  (N.  Y.)  182;  Darcin  v.  Wells, 
61  How.  Pr.  (N.  Y.)  259;  Bath- 
mann  v.  Bathmann,  79  Hun  477, 
29  N.  Y.  Supp.  959. 

3  Ames  V.  Ames,  148  111.  321,  36 
N.  E.  110;  Duncan  v.  Campau,  15 
Mich.  415;  Low  v.  Holmes,  17  N.  J. 
Eq.  148;  Weise  v.  Welsh,  30  N.  J. 
Eq.  431;  Vincent  v.  Parker,  7 
Paige  (N.  Y.)  65;  Bowers  v.  Du- 
rant,  40  Hun  640;  2  N.  Y.  St.  Rep. 
127;  Verplanck  v.  Verplanck,  22 
Hun  (N.  Y.)  104;  Pignolet  v. 
Bushe,  28  How.  Pr.  (N.  Y.)  9; 
Heinze  v.  Butte  &  B.  Consol.  Mine 
Co.,  126  Fed.  1,  61  C.  C.  A.  63; 
Higgins  Oil  etc.  Co.  v.  Snow,  113 
Fed.  433,  51  C.  C.  A.  267;  Sandford 
V.  Ballard,  33  Beav.  401. 

A  receiver  of  the  rents  and  prof- 
its of  tenement  houses  will  not  be 
granted  at  the  suit  of  the  life  ten- 
ant against  a  remainderman  who, 
by  agreement  of  the  parties,  has 
been  managing  the  property,  in 
the  absence  of  proof  of  misman- 
agement resulting  to  the  plaintiff's 
Injury.     Rollwagen   v.   Rollwagen, 


59  Hun  625,  13  N.  Y.  Supp.  635, 
37  N.  Y.  St.  Rep.  293. 

A  court  of  equity  may  in  parti- 
tion proceedings  in  respect  to  a 
large  number  of  lots  appoint  a  re- 
ceiver to  rent  the  property  in 
whole  or  in  part  and  pay  the  rents 
to  the  co-tenants  in  accordance 
with  their  respective  interests  in 
the  property.  Rutherford  v.  Jones, 
14  Ga.  521,  60  Am.  Dec.  655. 

While  receivers  are  sometimes 
appointed  to  collect  rents  pending 
partition  proceedings,  such  an  ap- 
pointment is  not  authorized  where 
there  is  nothing  to  show  any  real 
necessity  therefor  or  imminent 
danger  of  loss.  Baker  v.  Baker, 
108  Md.  269,  129  Am,  St.  Rep.  439, 
70   Atl.   418. 

Where  the  appointment  of  a  re- 
ceiver appears  to  be  reasonably 
necessary  to  preserve  the  prop- 
erty and  the  parties  to  the  parti- 
tion suit  agree  to  it  the  court  will 
appoint  a  receiver.  Bowers  v  Du- 
rant,  40  Hun  640,  2  N.  Y.  St.  Rep. 
127. 

An  application  by  one  tenant  in 
common  for  a  receiver  was  refused 
where  the  prayer  of  the  bill  for  an 
accounting  and  a  sale  and  division 
of  the  chattels  was  not  sustained 


480 


LAW   OF   RECEIVERS. 


by  the  evidence.     Blood  v.  Blood, 
110  Mass.  545. 

A  receiver  will  not  be  appointed 
in  a  partition  suit  where  no  tenant 
in  common  is  attempting  to  oust 
the  plaintiff  or  is  in  any  way  inter- 
fering with  his  common  possession 
and  use  of  the  property  or  other- 
wise endangering  the  rights  of  the 
plaintiff.  Reas  v.  Clemence,  173 
Cal.  106,  159  Pac.  432. 

Where  a  surrogate  had  ap- 
pointed a  temporary  administrator 
of  decedent's  personalty,  the  Su- 
preme Court,  in  an  action  for  par- 
tition of  his  real  estate,  would  not 
appoint  a  receiver  pendente  lite, 
since  under  Code  Civ.  Proc.  Sec. 
2675,  authorizing  the  surrogate  to 
confer  on  a  temporary  administra- 
tor authority  to  do  any  act  in 
regard  to  decedent's  real  property 
necessary  to  its  preservation  or 
benefit,  the  surrogate  might  still 
authorize  such  temporary  adminis- 
trator to  perform  the  acts  regard- 
ing decedent's  real  estate  for 
which  a  receiver  was  desired. 
Weiher  v.  Simon,  41  Misc.  Rep. 
202,  83  N.  Y.  Supp.  927. 

In  partition  cases  as  in  other 
circumstances  where  an  appoint- 
ment of  a  receiver  is  sought  there 
must  be  shown  a  clear  or  equitable 
right,  reasonably  clear  and  free 
from  doubt,  attended  with  danger 
of  loss.  Heinze  v.  Kleinschmidt, 
25  Mont.   89,  63  Pac.  927. 

Where  there  was  an  outstand- 
ing lease,  with  an  option  to  renew, 
which  lease  was  involved  in  the 
partition  action,  and  there  were 
unpaid  taxes  on  the  property, 
which  lease  a  deceased  person  had 
contracted  to  sell,  and  the  admin- 
istrator's sureties  were  dead,  and 
the  administrator's  bond  was  not 


for  a  large  amount,  it  was  held 
that  a  receiver  to  collect  the  rents 
of  the  property  should  be  ap- 
pointed. Glaser  v.  Burns,  —  Misc. 
— ,  154  N.  Y.  Supp.  22. 

On  a  petition  for  partition  of 
real  estate  belonging  to  the  heirs 
of  an  estate  not  yet  settled,  there 
is  no  occasion  for  the  appointment 
of  a  receiver,  and  it  is  question- 
able whether  in  such  a  case  the 
court  has  power  to  appoint  a  re- 
ceiver, even  with  the  assent  of  all 
the  parties.  McCarty  v.  Patterson, 
186  Mass.  1,  71  N.  E.  112. 

In  Hargrave  v.  Hargrave,  9 
Beav.  549,  the  plaintiff,  an  infant, 
insisted  that  he  and  defendant 
were  co-heirs,  entitled  to  the  es- 
tate, and  that  outstanding  terms 
existed  which  prevented  the  plain- 
tiff from  proceeding  at  law.  The 
defendant  was  in  possession  of  the 
whole.  The  prayer  of  the  bill  was 
for  partition  and  accounting,  and 
for  a  receiver.  The  defendant  de- 
nied the  plaintiff's  legitimacy.  The 
motion  for  a  receiver  was  argued, 
and  the  master  of  rolls  said  he 
would  examine  the  cases  and  give 
judgment  at  a  future  day.  He 
afterward  granted  the  order,  but 
gave  no  reasons  therefor.  In  an- 
other case,  the  parties  were  ten- 
ants in  common  of  copyhold  prop- 
erty, the  legal  estate  being  in  a 
trustee  for  them.  The  defendant 
was  in  possession  but  there  was 
no  proof  of  exclusion.  The  plain- 
tiff was  allowed  a  receiver  of  his 
moiety.  Sandford  v.  Ballard,  30 
Beav.  109.  Subsequently,  it  ap- 
peared that  the  conduct  of  the 
defendant  amounted  to  an  exclu- 
sion. A  receiver  was,  therefore, 
appointed  over  the  whole  property. 
Sandford  v.  Ballard,  33  Beav.  401. 


RECEIVERS   IN   PARTITION    PROCEEDINGS. 


481 


§  185.    Effect  of  Hostile  Feelings  or  Disagreements  Between 
Co-Tenants. 

Where  such  strong  hostility  exists  between  tenants  in 
common  as  to  indicate  a  probability  of  future  injury  to 
the  interests  of  one  of  the  parties  to  a  partition  suit, 
a  receiver  may  properly  be  appointed  to  preserve  the 
property  during-  the  litigation.^  In  such  circumstances 
the  court  will  naturally  require  such  a  showing  of  hostil- 
ity which  will  readily  be  reflected  in  a  probable  destruc- 
tion of  the  subject  of  the  litigation.- 

§  186.    Effect  of  Ouster  or  Refusal  to  Account  for  Profits. 

A  receiver  is  frequently  appointed  in  partition  pro- 
ceedings where  it  is  shown  that  one  co-tenant  is  in  posses- 
sion and  excludes  his  co-tenant  from  participation  in  the 
possession  or  income.^   But  the  ouster  must  be  of  such  a 


1  In  an  equitable  action  for  the 
partition  of  real  estate,  where  the 
plaintiff  showed  good  reason  to 
believe  that  some  portion  of  the 
property  could  not  be  rented,  in 
consequence  of  the  refusal  of  the 
defendant  to  unite  with  the  other 
tenant  in  common  (plaintiff),  and 
that  the  rents  of  other  portions 
which  had  been  rented  could  not 
be  collected  in  consequence  of  her 
interference, — Held,  that  it  was 
proper,  in  order  to  preserve  the 
property  from  serious  loss,  to  ap- 
point a  receiver.  Pignolet  v.  Bushe, 
28  How.  Pr.   (N.  Y.)   9. 

A  receiver  was  appointed  in  a 
divorce  suit,  of  property  held 
under  agreement  for  joint  occu- 
pancy.   Baggs  V.  Baggs,  55  Ga.  590. 

Courts  of  equity  are  averse  to 
appointing  receivers  of  land  held 
by  tenants  In  common,  who  can 
not  agree  on  its  management, 
though  a  receiver  will  be  ap- 
pointed, where  the  sole  object  was 
I  Rec— 31 


to  secure  a  receiver  and  the  col- 
lection and  equitable  division  oi 
the  rents  and  profits.  Bilder  v. 
Robinson,  73  N.  J.  Eq.  169,  67  Atl. 
828. 

2  Such  ill-will  and  hostility  be- 
tween the  joint  owners  of  property 
as  prevents  unity  of  action  in  its 
management  will  not  warrant  the 
court  in  placing  it  in  the  hands  of 
a  receiver,  when  neither  of  the 
owners  is  excluded  from  the  prop- 
erty. Lamaster  v.  Elliott,  53  Neb. 
424,  73  N.  W.  925. 

1  Low  v.  Holmes,  17  N.  J.  Eq. 
148;  Goodale  v.  15th  Dist.  Ct.,  56 
Cal.  26;  Duncan  v.  Campau,  15 
Mich.  415;  Milbank  v.  Revett,  2 
Meriv.  405.  But  see:  Varnum  v. 
Leek,  65  Iowa  751,  23  N.  W.  151; 
Sandford  v.  Ballard,  33  Beav.  401; 
Vaughan  v.  Vincent,  88  N.  C.  116. 

Where  one  co-tenant  refuses  to 
join  with  his  co-tenants  in  leasing 
a  portion  of  the  premises  and 
otherwise  interferes  with  the  col- 


482 


LAW    OF    RECEIVERS. 


character  as  to  be  more  than 
one.^ 

lections  of  the  rents  and  profits,  it 
is  proper  to  appoint  a  receiver. 
Pignolet  V.  Bushe,  28  How.  Pr. 
(N.  Y.)   9. 

"It  is  of  the  very  essence  of  a 
tenancy  in  common  that  the  ten- 
ants have  each  and  equally  the 
right  to  occupy  the  property  and 
take  the  profits."  Blood  v.  Blood, 
110  Mass.  545. 

Where  one  of  alleged  tenants  in 
common  claims  the  right  to  the 
entire  property  in  fee  simple,  and 
seeks  to  collect  all  the  rents 
thereof  on  a  bill  for  partition,  it  is 
proper  to  appoint  a  receiver  to 
collect  the  rents  and  pay  taxes 
and  insurance  during  the  litiga- 
tion. Christ  Church  v.  Fishburne, 
83  S.  C.  304,  65  S.  E.  238. 

In  the  case  of  Holmes  v.  Bell,  2 
Beav.  298,  a  receiver  was  ap- 
pointed when  one  of  the  co-tenants 
was  in  possession  of  the  whole 
rents.  This  application  was  not 
made  by  nor  on  behalf  of  either 
co-tenant,  but  by  a  third  party,  in 
a  proceeding  to  foreclose  a  mort- 
gage against  both  co-tenants. 

2  The  mere  fact  that  one  co- 
tenant  is  occupying  the  property 
in  a  manner  which  does  not  make 
him  liable  for  an  accounting  is  not 
ground  for  the  appointment  of  a 
receiver  pending  a  suit  for  par- 
tition, since  he  has  a  right  to  so 
occupy  it  unless  his  occupation 
amounts  to  a  virtual  ouster  of  the 
complainant.  Varnum  v.  Leek,  65 
Iowa  751,  23  N.  W.  151. 

A  receiver  will  not  be  appointed 
in  a  partition  suit  where  no  tenant 
in  common  is  attempting  to  oust 
the  plaintiff  or  is  in  any  way  in- 
terfering   with    his    common    pos- 


that  of  a  merely  colorable 

session  and  use  of  the  property  or 
otherwise  endangering  his  rights. 
Reas  V.  Clemence,  173  Cal.  106, 
159  Pac.  432. 

In  Georgia,  the  proposition  is 
maintained  "that  a  court  of  equity 
has  jurisdiction  to  appoint  a  re- 
ceiver, at  the  instance  of  one  ten- 
ant in  common  against  his  co- 
tenants,  who  are  in  possession  of 
undivided  valuable  property,  re- 
ceiving the  whole  of  the  rents  and 
profits,  and  excluding  their  conn- 
panion  from  the  receipt  of  any 
portions  thereof,  such  tenants  are 
insolvent."  Williams  v.  Jenkins,  11 
Ga.  595. 

The  mere  fact  that  one  co-tenant 
notifies  the  tenants  of  the  prem- 
ises to  pay  the  rents  to  him  and 
not  to  his  co-tenants  was  held  in- 
sufficient to  show  such  an  exclu- 
sion of  the  co-tenants  as  would 
warrant  the  appointment  of  a  re- 
ceiver. Tyson  v.  Fairclough,  2  Sim. 
&  St.  142.  In  the  above  case  Sir 
John  Leach  said: 

"I  may  observe  that,  even  in  the 
case  of  any  actual  exclusion  of  one 
tenant  in  common  by  another,  I 
doubt  whether  this  court  would 
appoint  a  receiver.  If  it  were  an 
exclusion  which  amounted  to  an 
ouster  at  law,  the  party  complain- 
ing must  assert  at  law  his  legal 
title.  If  it  were  not  such  an  ex- 
clusion, this  court  would  compel 
the  tenant  in  common  in  rent  to 
account  to  his  companion,  but 
w»uid  not,  I  think,  act  against  his 
legal  title  to  possession.  The  rea- 
son is,  because  the  party  complain- 
ing may  at  law  relieve  himself  by 
the  writ  of  partition." 

A  receiver  will  not  be  appointed 


RECEIVERS    IN    PARTITION    PROCEEDINGS.  483 

So  also  it  has  been  held  in  a  suit  for  partition  if  the 
defendants  dispute  the  title  of  the  plaintiff  and  cause 
delay  in  the  accounting  of  the  rents  and  profits,  the  ap- 
pointment of  a  receiver  is  proper.^  But  where  the  prop- 
erty has  been  conveyed  to  the  person  in  possession,  the 
court  will  refuse  to  appoint  a  receiver  until  the  question 
of  title  has  been  determined  where  such  person  in  pos- 
session is  solvent.^ 

§187.    Effect  of  Property  to  Be  Partitioned  Being  Used  in 
Partnership  Capacity. 

Where  the  property  owned  by  the  parties  as  tenants  in 
common  is  used  by  them  for  purposes  of  trade  and  their 
relation  toward  each  other  in  respect  to  it  is  like  that  of 
partners,  a  receiver  may  be  appointed  in  a  partition  suit 
even  though  the  facts  would  not  warrant  such  an  appoint- 
ment in  the  case  of  ordinary  tenants  in  common.  Such 
would  be  the  case  where  the  parties  were  operating  a 
mine  or  colliery  in  which  they  held  various  interests.  In 
such  circumstances  the  court  would  appoint  a  receiver 
upon    a    showing    of    facts    which    would    warrant    the 

over  a  mining  claim  which  is   in  justify  a  court  in  taking  the  prop- 

possession  of  a  tenant  in  common  erty  from  his  hands  through   the 

with  the  consent  of  his  co-tenant,  agency  of  a  receiver." 

^v.^T..  3  Where   the   other   tenants   not 

in  a  suit  for  partition  upon  a  show-  .,,        ,   .   ^.„.     *•*,     v,  » 

only  deny  the  plaintiffs  title  but 

ins  of  a  merely  colorable  ouster  or  ^       ,      ^^          u   i 

lus  ui  a  ui<=  c  J  endeavor    to    entangle    the    whole 

the  party  in  possession.    Heinze  v.  ^.^^^  ^^^  ^^^^^^  ^^  account  for  the 

Kleinschmidt,  25  Mont.  89,  63  Pac.  ^^^^^  ^^^  profits,  the  appointment 

927.  of  a  receiver  is  proper.    Duncan  v. 

In  the  above  case  the  court  said:  Campau,  15  Mich.  415. 
"The  administrator  having  gone  4  In  a  partition  suit  where  it 
into  possession  (if,  indeed,  he  was  appears  that  the  property  has  been 
in  possession)  by  consent  of  the  conveyed  to  the  person  in  posses- 
plaintiffs,  with  the  understanding  sion,  a  receiver  should  not  be  ap- 
that  he  was  at  liberty  to  engage  pointed  until  the  trial  of  the  issue 
in  mining,  nothing  short  of  a  show-  as  to  the  right  of  possession, 
ing  of  a  clear  ouster  and  refusal  to  where  the  persons  in  possession 
account,  coupled  with  a  want  of  are  solvent.  Richter  v.  Linde- 
financial  ability  to  answer  in  a  suit  mann,  166  App.  Div.  33,  152  N.  Y. 
for   this  purpose,   would   probably  Supp.  784. 


404 


LAW    OF    RECEIVERS. 


appointment  in  the  event  that  the  parties  were  deemed  to 
be  copartners.^ 

§  188.    Effect  of  Insolvency  of  Tenant  in  Possession. 

In  a  suit  for  partition  where  the  tenant  in  possession  is 
insolvent,  such  insolvency  coupled  with  actions  on  liis 
part  which  tend  to  endanger  the  preservation  of  the  prop- 
erty, make  a  case  appropriate  for  the  appointment  of  a 
receiver.^  In  fact  the  insolvency  of  the  person  in  posses- 
sion or  collecting  the  rents  and  profits  of  the  property 
which  is  the  subject  of  the  partition  suit  would  be  one  of 
the  strongest  arguments  for  the  appointment  of  a  receiver 
coupled  wdth  allegations  of  the  character  just  mentioned.- 


1  Hill  V.  Taylor,  22  Cal.  191,  194; 
Fereday  v.  Wiglitwick,  1  Russ.  & 
M.  46;  Jeffreys  v.  Smith,  1  Jacob 
&  W.  298,  302;  Williams  v.  Jen- 
kins, 11  Ga.  595;  Darcin  v.  Wells, 
61  How.  Pr.  (N.  Y.)  259;  Parker  v. 
Parker,  82  N.  C.  165;  Stith  v. 
Jones,  101  N.  C.  360,  8  S.  E.  151; 
Thomas  v.  Nantahala  Marble  &  T. 
Co.,  58  Fed.  485,  7  C.  C.  A.  330. 

1  In  a  partition  suit  the  allega- 
tion that  the  defendant  in  posses- 
sion is  of  little  or  no  responsibility 
is  not  of  itself  ground  for  appoint- 
ing a  receiver.  Darcin  v.  Wells,  61 
How.  Pr.  (N.  Y.)   259. 

Where  the  property  of  co-tenants 
is  left  in  the  iiossession  of  one 
tenant  in  common  for  the  purposes 
of  managing  it,  a  receiver  will  not 
be  appointed  over  it  in  a  suit  for 
partition  where  there  is  no  allega- 
tion of  insolvency  against  such 
party  in  possession.  Pierce  v. 
Pierce,  55  Mich.  629,  22  N.  W.  8. 

2  Pending  a  suit  for  a  sale  of 


land  for  division  among  co-tenants, 
equity  will  not,  by  appointing  a 
receiver,  interfere  with  the  lawful 
possession  of  one  of  the  tenants, 
who  is  not  shown  to  dispute  the 
title  or  to  disturb  the  possession  of 
his  co-tenants;  especially  if  there 
is  no  sufficient  averment  of  insol- 
vency. Cassetty  v.  Capps,  3  Tenn. 
Ch.  524. 

Where  one  in  possession  of  joint 
property  is  insolvent  and  is  col- 
lecting the  rents  and  using  the 
same,  a  receiver  is  proper.  Roche 
V.  Roche,  42  Hun  652,  3  N.  Y. 
St.  Rep.  500. 

Where  one  tenant  in  common 
excludes  his  co-tenant  from  pos- 
session, refuses  to  pay  rents,  lets 
the  property  go  without  repair, 
fails  to  pay  the  taxes  and  assess- 
ments when  due,  and  is  wholly 
insolvent,  a  receiver  may  be  ap- 
pointed pending  a  suit  for  parti- 
tion and  an  accounting  for  rents. 
Hodgin  V.  Hodgin,  175  Ind.  157, 
93  N.  E.  849. 


RECEIVERS    IN    PARTITION    PROCEEDINGS.  485 

§  189.  Effect  Where  Party  in  Possession  Is  Solvent  and  Offers 
Indemnification. 

Where  the  ground  for  the  appointment  of  a  receiver  in 
a  partition  proceeding  can  be  remedied  by  the  ability  on 
the  part  of  the  defendant  to  respond  in  damages,  the  court 
will  not  generally  appoint  a  receiver.^  There  are  doubt- 
less circumstances  where  a  financial  ability  to  respond  in 
damages  or  a  willingness  on  the  part  of  the  defendant  to 
indemnify  the  party  seeking  the  appointment  of  a 
receiver  will  be  disregarded  and  a  receiver  appointed.- 

The  appointment  of  a  receiver  is  discretionary  with  the 
court  in  partition  proceedings.  Hence  the  court  may 
appoint  a  receiver  to  take  charge  of  rents  collected  by 
an  executor  notwithstanding  that  he  is  financially  respon- 
sible and  offers  to  indemnify  the  plaintiff  against  loss.^ 

§190.    Receivership  Where  Care  of  Subject-Matter  Involves 
Heavy  Expense. 
The  court  will  not  appoint  a  receiver  over  property 
which  is  the  subject  of  a  partition  suit  merely  because  the 

1  Where   the    defendant   in    pos-  plaintiff.    Bathmann  v.  Bathmann, 

session  does  not  dispute  the  title  79  Hun  477.  26  N.  Y.  Supp.  959. 

or    interfere    with    his    co-tenants  ^  Plaintiffs  in  partition,  having  a 

+     1,^  ir^o^i  right  to  have  a  receiver  appointed, 

and  does  not  appear  to  be  msol-  J^  ^^^  ^^  ^^^^.^^^  ^^  ^^^^  ^.^^^ 

vent,  the  appointment  of  a  receiver  ^^  ^^^  objection  of  a  defendant  be- 

should    be    refused.    Cassetty    v.  ^^^^^    ^^^    p^^.^^^     claiming    the 

Capps,  3  Tenn.  Ch.  524.  rents  is  amply  responsible,  though 

A  receiver  will  not  be  appointed  the  defendant  offers  to  indemnify 

in    a    partition    proceeding    where  against  loss  by  such  collector,  or 

the  party  in  possession  is  solvent.  to  take  charge  of  the  estate  and 

Pierce  v.  Pierce,  55  Mich.  629,  22  collect  the   rents    free   of   charge, 

N.  W.  81.  and    give    a    bond    of    indemnity. 

A  receiver  was  refused  in  a  par-  Rapp  v.  Reehling,  122  Ind.  255,  23 

tition    proceeding    where    it    was  N.  E.  68. 

shown  that  the  party  in  possession  In  this  connection  see.  also,  sec- 
had  refused  to  account  for  the  tions  15  and  25.  supra,  relative  to 
rents,  but  it  appearing  that  such  the  furnishing  of  a  bond  to  pro- 
party  had  expressed  a  willingness  tect  the  rights  of  the  plaintiff, 
to  render  an  account  at  any  time  3  Rapp  v.  Reehling,  i22  Ind.  255, 
and    pay    over    the    share    of    the  23  N.  E.  68. 


486  LAW    OF   RECEIVERS. 

care  of  the  property  involves  a  considerable  expense, 
such  as  in  the  case  of  a  mining  property  with  machinery 
and  the  usual  equipment  upon  property  of  that  char- 
acter.^ 

§  191.    Effect    Where    One    Party    Claims    as    Tenant   by   the 
Curtesy. 

In  a  suit  for  partition  where  one  of  the  parties  claims 
as  tenant  by  the  curtesy,  a  receiver  will  not  be  appointed 
on  the  application  of  the  plaintiff  since  if  the  claimant  of 
the  estate  in  curtesy  should  prevail,  the  heirs  are  not 
entitled  to  possession  during  the  life  of  the  tenant  and  the 
appointment  of  the  receiver  would  constitute  a  determi- 
nation of  the  rights  of  the  plaintiff  on  an  interlocutory 
order. ^ 

§  192.    Receiver  in  Aid  of  Final  Judgment  of  Partition. 

Where  lands,  in  part  subject  to  executory  contracts  of 
sale  of  separate  parcels,  are  partitioned,  each  parcel  of 
the  common  estate  covered  by  a  contract  of  sale  may  be 
treated  as  a  distinct  estate  and  partitioned  in  severalty, 
subject  to  the  condition  of  the  contract,  and,  if  the  inter- 
ested parties  can  not  agree  to  whom  payments  shall  be 
made,  the  court,  in  aid  of  final  judgment  of  partition,  may 
appoint  a  receiver  for  that  purpose  under  the  provisions 
of  a  statute  which  permits  a  receiver  to  be  appointed  in 
an  action  between  parties  jointly  interested  in  any  prop- 
erty or  fund.^ 

§  193.    Partition  Proceedings  Relative  to  Personal  Property. 

In  considering  the  question  whether  a  receiver  should 
be  appointed  in  a  suit  for  partition  by  one  tenant  in 
common  against  his  co-tenants  it  is  necessary  to  bear  in 
mind  the  general  principles  w^hich  govern  the  possession 

1  Heinze     v.     Kleinschmidt,     25  Mont.  89,  63  Pac.  927. 

1  Bender  v.  Van  Allen,  28  Misc.  Rep.  304,  59  N.  Y.  Supp.  885. 

1  Rich  V.  Smith,  26  Cal.  App.  775,  148  Pac.  545. 


RECEIVERS    IN   PARTITION   PROCEEDINGS. 


487 


of  property  as  between  co-tenants.  Thus  a  co-tenant  of 
personal  property  out  of  possession  has  no  remedy  at  law 
a£>-ainst  the  tenant  in  possession  unless  his  dealing  with 
the  property  has  been  of  such  a  character  as  to  amount 
to  a  conversion  of  the  same  by  him.  But  each  of  the 
co-tenants  is  equally  entitled  to  the  possession  of  the 
property  and  if  the  possession  of  one  excludes  the  other 
this  does  not  amount  to  a  conversion.  There  is  no  hos- 
tility at  law  unless  the  co-tenant  has  been  guilty  of  an 
actual  or  practical  conversion  or  an  actual  or  practical 
destruction  of  the  common  property.  It  appears  to  be 
well  settled  that  equity  has  exclusive  jurisdiction  of  suits 
for  the  partition  of  personal  property  even  though  the 
defendant  denies  the  title  of  plaintiff.^  Courts  are  averse 
to  appointing  receivers  over  personal  property  held  in 
co-tenancy  on  the  application  of  one  of  the  co-tenants 
although  receivers  are  appointed  in  proper  cases.-   Thus 


1  Robinson  v.  Dickey,  143  Ind. 
205,  52  Am.  St.  Rep.  417,  42  N.  E. 
679. 

L' Blood  V.  Blood,  110  Mass.  545; 
Low  V.  Holmes,  17  N.  J.  Eq.  148; 
Andrews  v.  Betts,  8  Hun  (N.  Y.) 
322;  Shehan  v.  Mahar,  17  Hun 
(N.  Y.)  129;  Laing  v.  Williams, 
135  Wis.  253,  128  Am.  St.  Rep. 
1025,  115  N.  W.  821. 

Where,  in  an  action  in  partition, 
under  Rev.  St.  1909,  §  2619,  by  a 
mortgagee  of  a  half  interest  in 
partnership  property,  who  through 
breach  of  a  condition  of  the  mort- 
gage had  become  a  joint  owner 
with  the  other  partner,  it  appears 
that  such  partner  is  in  possession, 
wasting  the  property  by  selling 
and  converting  it  to  his  own  use, 
or  otherwise  jeopardizing  the  in- 
terest of  plaintiff,  a  receiver  may 
be  appointed  to  take  charge  of  the 
property,  though  the  petition  does 
not  allege  that  it  is  inadequate  to 


satisfy     plaintiff's     demands,     the 
court  saying:     "We  do  not  agree 
with  counsel  for  defendant  that  the 
court    erred    in    appointing    a    re- 
ceiver.    The  action  is  analogous, 
in  many  respects,  to  a  statutory 
foreclosure  of  a  mortgage,  and  the 
court,   as   in   such   cases,   has   au- 
thoi'ity  to  take  charge  of  the  prop- 
erty  in    controversy    when    it    ap- 
pears necessary  to  the  protection 
of    the    interests    of    the    parties 
pending   a   final    adjudication.     If 
the  joint  owner   in   possession  is 
wasting  the  property,  selling  and 
converting  it  to  his   own  use,  or 
otherwise    jeopardizing  the   inter- 
ests  of  the   other  joint  owner,   a 
proper  case  was  presented  for  the 
court  taking  charge  of  the   prop- 
erty  by  the  hand   of  its   receiver 
appointed    for    that    purpose.      It 
was  not  necessary  for  the  petition 
to  allege  that  the  property  was  in- 
adequate to  satisfy  the  demand  of 


488  LAW    OP^    RECEIVERS. 

if  pending  a.  proceeding  for  the  partition  of  personalty, 
the  defendant  threatens  the  destruction  or  removal  of  the 
property,  he  may  be  enjoined  or  a  receiver  may  be 
appointed.^  And  where  a  receiver  is  appointed  over  per- 
sonal property,  wdiich  is  found  to  be  indivisible,  in  a 
partition  suit,  the  property  should  be  sold  and  the  pro- 
ceeds divided  among  the  parties  entitled  to  it.* 

Where  the  remedy  of  a  co-tenant  against  his  co-tenants 
for  their  manner  of  managing  the  common  property  is 
an  action  at  law  for  conversion,  a  receiver  will  not  be 
appointed  where  it  is  not  shown  that  the  property  was 
agreed  to  be  used  in  the  carrying  on  of  a  business  and  it 
is  not  shown  that  there  is  any  necessity  to  sell  or  divide 
the  property  by  reason  of  the  death  or  insolvency  of  any 
of  the  parties.^  And  where  the  parties  are  using  the  per- 
sonal property  in  the  carrying  on  of  a  business,  the  court 
upon  application  of  one  of  the  co-tenants  for  a  partition 
of  the  property  which  is  in  the  possession  of  the  defend- 
ant may  refuse  to  appoint  a  receiver  upon  the  defendant 
giving  adequate  security  to  reimburse  the  plaintiff  for 
the  deterioration  or  destruction  of  the  property  by  use 
and  the  rents  and  profits  pending  the  litigation.^ 

plaintiffs  against  Davidson  on  tlie  where  it  is  conceded  that  an  ac- 

notes,    since    the    relationship    of  counting  is  required.     Davidge  v. 

plaintiff  to  Karr  was  not  that  of  Coe,  22  Jones   &   S.   360,   9   N.   Y. 

mortgagee,   but  of  a  joint  owner  Supp.  310. 

having  the  absolute  legal  title  to  5  Blood  v.  Blood,  110  Mass.  545. 

an  undivided  half  interest  in  the  6  Low  v.   Holmes,   17   N.  J.   Eq. 

property."     Halferty  v.  Karr,   188  148. 

Mo.  App.  241,  175  S.  W.  146.  When  one  joint  tenant  of  a  news- 

3  Thompson  v.  Silverthorne,  142  paper  plant,  a  married  woman,  ex- 
N.  C.  12,  115  Am.  St.  Rep.  727,  54  eludes  the  other  tenant  from  its 
S.  E.  782.  use  and   commits  waste,   she  can 

4  Robinson  v.  Dickey,  143  Ind.  not  complain  that  the  court  de- 
205,  52  Am.  St.  Rep.  417,  42  N.  E.  clines  to  appoint  a  receiver  if  she 
679.  will    give    bond    to    preserve    the 

Parties  jointly  interested  in  the  property     and     pay     what     might 

profits  of  a  business  are  entitled  to  thereafter  be  decreed  to  be  due  to 

a  receiver  of  the  books  and  papers  complainant.      Davis    v.    Leonard, 

necessary  to  wind  up  the  concern,  66  Fla.  351,  63  So.  584. 


RECEIVERS   IN   PARTITION   PROCEEDINGS.  489 

§  194.    Matters  Relating  to  the  Procedure  of  the  Appointment. 

Where  the  court  had  jurisdiction  of  the  subject  matter 
in  an  action  for  partition  and  also  of  the  parties  and  a 
receiver  was  appointed  on  notice,  the  fact  that  notice 
was  given  under  the  original  complaint  and  disposed  of 
after  an  amended  and  supplemental  complaint  was  filed, 
did  not  render  the  appointment  invalid.^ 

Where,  in  a  partition  suit  a  receiver  of  the  rents  and 
profits  has  been  appointed,  and  a  judgment  is  thereafter 
rendered  dismissing  the  complaint,  the  court  does  not 
lose  jurisdiction  of  the  funds  brought  into  court  under 
the  receivership,  and  may  direct  the  receiver  to  account 
therefor. 2 

The  court  should  not  appoint  a  receiver  in  partition 
until  the  parties  to  be  affected  have  an  opportunity  to 
be  heard,  when  the  petition  does  not  fully  disclose  facts 
necessary  to  inform  the  court  of  the  real  situation,  such 
as  the  right  of  the  petitioner  to  relief  and  the  necessity 
for  making  the  appointment  without  notice,  especially  if 
the  petition  shows  some  right  of  possession  of  the  prop- 
erty or  to  the  rents  and  profits  in  another.^ 

1  Mesnager  v.  De  Leonis,  140  can  be  determined.  Horn  v.  Horn, 
Cal.  402,  73  Pac.  1052.  115  App.  Div.  292,  100  N.  Y.  Supp. 


On  the  settlement  of  an  action 


790. 


for  partition  in  which  a  receiver  ^^    ^he    dismissal    of    the    com- 

plaint    in    an    action    of    partition 


of  the  rents  and  profits  has  been 
appointed,  who  is  also  a  receiver 


upon  the  grounds  that  the  will  of 
the  plaintiff's  ancestor  created  an 
of  said  rents  in  a  prior  action  still  equitable  conversion,  the  court 
pending,  the  court,  on  a  motion  does  not  lose  jurisdiction  over 
for  discontinuance,  can  vacate  funds  in  the  hands  of  a  receiver 
only  the  order  appointing  the  re-  of  the  rents  and  profits  theretofore 
ceiver  in  the  partition  action,  and  appointed  in  such  action.  Baker 
should  leave  the  parties  to  apply  v.  Baker,  36  App.  Div.  485,  55  N.  Y. 
for  an  accounting  by  the  receiver  Supp.  824  (re-argument  denied,  39 
in  the  action  in  which  he  was  first  App.  Div.  629,  57  N.  Y.  Supp.  281). 
appointed,    on    which    application  3  Baker  v.  Baker,   108   Md.   269, 

the    amount  of   his    compensation      129  Am.  St.  Rep.  439,  70  Atl.  418. 


490  LAW    OF    RECEIVERS. 

Where  in  an  action  for  partition,  in  wliicli  a  third  per- 
son intervenes  to  enforce  his  right  to  support  from  the 
property,  the  court  may  appoint  a  receiver  to  take  charge 
of  the  property  and  rent  it  out,  and  order  to  be  paid  from 
the  rents  the  taxes,  other  preferred  claims,  and  the  allow- 
ance due  the  intervener  for  support.  And  the  court  may, 
if  the  parties  desire,  sell  the  land,  but  before  the  proceeds 
are  divided  provision  must  be  made  for  the  support  of 
such  intervener.'* 

The  fact  that  the  court  appointed  a  receiver  in  parti- 
tion to  collect  the  rents  and  profits  from  the  tenants  in 
possession  does  not,  even  if  erroneous,  affect  the  peti- 
tioner's right  to  a  partition.^ 

§  195.    Rights  and  Duties  of  the  Receiver. 

A  receiver  appointed  to  take  charge  of  real  property 
and  to  collect  and  hold  the  rents  and  profits  during  the 
pendency  of  an  action  of  partition  is  a  chancery  or  com- 
mon-law receiver,  as  distinguished  from  a  statutory 
receiver,  and  does  not  take  title  or  have  power  to  sue  for 
permanent  injury  to  the  freeholder  by  adjoining  owners. 
Hence  a  complaint  in  an  action  by  such  a  receiver  for 
damages  to  the  real  property,  under  bare  allegations 
that  he  was  authorized  by  an  order  of  court  to  bring  the 
action,  but  without  stating  the  substance  of  such  order, 
does  not  state  facts  sufficient  to  constitute  a  cause  of 
action.^ 

But  a  receiver  appointed  iii  partition  proceedings  may 
maintain  a  suit  against  a  tenant  who  has  accepted  a  lease 
from  liim.- 

4  Webster  v.  Cadwallader,  133  2  A  receiver  appointed  in  an  ac- 
Ky.  500,  134  Am.  St.  Rep.  470,  118  tion  of  partition  to  wliich  all  per- 
S.  W.  327.  sons  interested  were  parties,  may 

5  McCarty  v.  Patterson,  186  maintain  an  action  for  rent  after 
Mass.  1,  71  N.  E.  112.  the    co-tenant    in    possession    has 

1  Rinehart  v.  Hasco  Building  Co.,  recognized  the  receiver's  title  by 
153  App.  Div.  153,  138  N.  Y.  Supp.  joining  in  the  execution  of  a  lease 
2o8.  by  him  in  which  he  agrees  to  pay 


RECEIVERS    IN    PARTITION    PROCEEDINGS.  491 

The  court  may  autliorize  the  receiver  to  lease  the  ]n-o\)- 
erty  pendente  lite,  and  while  it  is  better  practice  to  gi\'e 
notice  of  a  motion  for  such  action  on  his  i)art,  an  ex  parte 
order  giving  the  receiver  power  to  lease  is  not  void, 
although  the  court  may  modify  or  vacate  such  an  order 
Avhere  it  extends  beyond  the  close  of  litigation,  although 
tbe  rights  of  the  lessee  may  be  affected  by  it,  and  the 
court  may  in  such  circumstances  direct  the  lessee  to  l)e 
indemnified  out  of  the  property.^ 

Where  a  federal  court  of  equity,  in  a  suit  for  the  par- 
tition of  lands,  has  appointed  a  receiver  for  such  lands, 
he  may,  by  leave  of  the  court,  file  a  bill  in  equity  to  pro- 
tect his  possession,  and  to  require   the  defendants,   as 
authorized  by  a  state  statute,  to  set  up  for  adjudication 
an  adverse  claim  made  by  them,  alleged  to  constitute  a 
cloud   on   the  complainant's  title,  which  mil   seriously 
interfere  with  any  partition  that  may  be  ordered  by  the 
court;  and  such  bill,  being  ancillary  to  the  original  suit, 
is  within  the  jurisdiction  of  the  court,  regardless  of  the 
citizenship  of  the  parties,  since  where  the  court  has  jur- 
isdiction of  the  original  actions  and  having  appointed  a 
receiver,  the  property  being  in  the  custody  of  the  court, 
the  court  will  protect  its  officer  in  Ms  possession  and  treat 
opposition  to  such  officer  as  opposition  to  the  court  itself. 
Such  a  proceeding  is  not  an  action  of  ejectment.    The 
object  of  the  suit  is  to  facilitate  the  sale  of  the  property 
upon  partition.^  And  where  a  life  tenant  is  allowed  in  a 
suit  for  partition  to  elect  whether  to  take  a  specific  sum 
or  a  certain  income  for  life,  such  an  election  may  be 
made  by  his  receiver,  appointed  in  supplementary  pro- 

liim    a    stated    rental.      Smith    v.     •     Tn  this  connection  see,  also,  Re 
Lavelle,  13  Misc.  Rep.  528,  34  N.  Y.      Tyler,  149  U.  S.  181,  13   Sup.  Ct. 


Supp.    695. 


785,     37     L.     Ed.    689;     Rouse 


3  Weeks    V.    Weeks,    106    N.    Y.  Letcher,  156  U.  S.  49,  15  Sup.  Ct. 

696    13  N   E   96.  266,  39  L.  Ed.  341;   Ledoux  v.  La 

/connor    v.    .\lligator    Lumber  Bee.    83    Fed.    761,    cited    by    the 

Co    98  Fed    155.  court  in  the  above  case. 


492  LAW    OF    RECEIVERS. 

ceedings,  and  tlie  court  may  reopen  the  proceedings  to 
allow  the  receiver  to  intervene  for  that  purpose.^ 

And  in  accordance  with  the  general  duties  of  a  receiver, 
the  receiver  appointed  in  partition  proceedings  has  a 
right  to  maintain  an  action  for  an  accounting  in  respect 
to  the  estate  involved  in  the  partition.*^  And  where  a 
widow  assigns  her  dower  right,  although  unmeasured,  to 
a  receiver  in  supplementary  proceedings  he  may  maintain 
an  action  to  admeasure  it  but  could  not  maintain  par- 
tition.^ 

5  Wood   V.   Powell,    3   App.   Div.  318,  38  N.  Y.  Supp.  196. 

6  Kaiser  v.  Adams,  37  Misc.  Rep.  204,  75  N.  Y.  Supp,  195. 

7  Payne  v.  Becker,  87  N.  Y.  153. 


CHAPTER  X. 


INTERESTS  IN   REAL   ESTATE. 

1.    Over  What  Interests  in  Real  Property  Receivers  Are 
Appointed. 

§  196.    In  General. 

A  receiver  may  be  appointed  over  any  interest  in  real 
property  which  is  deemed  to  be  of  sufficient  value  to  be 
regarded  as  the  subject  of  litigation  such  as  a  tenancy 
for  life/  a  reversionary  interest,-  an  equity  of  redemp- 
tion^ and  the  like,-*  as  will  be  shown  hereafter. 

wait,  1  De  G.  &  J.  504;  Bennett  v. 
Colley,  2  M.  &  K.  225. 

Where  a  tenant  for  life  over 
whose  estate  a  receiver  has  been 
appointed,  dies,  the  remainderman 
was  held  entitled  to  go  into  pos- 
session without  making  any  ap- 
plication to  the  court.  Britton  v. 
M'Donnel,  5  Tr.  Eq.  275;  Re  Stack. 
13  Tr.  Ch.  213. 

So,  also,  a  receiver  will  be  ap- 
pointed over  the  rents  and  profits 
of  a  life  estate  where  the  life  ten- 
ant refused  to  produce  the  title 
deeds  necessary  to  make  out  title 
on  a  sale  of  the  remainder  in  ac- 
cordance with  the  provisions  of 
the  instruments  creating  the  title. 
Brigstocke  v.  Mansel,  3  Madd.  47. 

2  Fuggle  V.  Bland,  11  Q.  B.  Div. 
711;  Tyrrell  v.  Painton  (1895),  1 
Q.  B.  Div.  202. 

3  Bailey  v.  Lane,  15  Abb.  Pr. 
(N.  Y.)  373  note;  Ex  parte  Evans, 
L.  R.  13  Ch.  Div.  253;  Smith  v. 
Cowell,  6  Q.  B.  Div.  75. 

4  A  receiver  may  be  appointed 
over  a  judgment  debtor's  interest 
in    an    outstanding    charge    upon 


1  Higgins  Oil  etc.  Co.  v.  Snow, 
113  Fed.  433,  51  C.  C.  A.  267. 

Where  a  tenant  for  life  fails  or 
neglects  to  pay  the  interest  upon 
encumbrances  against  the  prop- 
erty, a  receiver  for  that  purpose 
has  been  appointed  at  the  instance 
of  the  remainderman.  Bertie  v. 
Lord  Abingdon,  3  Mew.  560,  566; 
Shore  v.  Shore,  4  Drew  501. 

See,  also,  St.  Paul  Trust  Co.  v, 
Mintzer,  65  Minn.  124,  60  Am.  St. 
Rep.  444,  32  L.  R.  A.  756,  67  N.  W. 
657. 

As  a  tenant  for  life  is  required 
to  pay  taxes  and  make  such  re- 
pairs as  will  preserve  the  property 
from  decay,  if  he  neglects  to  do 
either  a  receiver  may  be  obliged 
to  collect  sufficient  of  the  rents  to 
discharge  the  obligations  of  the 
tenant.  Murch  v.  Smith  Manufac- 
turing Co.,  47  N.  J.  Eq.  193,  20 
Atl.   213. 

Likewise  a  receiver  may  be  ap- 
pointed to  provide  for  the  renewal 
of  leases  held  by  a  tenant  for  life 
of  renewable  leases  in  a  proper 
case.      Micklethwait    v.    Mickleth- 


(493) 


494 


LAW    OF    RECEIVERS. 


§  187.    As  Between  Tenants  in  Common. 

Some  of  the  decisions  affecting  the  rights  of  tenants 
in  common  have  been  considered  in  connection  with  the 
subject  of  partition.  The  general  rule  in  respect  to  the 
rights  of  co-tenants  is  that  courts  are  averse  to  appoint- 
ing receivers  in  controversies  betw^een  them  and  wdll  not 
appoint  a  receiver  over  the  property  where  it  is  not 
shown  that  the  defendants  are  in  the  exclusive  possession 
of  the  rents  and  profits  and  excluding  their  co-tenants 
from  participation  therein  or  are  insolvent  or  so  mis- 
managing the  property  as  to  imperil  it  or  cause  its  loss.^ 


land  and  subsisting  policies  of  in- 
surance. Beamish  v.  Stevenson, 
18  L.  R.  Ir.  319.  See,  also,  Orr  v. 
Grierson,  28  L.  R.  Ir.  20. 

In  Tompkins  v.  Fonda,  4  Paige 
C.  C.  (N.  Y.)  448,  the  court  re- 
quired the  defendant  to  assign  to 
the  receiver  for  the  purpose  of 
this  suit  her  right  of  dower  in 
certain  premises  and  he  was  au- 
thorized to  proceed  in  her  name 
for  the  recovery  of  the  same  and 
receive  the  rents  and  profits  until 
the  further  order  of  the  court. 

Where  a  married  woman  seised 
of  real  estate  has  issue  of  the 
marriage,  born  alive  and  dies  with- 
out disposing  of  such  property, 
and  her  husband  survives  her,  he 
becomes  entitled  to  an  estate  as 
tenant  by  the  curtesy  which  estate 
will  pass  to  a  receiver  of  his 
property  appointed  in  supplemen- 
tary proceedings  who  may  by 
virtue  of  such  receivership  recover 
the  rent  due  at  the  time  of  his 
appointment  as  well  as  that  ac- 
cruing afterw^ards.  Beamish  v. 
Hoyt,  2  Rob.  307,  25  N.  Y.  Sup.  Ct. 
Rep.  307. 

In  litigation  by  grantees  of  rent 
charges,    a    receiver    may    be    ap- 


pointed to  protect  the  property 
from  dilapidation.  White  v.  Smale, 
22   Beav.   72. 

A  receiver  was  appointed  over 
the  benefice  of  a  clergyman  of  the 
Church  of  England  where  he  had 
made  the  debt,  which  was  the  sub- 
ject matter  of  the  litigation,  a 
charge  upon  it.  White  v.  Bishop 
of  Peterborough,  3  Swans.  109. 

In  England  it  is  held  that  where 
one  has  a  right  or  estate  of  such 
a  character  that  his  creditors  may 
have  execution  against  it  by  writ 
of  elegit,  it  is  such  an  estate  over 
which  a  receiver  may  be  ap- 
pointed. Davis  V.  Duke  of  Marl- 
borotigh,  1  Swans.  74. 

1  Blood  V.  Blood,  110  Mass.  545; 
Heinze  v.  Kleinschmidt,  25  Mont. 
89,  63  Pac.  927;  Vaughan  v.  Vin- 
cent, 88  N.  C.  116. 

Where  one  co-tenant  who  is  in 
possession  of  the  property  is  dis- 
posing of  the  property  and  appro- 
priating the  proceeds  of  such 
disposition  and  is  shown  to  be  in- 
solvent, a  receiver  is  properly  ap- 
pointed. Sims  V.  Adams,  78  Ala. 
395. 

Courts  will  not  appoint  a  re- 
ceiver against  a  tenant  in  common 


INTERESTS   IN    REAL    ESTATE. 


495 


Here  dissensions  and  the  existence  of  ill  will  between  the 
co-tenants  will  not  be  regarded  as  sufficient  ground  for 
the  appointment,-  unless  such  facts  prevent  a  proper  use 
of  the  property  or  operate  as  a  substantial  exclusion  of 
the  complaining  co-tenant  from  the  rents  and  profits  aris- 
ing from  the  property.^  A  person  claiming  to  be  a 
co-tenant  of  property  may  be  refused  a  receiver  on  the 
ground  of  his  laches  in  asserting  his  rights.  Thus  where 
in  the  case  of  a  mining  property  he  made  no  complaint 
of  being  excluded  from  participation  until  after  the  prop- 
erty had  become  valuable.'*  Courts  in  cases  of  contro- 
versies between  co-tenants,  as  in  other  cases,  have  some- 
times directed  that  the  co-tenant  in  possession  should  give 
security  to  the  complaining  co-tenant  for  his  portion  of 
the  rents  and  profits  or  in  default  of  such   security  it 


except  in  cases  of  destructive 
waste  or  gross  exclusion.  Ex  parte 
Billingliurst,  1  Amb.  46;  Ex  parte 
Radcliffe,  1  Jac.  &  W.  640. 

Except  in  extreme  cases,  ttie  ap- 
pointment will  be  denied.  Scurrah 
V.  Scurrah,  14  Jur.  874;  Norway  v. 
Rowe,  19  Ves.  Jun.  144;  Milbank 
V.  Revett,  2  Merid.  405;  Spratt  v. 
Ahearne,  1  Jones  Eq.  50. 

If  the  co-tenants  are  insolvent, 
in  possession  and  excluding  the 
plaintiff  from  his  share  of  the 
rents  and  profits,  a  tenant  in  com- 
mon may  have  a  receiver.  Wil- 
liams V.  Jenkins,  11  Ga.  595;  Cas- 
setty  V.  Capps,  3  Tenn.  Ch.  524. 

Where  the  tenant  excluding  his 
co-tenants  from  participation  in 
the  rents  and  profits  is  insolvent, 
a  strong  case  is  made  for  the  ap- 
pointment of  a  receiver.  Williams 
V.   Jenkins,   11   Ga.   595. 

The  owner  of  a  life  estate  in  an 
undivided  one-eighteenth  of  cer- 
tain oil  lands  was  held  entitled  to 


a  receiver  pending  proceedings  to 
determine  plaintiff's  title  to  the 
property.  Hlggins  Oil  etc.  Co.  v. 
Snow,  113  Fed.  433,  51  C.  C.  A. 
267. 

May  procure  the  appointment  of 
a  receiver,  where  the  defendant 
or  tenant  in  position  is  insolvent. 
Hill  V.  Taylor,  22  Cal.  191. 

As  to  what  will  constitute  such 
an  exclusion,  see  Tyson  v.  Fair- 
clough,  2  Sim.  &  St.  142;  Sandford 
v.  Ballard,  33  Beav.  401. 

2  Wallace  v.  Pierce-Wallace  Pub. 
Co.,  101  Iowa  313,  63  Am.  St.  Rep. 
389,  38  L.  R.  A.  122,  70  N.  W.  216. 

3  Lamaster  v.  Elliott,  53  Neb. 
424,   73  N.  W.  925. 

4  Norway  v.  Rowe,  19  Ves.  Jun. 
144. 

A  receiver  may  be  appointed 
over  a  rent  charge.  Wise  v.  Beres- 
ford,  3  Dr.  &  War.  276;  Cullen  v. 
Dean  etc.  of  Killaloe,  2  Ir.  Ch. 
133. 


496  LAW   OF    RECEIVERS. 

would  appoint  a  receiver  to  secure  the  same.^  And  in 
cases  where  the  appointment  of  a  receiver  is  proper,  the 
court  may  appoint  a  receiver  of  the  rents  and  profits  of 
the  moiety  claimed  by  the  plaintiff  where  the  defendant  is 
in  possession  of  the  whole.*'  But  when  the  conduct  of  the 
co-tenant  in  possession  is  of  such  a  character  as  to 
amount  to  an  exclusion  of  the  complaining  co-tenants 
from  the  property  itself,  the  receivership  will  be  extended 
over  the  whole  property.'  The  same  general  rules  are 
applicable  to  cases  of  tenancies  in  common  of  equitable 
estates.^ 

§  198.    Tenants  in  Common  Using  the  Property  as  a  Business. 

As  was  shown  before,  property  held  as  tenants  in  com- 
mon when  used  for  purposes  of  trade  may  be  treated  as 
partnership  property  and  the  rights  of  the  parties  con- 
sidered in  the  light  of  the  principles  applicable  to  con- 
troversies betw^een  partners  if  a  receiver  is  sought.^ 
Cases  of  this  sort  most  frequently  arise  in  connection 
with  property  used  for  mining  purposes,  but  in  such 
cases  an  additional  circumstance  is  also  considered  in 
connection  with  the  preservation  of  the  property,  and 
that  is  that  the  working  of  the  property  operates  as  a 
destruction  of  the  property  itself  and  sometimes  the  fail- 
ure to  work  it  will  injure  it  by  the  filling  of  the  workings 
with  water  in  case  of  a  mine,  or  of  the  drainage  of  the 
oil  by  neighboring  oil  w^ells  in  case  of  oil  w^ells.  On 
account  of  the  peculiarities  of  cases  of  this  kind,  we  will 
treat  the  matter  in  a  separate  subdivision. 

r>  Street  v.  Anderton,  4  Bro.  C.  C.  i  In    this    connection    see,    also, 

414.  §  187,  relative  to  the  partitioning 

6  Hargrave  v.  Hargrave,  9  Beav.      of    property    used    in    a    business 

^^^-  capacity. 

7  Sandford  v.  Ballard,  33   Beav.  ^  ,        r,   v.     ^         -n^i,     v     ^4. 

See,  also.  Roberts  v.  Eberhardt, 
401. 

s  Sandford  v.  Ballard,  30  Beav.      Kay.  148,  159. 
109. 


INTERESTS   IN   REAL   ESTATE. 


497 


2.    Actions  for  the  Recovery  of  Real  Property. 

§  199.    Settlement  of  Disputes  as  to  Title. 

It  is  not  the  policy  of  the  courts  of  equity  to  take  charge 
of  real  estate  and  manage  it  through  a  receiver  as  against 
a  party  in  possession  asserting  title  in  himself  unless  it 
is  shown  to  be  in  imminent  danger  of  great  waste  or  irrep- 
arable injury.  But  even  in  such  cases  the  courts  will 
require  a  strong  showing  as  to  the  likelihood  of  the  plain- 
tiff ultimately  establishing  his  right  to  recover.  The 
realty  the  subject  matter  of  the  litigation  is  not  capable 
of  destruction  or  removal  and  hence  the  necessity  for  a 
receiver  can  seldom  be  so  urgent  as  in  other  cases.  Excep- 
tion to  this  rule  has  been  recognized  in  cases  of  mining 
property  where  the  actual  value  of  the  property  may  be 
recovered.^  But  where  the  party  in  possession  has  no  clear 
legal  right  to  the  possession  and  the  property  is  exposed 
to  danger  and  loss,  it  is  the  duty  of  the  court  to  appoint 


1  Kelly  V.  Steele,  9  Ida.  141,  72 
Pac.  887;  Willis  v.  Corlies,  2  Edw. 
Ch.  (N.  Y.)  281. 

See.  also,  Thompsen  v.  Diffen- 
derfer,  1  Md.  Ch.  489;  Furlong  v. 
Edwards,  3  Md.  99;  Kipp  v.  Hanna, 
2  Bland  (Md.)  26;  Speights  v.  Pe- 
ters, 9  Gill  472,  479;  Vause  v. 
Woods,  46  Miss.  120;  Bryan  v. 
Moring,  94  N.  C.  694;  Rollins  v. 
Henry,  77  N.  C.  467;  Schlecht's 
Appeal,  60  Pa.  St.  172;  Lenox  v. 
Notrebe,  Fed.  Cas.  No.  8246b, 
Hemp.  225;  Overton  v.  Memphis 
etc.  R.  Co.,  10  Fed.  866,  3  Mc- 
Crary  436. 

The  court  is  slow  to  appoint  a 
receiver  of  real  estate  where  the 
legal  title  is  in  controversy,  and 
one  of  the  parties  is  in  the  peace- 
able possession  under  claim  of 
right.  This  rule,  however,  does 
not  apply  where  the  property  is  al- 
I  UfC. — 32 


ready  in  the  possession  of  a  re- 
ceiver, and  a  third  party  claiming 
adversely  to  the  others  asks  to 
have  the  receivership  continued. 
State  V.  Allen,  1  Tenn.  Ch.  512. 

Where  one  party  has  a  clear 
right  to  the  possession  of  the  prop- 
erty, and  the  dispute  is  as  to  the 
title  only,  the  court  will  Incline 
against  disturbing  the  possession. 
Ellett  V.  Newman,  92  N.  C.  519; 
Myers  v.  Estell,  48  Miss.  372,  401; 
Parkhurst  v.  Kinsman,  Fed.  Cas. 
No.  10760,  2  Blatchf.  78;  Lenox  v. 
Notrebe,  Fed.  Cas.  No.  8246b, 
Hemp.  255. 

Where  there  are  many  creditors 
claiming  the  land  of  a  debtor,  some 
by  deed  and  some  by  judgment, 
the  land  should  be  placed  in  the 
hands  of  a  receiver,  to  be  rented 
for  the  benefit  of  those  who  shall 
be  entitled.  Cole's  Adm'r  v.  Mc- 
Rae,  6  Rand  (Va.)  644. 


498  LAW    OF    RECEIVERS. 

a  receiver  pending  the  litigation.^  On  the  other  hand, 
where  the  title  to  property  is  in  dispute  and  both  parties 
to  the  litigation  claim  to  be  its  owner  in  fee,  the  court 
will  not  appoint  a  receiver  over  it.^  And  unless  the 
plaintiff  is  able  to  show  a  reasonable  probability  of  estab- 
lishing title  in  himself,  and  that  the  property  is  in  danger, 
the  court  will  refuse  to  appoint  a  receiver  even  though 
it  be  shown  that  the  defendant  is  insolvent.^ 

The  general  rule  in  respect  to  the  appointment  of 
receivers  over  real  estate  may  be  stated  as  follows :  A 
court  of  equity  will  not  appoint  a  receiver  of  real  estate, 
or  of  its  proceeds,  in  the  possession  of  defendants  holding 
under  a  regular  title  during  the  pendency  of  the  suit, 
although  it  has  the  power  to  do  so  in  exceptional  cases. 

But  in  order  to  bring  a  case  within  the  exceptions  to 
this  general  rule  there  must  be  clear  proof  (1)  that  there 
is  imminent  danger  that  unless  a  receiver  is  appointed  the 
property,  or  its  proceeds,  will  be  materially  deteriorated 
in  value  or  wasted;  (2)  that  the  plaintiff  will  suffer  irrep- 
arable loss  from  such  deterioration  or  waste,  and  he  can 
rarely  suffer  such  loss  when  the  defendants  are  solvent 
and  abundantly  able  to  respond  to  any  damage  they  cause, 
or  where  they  will  give  a  good  bond  of  indemnity  against 
it;  (3)  that  upon  the  pleadings  and  preliminary  proofs 
there  is  a  strong  probability  that  the  plaintiff  will  ulti- 
mately recover. 

This  rule  is  based  upon  the  idea  that  a  court  of  equity 
will  always  endeavor  to  prevent  the  exercise  of  its  juris- 
diction by  way  of  appointing  a  receiver  as  a  substitute  for 
the  functions  of  a  successful  action  of  ejectment,  a  juris- 
diction particularly  applicable  to  a  court  of  law.^ 

2  Hlawacek  v.  Bohman,  51  Wis.  5  Folk  v.  United  States,  233  Fed. 
92,  8  N.  W.  102.  1"".  147  C.  C.  A.  183.     (Opinion  by 

3  Sengfelder  v.  Hill,  16  Wash.  Judge  Sanborn  sitting  as  judge  of 
355,  58  Am.   St.    Rep.   36,   47   Pac.  the  Circuit  Court  of  Appeals.) 

rj5Y  Where  there  is  imminent  danger 

4  Ryder  v.  Bateman,  93  Fed.  16.      of  loss  without  an  adequate  rem- 


INTERESTS    IN    REAL    ESTATE. 


499 


rdy  at  law,  a  receiver  will  be  ap- 
pointed to  possession  of  property 
but  not  ordinarily  where  title  is 
merely  in  dispute.  Bacon  v.  Eng- 
strom,  129  Minn.  229,  152  N.  W. 
264.  537. 

Wliere  the  basis  of  the  action  is 
the  assumed  ownership  by  plaintiff 
of  the  land  and  its  profits  and  in- 
volves merely  legal  as  distin- 
guished from  equitable  rights,  a 
receiver  will  not  be  appointed. 
San  Jose  Safe  Deposit  Bank  v. 
Bank  of  Madera,  121  Cal.  543,  54 
Pac.  85. 

The  insolvency  of  one  in  pos- 
session of  real  estate  is  ground 
for  a  receiver  if  the  plaintiff  shows 
title  and  a  reasonable  probability 
of  recovering.  Ryder  v.  Bateman, 
93  Fed.  16. 

The  court  may  appoint  a  re- 
ceiver where  property  in  the  pos- 
session of  one  in  which  another 
claims  an  interest  is  allowed  to 
depreciate.  Jones  v.  Quayle,  3  Ida. 
640,  32  Pac.  1134. 

A  receiver  will  be  appointed  in 
an  action  involving  the  title  and 
right  to  possession  of  real  prop- 
erty, where  the  complainants  have 
a  good  equitable  title  to  the  land 
and  in  equity  the  right  to  its  im- 
mediate possession,  although  the 
naked  legal  title  is  outstanding, 
and  it  appears  that  the  defendants 
in  possession  are  insolvent  and  are 
destroying  the  timber  on  the  land. 
Smith  v.  Lusk,  119  Ala.  394,  24 
So.  256. 

But  where  the  contest  is  over 
the  title  to  a  chattel  real,  which  is 
in  the  possession  of  the  defend- 
ant, the  facts  that  the  defendants 
are  insolvent  and  that  the  ground 
rent  is  largely  in  arrears  are  not 
sufficient,   of   themselves,   to   war- 


rant the  appointment.  Kipp  v. 
Hanna,  2  Bland  (Md.)  26.  The 
chattel  real  in  this  case  was  a 
house  standing  on  leasehold  prop- 
erty. 

In  an  action  where  two  parties 
claim  possession  and  are  interfer- 
ing with  each  other,  appointment 
is  proper.  Hlawacek  v.  Bokman, 
51  Wis.  92,  8  N.  W.  102;  Corbin  v. 
Thompson,  141  Ind.  128,  40  N.  E. 
533. 

A  receiver  may  be  appointed 
against  the  legal  title  in  a  clear 
case.  Lloyd  v.  Passingham,  18 
Ves.  Jun.  59. 

A  receiver  will  be  appointed 
where  title  is  involved  and  the 
party  in  possession  is  committing 
waste.  Collins  v.  Richart,  14  Bush 
(77  Ky.)   621. 

The  ground  for  the  appointment 
of  a  receiver  of  real  estate  is  that^ 
the  property  is  in  danger  of  being 
injured  or  destroyed.  Spokane  v. 
Amsterdamsch  Trustees  Kantoor, 
18  Wash.  81,  50  Pac.  1088. 

In  an  action  for  the  possession 
of  land  on  the  ground  that  the 
transfer  from  plaintiff's  ancestor 
was  void  for  mistake  and  fraud,  a 
receiver  will  be  appointed  upon 
a  showing  of  fraud,  insolvency  and 
waste.  Tufts  V.  Little,  56  Ga.  139; 
Rogers  V.  Marshall.  6  Abb.  Pr.  N.  S. 
(N.  Y.)   457. 

The  appointment  of  a  receiver  in 
the  case  of  a  disputed  title  to  real 
property  is  in  the  judicial  discre- 
tion of  the  court,  and  will  be  made 
before  judgment  in  a  proper  case, 
although  there  is  a  tenant  in  pos- 
session to  receive  the  rents.  The 
court  since  the  passage  of  the 
English  judicature  act  1873,  §  25, 
subs.  8,  has  jurisdiction  to  appoint 
a  receiver  in  the  case  of  a  dis- 
puted title  to  real  property.    Fox- 


500 


LAW   OF   RECEIVERS. 


§  200.    Actions  in  Ejectment. 

Following  the  principles  set  fort'li  in  tlie  preceding  sec- 
tion it  is  apparent  that  a  receiver  will  not  ordinarily  be 
appointed  in  an  action  of  ejectment.^ 

The  general  rule  is  that  where  the  litigation  involves 
merely  a  dry  legal  title,  a  court  of  equity  will  refuse  to 
interfere  and  will  refer  the  plaintiff  to  his  remedy  at 
law.^ 

Hence  in  actions  of  ejectment,  the  issue  being  merely 
as  to  the  legal  title  of  the  respective  parties,  a  receiver 
of  the  rents  and  profits  will  not  be  appointed  unless  some 
special  equitable  ground  is  shown  entitling  the  plaintiff 
to  the  rents  and  profits  or  sho\\'ing  that  sequestration  is 
essential  to  his  protection.^ 


well  V.  Van  Grutten  (1897),  1  Ch. 
64,  75  L.  T.  N.  S.  311. 

In  this  connection  see,  also,  §  11, 
supra. 

1  Under  the  Code  of  Civil  Pro- 
cedure provisions,  the  court  has  no 
jurisdiction  to  appoint  a  receiver 
in  an  action  of  ejectment.  Bate- 
man  V.  Superior  Court,  54  Cal.  285; 
Scott  V.  Sierra  Lumber  Co.,  67  Cal. 
71,  7  Pac.  131. 

Where  two  parties  claim  under 
legal  titles  the  validity  of  which 
is  pending  at  law,  a  receiver  will 
not  be  appointed  for  the  rents  and 
profits.  Squire  v.  Hewlett,  141 
Mass.  597,  6  N.  E.  779. 

2  San  Jose  Safe  Deposit  Bank  v. 
Bank  of  Madera,  121  Cal.  543,  54 
Pac.  85;  Mapes  v.  Scott,  4  111.  App. 
268;  Bacon  v.  Engstrom,  129  Minn. 
229,  152  N.  W.  264,  537;  Sengfel- 
der  V.  Hill,  16  Wash.  355,  58  Am. 
St.  Rep.  36,  47  Pac.  757. 

3  Payne  v.  Atterbury,  Harr. 
(Mich.)  414;  State  v.  District 
Court,  13  Mont.  416,  34  Pac.  609; 


Rollins  V.  Henry,  77  N.  C.  467;  Em- 
erson's Appeal,  95  Pa.  St.  258. 

The  general  rule  is  that  as  be- 
tween contestants  over  legal  title 
a  court  of  equity  will  not  inter- 
fere and  appoint  a  receiver  over 
the  income  of  crops.  Thompson  v. 
Sherrard,  22  How.  Pr.  (N.  Y.) 
155,  35  Barb.  593;  Corey  v.  Long, 
12  Abb.  Pr.  N.  S.  (N.  Y.)  427; 
People  V.  New  York,  10  Abb.  Pr. 
(N.  Y.)  111. 

The  refusal  in  such  case  to  grant 
plaintiff  a  receiver  of  the  rents 
and  profits  is  based  upon  the  fact 
that  the  action  of  ejectment  is  not 
for  the  unlawful  withholding  of 
possession,  but  is  brought  against 
the  defendants  as  trespassers,  and 
the  claim  against  defendants  is 
for  damage  as  trespassers.  The 
appointment  of  a  receiver  to  re- 
cover damages  in  an  action  of 
trespass  is  unknown  to  the  law. 

A  receiver  will  not  be  appointed 
over  land  pending  an  action  of 
ejectment  for  its  recovery  where 


INTERESTS   IN    REAL   ESTATE. 


501 


A  court  of  equity  is  sedulous  to  prevent  the  successful 
invocation  of  its  preliminary  injunction  or  appointment 
of  a  receiver  to  perform  the  function  of  a  successful 
action  of  ejectment,  while  the  plaintiff  at  the  same  time 
avoids  the  trial  of  titles  indispensable  to  the  success  of 
such  an  action.^ 

It  is  always  essential  in  order  to  obtain  the  appoint- 
ment of  a  receiver  in  an  ejectment  suit  that  the  existence 
of  some  peculiar  equities  be  shown  making  the  exercise 
of  the  equitable  jurisdiction  of  the  court  in  respect  to 
receiverships  essential  for  the  protection  of  the  subject 
matter  of  the  litigation.^ 


the  defendant  was  a  bona  fide  pur- 
chaser. Whitworth  v.  Wofford,  73 
Ga.  259. 

In  Stephens  v.  Kaga,  142  Ind. 
523,  41  N.  E.  930,  the  court  re- 
fused to  appoint  a  receiver  to  har- 
vest and  sell  crops  pending  a 
statutory  new  trial  in  an  action  of 
ejectment. 

4  Folk  V.  United  States,  233  Fed. 
177,   147   C.   C.   A.    183. 

5  Freer  v.  Davis,  52  W.  Va.  35, 
94  Am.  St.   Rep.  910,  43  S.  E.  172. 

In  Bateman  v.  San  Francisco 
Super.  Ct.,  54  Cal.  285,  it  is  held 
that  a  receiver  in  ejectment  cases 
can  not  be  appointed  under  the 
California  code.  In  Rollins  v. 
Henry,  77  N.  C.  467,  it  is  held  that 
where  the  contest  is  simply  one 
over  disputed  title  to  property, 
both  parties  claiming  the  legal 
title,  a  receiver  will  not  be  ap- 
pointed even  where  the  defendant 
is  insolvent.  A  receiver  will  be 
appointed  only  when  the  plaintiff 
sets  forth  an  apparently  good  title, 
not  sufficiently  controverted  by  the 
answer,  and  shows  imminent  dan- 


ger of  loss.  Kron  v.  Dennis,  9o 
N.  C.  327;  Whitworth  v.  Wofford. 
73  Ga.  259;  Davis  v.  Taylor,  86 
Ga.  506,  12  S.  E.  881. 

There  must  be  strong  grounds 
for  relief  shown,  in  which  the  ele- 
ment of  danger  of  loss  is  apparent. 
Ireland  v.  Nichols,  37  How.  Pr. 
(N.  Y.)  222.  The  statute  under 
which  this  decision  was  rendered 
provided  that  the  plaintiff  should 
have  damages  for  the  rents  and 
profits  of  the  premises  recovered. 

A  receiver  may  be  had  to  pre- 
serve property  where  there  is  dan- 
ger of  an  eviction.  Fetherstone 
V.  Mitchell,  9  Ir.  Eq.  Rep.  480. 

Where  the  plaintiff  shows  a  good 
title  and  it  appears  that  the  de- 
fendant is  insolvent  and  collecting 
rents  which  he  will  not  be  able 
to  refund  and  that  the  estate  is 
being  wasted  as  a  result  of  neg- 
lect, a  receiver  will  be  appointed. 
Rogers  v.  Marshall,  38  How.  Pr. 
(N.  Y.)  43;  Ireland  v.  Nichols,  1 
Sweeny  208,  37  How;  Pr.  (N.  Y  ) 
222;  Payne  v.  Atterbury,  Harr. 
(Mich.)   414. 


502  LAW   OF    RECEIVERS. 

Where  in  ejectment  the  plaintiff  has  recovered  judg- 
ment, he  is  better  entitled  to  a  receiver  pending  further 
legal  proceedings  where  necessary  to  preserve  the  rents 
and  profits.^ 

Pending  an  action  in  ejectment  for  the  recovery  of 
land,  a  bill  for  the  appointment  of  a  receiver  to  take 
charge  of  the  rents  and  profits  arising  out  of  the  property 
will  be  regarded  as  in  the  nature  of  an  ancillary  one  to 
an  action  at  law  and  merely  for  the  protection  of  the  rents 
and  profits  of  the  property.  It  does  not  contemplate  a 
change  of  the  status  of  the  realty  itself.^ 

§  201.    Rule  in  England  Under  Judicature  Act. 

Under  the  Judicature  Act  of  1873  allo\\dng  a  receiver 
to  be  appointed  in  "all  cases  in  which  it  shall  appear  to 
the  court  to  be  just  or  convenient"  that  the  act  applies  to 
ejectment  cases,  and  that  therefore  the  court  should  con- 
sider in  each  case  whether  it  is  just  or  convenient  that 
a  receiver  be  appointed.     And  the  court  observed : 

"In  considering  each  particular  case  we  have  first  to 
look  at  the  person  in  possession  and  consider  how  long  he 
has  been  in  possession  and  whether  he  claims  under  any 
and  what  title;  we  must  look  also  at  all  the  other  circum- 
stances which  may  be  material,  and  the  risk  to  which 
the  tenants  may  be  exposed  is  one  not  to  be  lost  sight  of.  "^ 

§  202.    Receiver  to  Collect  the  Rents  and  Profits. 

Under  the  modern  practice  in  a  number  of  states  mesne 
profits  may  be  recovered  in  the  action  of  ejectment  and 
in  some  instances  the  right  to  do  so  is  expressly  given  by 
statute.^    Hence  where  the  rents  and  profits  are  an  issue 

c  Whitney   v.   Buckman,   26   Cal.  In  this  connection  see,  also,  Fox- 

447;    Collier  v.    Sapp,   49    Ga.   93;  well  v.  Van  Grutten   (1897),  1  Ch. 

Frisbee  v.  Timanus,  12  Fla.  300.  Div.  64. 

7  Ulman  v.  Clark,  75  Fed.  868.  i  Henry  v.   Davis,   149  Ala.   3.59, 

1  .lohn  V.  John  (1898),  2  Ch.  Div.  43    So.    122,    13    Ann.    Cas.    1090; 

C73.  Johnston  v.  Fish,  105  Cal.  420,  45 


INTERESTS  IN  REAL  ESTATE. 


503 


in  the  case,  the  court  may  appoint  a  receiver  to  take 
charge  of  them  where  they  are  not  being  properly  applied 
and  are  in  danger  of  being  lost  through  the  insolvency 
of  the  party  in  possession  or  through  other  causes.  The 
existence  of  facts  indicating  fraudulent  acts  or  practices 
on  the  part  of  the  person  collecting  the  rents  and  profits 
coupled  with  the  fact  of  his  insolvency  is  generally 
regarded  as  a  sufficient  ground  for  the  appointment  of  a 
receiver.2  -q^i  ^  receiver  ought  not  be  appointed  where 
the  alleged  insolvency  is  denied  and  it  appears  that  the 
party  in  possession  is  able  to  respond  for  the  use  of  the 
property  and  account  for  the  rents  and  profits  which  he 
may  collect,^  or  where  such  party  offers  to  pay  the  rents 
and  profits  into  court  to  await  the  termination  of  the 


Am.  St.  Rep.  53,  38  Pac.  979;  Tru- 
bee  V.  Miller,  48  Conn.  347,  40  Am. 
Rep.  177;  White  v.  Rowland,  67 
Ga.  546,  44  Am.  Rep,  731;  Barson 
V.  Mulligan,  191  N.  Y.  306,  16 
L.  R.  A.  (N.  S.)  151,  84  N.  E.  75; 
Credle  v.  Ayers,  126  N.  C.  11,  48 
L.  R.  A.  751,  35  S.  E.  128;  Murphy 
V.  Bolger,  60  Vt.  723,  1  L.  R.  A, 
309,  15  All.  365. 

2  Kreling  v.  Kreling,  118  Cal. 
421,  50  Pac.  549;  Roberts  v.  Mul- 
linder,  94  Ga.  493,  20  S.  E.  350; 
Chase's  Case,  1  Bland  (Md.)  206, 
17  Am.  Dec.  277;  Bryan  v.  Moring, 
94  N.  C.  694;  Durant  v.  Crowell, 
97  N.  C.  367,  2  S.  E.  541;  McNair 
V.  Pope,  96  N.  C.  502,  2  S.  E.  54. 

Where  it  is  necessary  in  order 
to  preserve  the  rents  and  profits 
of  property  which  has  escheated 
to  the  state,  a  receiver  may  be 
appointed  in  escheat  proceedings 
instituted  by  the  state.  People  v. 
Norton,  1  Paige  Ch.  (N.  Y.)  16,  17. 

In  one  case  the  court  appointed 
a  receiver  of  the  license  of  a  pub- 


lic house  together  with  the  rents 
and  profits  for  the  purpose  of  pre- 
serving the  property  as  a  licensed 
property.  In  this  case  the  licenses 
were  in  jeopardy  and  a  strong 
showing  was  made  of  the  prob- 
ability of  the  plaintiff  ultimately 
recovering  the  possession.  Char- 
rington  &  Co.  v.  Camp  (1902),  1 
Ch.  386. 

It  seems,  however,  that  where 
personal  property  or  the  rents  and 
profits  of  real  estate  are  in  dis- 
pute, it  is  sufficient  if  a  proper 
case  for  relief  by  a  receivership 
be  shown,  whether  fraud  or  spolia- 
tion be  charged  or  not,  and  in 
such  case  a  receiver  will  be  ap- 
pointed by  the  court  for  the  secur- 
ity and  more  speedy  collection  of 
the  property,  for  the  benefit  of 
such  persons  as  shall  finally  ap- 
pear entitled.  State  v.  Northern 
Central  R.  R.  Co.,  18  Md.  193. 

3  Hamburgh  Mfg.  Co.  v.  Edsall, 
7  N.  J.  Eq.  298,  8  N.  J.  Eq.  141; 
De  Walt  v.  Kinard,  19  S.  C.  286. 


504  LAW    OF    RECEIVERS. 

litigation,^  although  as  shown  before  the  fact  that  a  party 
offers  to  furnish  security  is  not  an  absolute  ground 
prohibiting  the  court  from  appointing  a  receiver.^  The 
appointment  or  refusal  to  appointment  lies  within  the 
discretion  of  the  court  but  doubtless  the  appointment  of 
a  receiver  in  a  case  where  the  rights  of  the  petitioning 
party  could  be  amply  safeguarded  by  offered  security  or 
protection  of  the  disputed  fund  would  be  regarded  as  an 
abuse  of  discretion. 

In  all  cases  of  this  kind,  however,  the  court  follows  the 
general  rule  which  has  been  evolved  in  connection  with 
interference  with  the  possession  of  real  estate  on  behalf 
of  a  claimant  not  in  possession  who  merely  presents  a 
legal  title  which  may  be  asserted  in  a  court  of  law.  In 
such  a  case  unless  the  party  presents  some  equitable 
grounds  for  the  appointment,  the  court  will  not  interfere 
by  appointing  a  receiver.  This  is  upon  the  theory  that 
the  court  will  regard  the  person  in  possession  of  real 
property  as  entitled  to  keep  it  until  some  one  else  shows 
a  better  title.  Besides  a  distinction  is  observed  in  respect 
to  the  fact  that  real  property  is  stationary  while  personal 
property  may  be  removed.**  In  other  words  in  all  such 
cases,  the  plaintiff  must  show  a  strong  character  of  title 
with  a  probability  of  ultimately  recovering  combined  with 
equitable  considerations  indicating  imminent  danger  to 

4  A  court  in  the  exercise  of  its  rents  and  profits.  Arey  v.  Will- 
discretion  may  refuse  to  appoint  a  lams,  154  N.  C.  610,  70  S.  E.  931. 
receiver  over  real  estate  where  6  Carrow  v.  Ferrior,  L.  R.  3  Ch. 
the  party  who  is  in  possession  of  App.  719;  Talbot  v.  Hope  Scott,  4 
the  property  offers  to  pay  the  K.  &  J.  96;  Pfeltz  v.  Pfeltz,  14 
rents    and    profits    into    court    to  Md.  376. 

await  the  termination  of  the  liti-  The  court  will  refuse  a  receiver 

gation.      Prebble    v.    Boghurst,    1  for  the  rents  and  profits  pending 

Swans.  309.  an  appeal  from  a  judgment  to  the 

5  Revisal  1905,  §  453,  requiring  effect  that  the  defendant  is  in  pos- 
defendants  in  ejectment  to  give  session  as  a  purchaser  and  not  as 
bond  before  defending,  does  not  a  tenant  of  the  plaintiff.  Corbin 
abridge  the  power  of  the  court  to  v.  Thompson,  141  Ind.  128,  40  N.  E. 
appoint  a  receiver  to  secure  the  533, 


INTERESTS   IN   REAL   ESTATE. 


505 


the  property  or  to  its  rents  and  profits  unless  the  court 
intervene  by  the  appointment  of  a  receiver.'^ 

§  203.    Receiver  to  Gather  Crops. 

A  receiver  will  be  appointed  over  crops  where  the 
parties  are  contesting  the  title  of  the  land,  each  claiming 
to  be  in  possession,  and  where  each  is  interfering  with  the 
other  in  harvesting  crops  grown  by  him,  and  threatening 
forcible  resistance. 

In  such  circumstances  the  appointment  of  a  receiver 
would  save  all  parties  their  full  rights  and  yet  prevent 
waste. ^ 

So  also  on  granting  an  injunction  to  restrain  a  sale  of 
land  on  which  there  is  a  crop  of  grain,  it  is  proper  to 


7  Whyte  V.  Spransy,  19  App. 
(D.  C.)  450;  Mayo  v.  McPhaul,  71 
Ga.  758;  Cofer  v.  Echerson,  6  Iowa 
502;  Ryder  v.  Bateman,  93  Fed. 
16;  Bainbrigge  v.  Baddeley,  3  Mac. 
&  G.  414. 

A  receiver  will  be  appointed 
where  the  plaintiff  shows  an  equit- 
able title  to  part  of  the  property 
in  controversy  and  a  legal  and 
equitable  title  to  the  balance 
while  defendant  shows  neither 
and  there  are  numerous  tenants 
of  the  property.  Cole  v.  O'Neill, 
3  Md.  Ch.  174. 

A  receiver  has  been  appointed 
to  collect  rents  and  profits  where 
one  court  had  decided  in  favor  of 
plaintiff  while  another  court  had 
enjoined  him  from  taking  posses- 
sion and  the  defendant  who  had 
been  collecting  the  rents  and  prof- 
its was  insolvent.  Atlas  Sav.  etc. 
Assn.  V.  Kirklin,  110  Ga.  572,  35 
S.  E.  772. 

Receiver  may  be  appointed  to 
protect  the  dower  interest  of  a 
widow     where     the     property     is 


shown  to  be  in  the  possession  of 
a  person  who  is  insolvent  and 
hence  the  rents  and  profits  are 
endangered.  Chase's  Case,  1 
Bland  (Md.)  206,  17  Am,  Dec.  277. 
But  in  such  a  case,  it  must  be 
clearly  shown  how  the  rents  and 
profits  are  jeopardized.  Knighton 
V.  Young,  22  Md.  359. 

And  where  it  is  shown  that  a 
widow  is  fraudulently  disposing  of 
her  dower  rights  so  as  to  deprive 
her  creditors  of  its  benefit,  a  re- 
ceiver may  be  appointed  to  pro- 
tect it  and  apply  its  proceeds  to 
the  payment  of  her  debts.  Ten- 
brook  V.  Jessup,  60  N.  J.  Eq.  234, 
46  Atl.  516. 

A  receiver  is  not  proper  for  the 
purpose  of  collecting  and  preserv- 
ing future  rents  to  abide  the  ter- 
mination of  an  action  which  in- 
volves mere  legal  and  not  equit- 
able rights.  San  Jose  Safe  Deposit 
Bank  v.  Bank  of  Madera,  121  Cal. 
543,  54  Pac.  85. 

1  Hlawacek  v.  Bohman,  51  Wis. 
92,  8  N.  W.  102. 


506  LAW    OF    RECEIVERS. 

consider  it  a  part  of  the  land  and  appoint  a  receiver  to 
harvest  and  preserve  it  where  the  defendants  are  insol- 
vent and  the  complaint  shows  a  scheme  to  defraud  plain- 
tiff. If  the  tenant  in  possession  is  entitled  to  anything  for 
Ills  services  in  cultivating  the  land,  his  equities  can  be 
adjusted  in  the  receivership. - 

But  a  mere  lease  giving  the  landlord  part  of  the  crops 
raised  on  the  leased  land  as  compensation  for  its  use 
does  not  give  the  landowner  such  equities  as  entitle  him  to 
a  receiver  to  take  possession  of  the  ungathered  crop.-^ 

AVliere  the  parties  are  by  the  terms  of  the  lease  tenants 
in  common  of  the  crop  and  the  tenant,  who  is  insolvent, 
denies  the  right  of  the  landlord  to  any  portion  of  the  crop 
and  threatens  to  remove  it  and  dispose  of  it,  the  court 
very  properly  appoints  a  receiver.^  Where  a  receiver- 
ship is  created  in  an  action  of  ejectment  against  a  person 
who  had  ejected  the  tenant  of  the  plaintiff  from  the 
premises,  the  tenant  may  intervene  in  the  receivership, 
not  for  the  purpose  of  contesting  the  receivership  but 
to  share  in  the  fund  brought  into  court  by  the  receiver 
in  harvesting  the  crop  upon  the  land  in  controversy.^ 
In  the  event  that  a  crop  is  exempt  from  attachment  except 
in  case  of  a  claim  contracted  in  its  production  and  in 
which  event  the  process  shall  show  that  fact,  an  order 
appointing  a  receiver  to  take  charge  of  the  crop  should 
show  the  fact  that  it  was  so  produced,  but  the  failure 
to  do  so  ^\dll  not  be  regarded  as  fatal  to  the  appoint- 
ment.*^ Where,  in  an  ejectment  action,  the  statutory  bond 
furnished  by  the  defendant  is  ample  to  secure  the  legal 

A  receiver  may  be  appointed  to  319,   7   Am.   St.    Rep.   170,   17   Pac. 

take  and  state  an  account  of  tim-  222. 

ber  cut  from  premises  in  dispute,  3  Ex   parte    Breedlove,    118    Ala. 

even   v^'here   the  parties  are   solv-  172,  24  So.  363. 

ent.    John  L.  Roper  Lumber  Co.  v.  6  Civ.  Code   1902,  vol.   1,   §  2633, 

Wallace,  93  N.  C.  22,  23.  provides  that  the  yearly  products 

■2  Corcoran  v.  Doll,  35  Cal.  476.  of  a  homestead  shall  be  subject  to 

3  Williams  v.  Green,  37  Ga.  37.  attachment,  to  enforce  claims  con- 

4  Baughman    v.    Reed,    75    Cal.  tracted   in   the   production   of   the 


INTERESTS   IN   REAL   ESTATE. 


507 


rights  of  the  plaintiff  in  the  event  of  his  recovery,  the 
court  will  refuse  to  appoint  a  receiver  over  the  crop." 


same,  but  the  court  issuing  proc- 
ess therefor  shall  certify  that  it  is 
issued  for  that  purpose.  Held  that, 
though  an  order  appointing  a  re- 
ceiver of  defendant's  crops  at  the 
suit  of  a  labor  claimant  should 
have  certified  that  it  was  issued 
to  secure  payment  of  an  obligation 
contracted  in  the  production  of 
the  crops,  a  failure  to  dq  so  was 
not  fatal  to  its  validity.  Holladay 
V.  Hodge,  84  S.  C.  109,  65  S.  E. 
1019. 

7  A  receiver  to  harvest  and  sell 
crops  will  not  be  appointed,  pend- 
ing the  statutory  new  trial,  in  an 
ejectment  action,  as  the  under- 
taking to  pay  all  costs  and  dam- 
ages which  shall  be  recovered  in 
the  action,  required  by  Ind.  Rev. 
Stat.  1894,  §  1076,  as  a  condition 
of  a  new  trial,  affords  an  adequate 
remedy  at  law  if  damages  for  con- 
version of  the  crops  would  be  re- 
coverable in  the  action,  and,  if  not 
lecoverable,  the  remedy  would  be 
improper.  Stephens  v.  Kaga,  142 
Ind.  52.3,  41  N.  E.  930. 

In  the  above  case,  the  court  in 
laying  down  the  rules  which  gov- 
ern in  cases  of  this  character, 
said:  "The  appointment  of  a  re- 
ceiver to  gather  and  sell  the  crops 
if  appellants  succeed  in  the  eject- 
ment action  will  deprive  them  of 
their  property  rights  in  such 
crops  and  will  substitute  therefor 
a  claim  against  the  receivership 
for  such  balance  of  the  proceeds 
of  the  sale  as  may  remain  after 
the  payment  of  the  expenses  of 
harvesting  and  marketing,  and  the 
costs  of  receivership,  including  re- 
ceiver's fees,  attorney's  fees,  court 
costs,  etc.    Such  rights  should  not 


be   so  embarrassed   and  its   value 
diminished  unless  it  may  be  made 
to   ai)pear  clearly   that  if  the  ap- 
jjellee  shall  ultimately  succeed  in 
the      principal     action      he      will, 
should  a  receiver  be  denied,  suffer 
the  loss  of  a  like  property  right  in 
such    crops    with    no    proper,    effi- 
cient and  adequate  remedy  for  the 
recovery   of  the   value   to   him   of 
such  crops.     On  the  one  hand,  it 
is  claimed  that,  though  appellants 
may  be  insolvent  and  may  intend 
to    convert    the    crops,    the    bond 
which  they  gave  in  the  principal 
case  takes  the  place  of  their  solv- 
ency and   makes  good   any   claim 
which    the    appellee    may    be    en- 
titled to  enforce  against  them  for 
the  conversion  of  such  crops.    On 
the  other  side,  it  is  urged  that  the 
bond  can  not  be  held  to  cover  lia- 
bilities  arising   subsequent   to  its 
execution  and  not  involved  in  the 
issue  at  the  time  of  its  execution 
and   that   the    appellee   is   not   re- 
quired to  suffer  the  conversion  but 
is  entitled  to  the  specific  property 
rather  than  to  a  recovery  of  dam- 
ages.    In  the  absence  of  the  bond, 
if   appellants    were    insolvent,    we 
think  there  could  be  no  reasonable 
doubt  but  that  a  receiver  should 
have  been  appointed,  if  the  plead- 
ings were  so  framed  as  to  present 
the   question   of   damages.      R.    S. 
1894,  §1236;   Bitting  v.  Ten  Eyck, 
85  Ind.  357;  Galloway  v.  Campbell, 
142   Ind.   324,   41  N.   E.   597.     It  is 
asserted    on   behalf  of   the   appel- 
lants and  is  conceded  for  the  ap- 
liellee,  that  equity  will  not  permit 
the  appointment  of  a  receiver  in 
any  case  where  the  party  applying 
has    a    clear    and    effective    legal 


508  LAW   OP    RECEIVERS. 

§  204.    Receiver  of  Homestead. 

It  is  said  to  require  a  very  strong  case  in  order  to 
authorize  a  court  of  equity  to  place  a  homestead  in  the 
hands  of  a  receiver.^  Doubtless  where  the  homestead  is 
exempt  from  execution  process,  it  wdll  be  free  from  a 
receivership  in  a  creditor's  suit,  but  if  the  controversy 
is  in  respect  to  the  property  itself,  it  will  undoubtedly  be 
governed  by  the  general  rules  applicable  to  receiverships. 

§205.    Receiver  May  Be  Appointed  at  Instance  of  Defendant. 

Where  a  plaintiff  who,  during  the  pendency  of  his  suit 
to  recover  real  property,  takes  possession  of  part  of  the 
property  and  resists  the  re-possession  of  it  by  the  defen- 
dants under  his  claim  of  title  to  it,  a  receiver  may  be 
appointed  on  the  application  of  the  defendants  to  pre- 
serve the  rents  pending  the  termination  of  the  litigation 
upon  a  proper  showing  of  waste  or  irreparable  loss.^ 

§  206.    Of  Rents  and  Profits  Outside  of  Jurisdiction  of  Court. 

Courts,  where  they  have  jurisdiction  of  the  parties, 
have  appointed  receivers  to  collect  the  rents  and  profits 
of  real  estate  situate  not  only  out  of  the  jurisdiction  of 
the  court  but  in  foreign  countries.^    Of  course  the  court 

remedy  for  such  damages  as  he  deed  made  by  the  executors  pur- 
alleges  he  will  sustain  by  the  fail-  suant  to  a  power  in  the  writ  to 
ure  to  appoint  such  receiver.  Of  sell  and  convey  without  an  order 
this  proposition  there  can  be  no  ol  court,  the  executors  can  not, 
doubt.  It  then  remains  to  deter-  while  their  disputed  title  and  right 
mine  whether  such  remedy  existed  of  possession  are  undetermined, 
in  favor  of  the  appellee."  maintain    a    cross     complaint     in 

1  Barfield    v.     Barfield,     72    Ga.  equity  against  the  plaintiff  and  the 

668;    Callanan   v.    Shaw,    19    Iowa  purchaser,    for    an    accounting    of 

183;  Nash  v.  Meggett,  89  Wis.  486,  the  rents  and  profits  and  the  ap- 

61  N.  W.  283.  pointment  of  a  receiver.     Bennal- 

1  Horton  v.  White,  84  N.  C.  297.  lack  v.  Richards,  125  Cal.  427,  58 

In     an     action     to     quiet     title  Pac.  65. 
against    executors,    brought    by    a  i  Houlditch  v.  Lord   Donegal,   8 

successor    in    interest    of    a    pur-  Bligh    344;    Bunbury    v.    Bunbury, 

chaser    who    received    possession  1     Beav.     336;     Barkley    v.     Lord 

under   a   sale   of   real    estate   and  Keay,  2  Hare  308;  Smith  v.  Smith, 


INTERESTS   IN   REAL   ESTATE. 


509 


has  no  power  to  enforce  its  orders  or  decrees  outside  of 
its  own  jurisdiction,  but  where  it  has  jurisdiction  of  the 
persons  it  may  often  obtain  a  compliance  with  such  orders 
throu.gh  its  power  to  punish  disobedience  by  contempt 
proceedings.-  The  court,  however,  will  not  appoint  a 
person  as  receiver  in  such  cases  who  is  not  within  its 
jurisdiction  or  subject  to  it,^  nor  when  to  make  the  ap- 
pointment would  be  a  useless  proceeding.* 

§  207.     Receivership  Over  Annuities. 

A  receiver  ^\dll  be  appointed  wdiere  necessary  to  pre- 
serve the  rights  of  an  annuitant,  or  other  parties  to  the 
litigation.^    The  effect  of  the  appointment  in  such  circum- 


10  Hare  App.  71;  Duder  v.  Amster- 
damsch  Trustees  Kantoor  (1902), 
2  Ch.  132. 

A  receiver  has  been  appointed 
to  collect  an  annuity  in  another 
state.  Frazier  v.  Barnum,  19  N.  J. 
Eq.  316,  97  Am.  Dec.  666. 

-'  Langford  v.  Langford,  5  L.  J. 
Ch.  (N.  S.)  60. 

Courts  frequently  pass  upon  liti- 
gation affecting  pi'operty  outside 
of  the  territorial  jurisdiction  of 
the  court  where  they  have  juris- 
diction of  the  parties.  Their  or- 
ders and  decrees  are  enforceable 
by  means  of  contempt  proceed- 
ings. In  this  connection  see:  Allen 
V.  Allen,  95  Cal.  184,  16  L.  R.  A. 
646,  30  Pac.  213;  Vail  v.  Jones.  31 
Ind.  467;  Fuller  v.  Horner,  69  Kan. 
467,  77  Pac.  88;  Noble  v.  Grandin, 
125  Mich.  383,  84  N.  W.  465;  Fall 
v.  Fall.  75  Neb.  104,  121  Am.  St. 
Rep.  767,  106  N.  W.  412,  113  N.  W. 
175;  Gartrell  v.  Stafford.  12  Neb. 
545,  41  Am.  Rep.  767,  11  N.  W. 
732;  Rochester  etc.  Land  Co.  v. 
Roe,  8  App.  Div.  360,  40  N.  Y. 
Supp.  799;  Chase  v.  Knicker- 
bocker   Phosphate    Co.,    32    App. 


Div.  400,  53  N.  Y.  Supp.  220;  Mead 
v.  Brockner,  82  App.  Div.  480,  81 
N.  Y.  Supp.  594;  Pruyn  v.  Mc- 
Creary,  105  App.  Div.  302,  93  N.  Y. 
Supp.  995;  Buel  v.  Baltimore  etc. 
R.  Co.,  24  Misc.  Rep.  646,  53  N.  Y, 
Supp.  749;  Kirdahi  v.  Basha,  36 
Misc.  Rep.  715,  74  N.  Y.  Supp.  383; 
Reading  v.  Haggin,  58  Hun  450,  12 
N.  Y.  Supp.  368;  House  v.  Lock- 
wood,  40  Hun  532;  Sloan  v.  Baird, 
162  N.  Y.  327,  56  N.  E.  752;  John- 
ston V.  Wadsworth,  24  Ore.  494,  34 
Pac.  13;  Chapman  v.  Pittsburg  etc. 
R.  Co.,  26  W.  Va.  299;  note  to  58 
Am.  St.  Rep.  541.  But  see  Car- 
penter V.  Strange,  141  U.  S.  87,  35 
L.  Ed.  640,  11  Sup.  Ct.  960. 

3  Carron  Iron  Co.  v.  Maclaren,  5 
H.  L.  C.  416;  Houlditch  v.  Lord 
Donegal,  8  Bligh  344. 

■i  Mercantile  Inv.  Co.  v.  River 
Plate  Trust  (1892),  2  Ch.  303. 

1  Probasco  v.  Probasco,  30  N.  J. 
Eq.  108. 

A  receiver  may  collect  an  ann"- 
ity  in  another  state.  Frazier  y. 
Barnum,  19  N.  J.  Eq.  316,  97  Am. 
Dec.  666. 

Where  annuities  are  chargeab'e 


510  LAW    OF    RECEIVERS. 

stances  is  to  sequester  the  rents  and  profits  of  tlie  prop- 
erty in  controversy.-  But  there  should  be  an  absence  of 
any  other  legal  remedy  in  order  to  warrant  an  appoint- 
ment of  a  receiver  in  such  cases. ^ 

Thus  where  a  power  of  distress  was  given  by  the  statute 
to  enforce  an  annuity  which  was  a  charge  on  land,  the 
appointment  of  a  receiver  was  refused.^ 

But  where  such  power  of  distress  or  other  similar  legal 
remedy  does  not  exist,  the  court  may  appoint  a  receiver.^ 

Where,  however,  the  instrument  creating  the  annuity 
also  makes  provision  for  the  appointment  of  a  receiver 
to  collect  it,  the  appointment  of  the  receiver  becomes  a 
matter  of  course.** 

§  208.     Effect  of  Statutory  Provisions  Upon  Appointment  in 
Ejectment  and  the  Like. 

Undoubtedly  w^here  the  statutory  provisions  are  explicit 
allovdng  receivers  to  be  appointed  in  ejectment  or  other 
actions  relating  to  the  recovery  of  real  property,  such 
statutory  provisions  are  ample  authority  for  the  appoint- 
ment of  receivers  in  circumstances  in  which  receivers  had 
not  been  customarily  appointed.  Several  innovations  in 
that  line  have  been  observed  in  statutory  provisions,  but 
such   cases   are   generally   so   specific  that  no   question 

against  real  estate  against  which  2  Hay  den  v.  Shearman,  2  Ir.  Ch. 

there  are  several  equitable  mort-  Rep.  137. 

gages,  a  receiver  of  the  rents  and  3  Taylor  v.    Emerson,    4    Dv.    & 

profits    will    be   appointed   on   the  -^^r^^^    ^j^^y.    gankey   v.    O'Maley,    2 

application      of      the      mortgages  j^jqj    49;^.    Beamish  v.  Austen,   Ir. 

where  none  of  the  mortgages  are  j^    9   ^g    36I;    Kelly  v.  Butler,   1 

in    possession.      Dalmer   v.    Dash-  jj.    -gg    435 
wood,  2  Cox  378. 

An  annuitant  is  entitled  to  have 
a  receiver  appointed  over  the  ben- 
efice upon  an  interlocutory  appli-  ^  P^ase  v.  Fletcher,  1  Ch.  D. 
cation,  made  for  that  purpose,  pre-  273;  Mason  v.  Westoby,  32  Ch.  D. 
vious  to  the  hearing  of  the  cause.  206;  Re  Prytherch,  42  Ch.  D.  590. 
Eattersby  v.  Homan,  2  Ir.  Ch.  Rep.  6  Cradock  v.  Scottish  Provident 
232  Institution,  W.  N.  1893,  146. 


4  Sollory  v.  Leaver,  L.  R.  9  Eq. 

22. 


INTERESTS   IN   REAL   ESTATE.  511 

arises  as  to  the  power  of  tlie  court  to  make  the  appoint- 
ment although,  as  is  the  case  with  all  legislative  action, 
language  is  sometimes  employed  which  needs  a  decision 
of  a  court  to  give  a  judicial  meaning  to  it.^ 

Some  confusion  has  heen  found  in  several  instances  on 
account  of  the   statutory  provisions  reciting  a   inimbei- 
of  specific  instances  in  which  receivers  may  be  appointed 
and  ending  with  a  clause  permitting  the  appointment  of 
receivers.     The  effect  of  such  statutes  was  considered 
in  the  forepart  of  our  subject.^    They  are  generally  pro- 
visions substantially  giving  power  to  appoint  receivers  to 
courts  of  law  or  providing  for  the  appointment  of  receiv- 
ers in  special  proceedings.    Such  statutes  in  order  to  make 
it  clear  that  they  are  not  attempting  to  take  away  any 
of  the  powers  of  a  court  of  equity  to  appoint  a  receiver,  a 
power  wdiich  is  necessarily  inherent  in  a  court  of  equity, 
end  with  a  clause  which  permits  the  appointment  of  a 
receiver  '4n  all  other  cases  where  receivers  have  here- 
tofore been  appointed  by  the  usages  of  courts  of  equity  "^ 
or  a  clause  of  the  same  substantial  import. 

1  In    Oehme    v     Rucklehaus,    50  words    'waste    or    destruction    of 

N    J    L    84    11  Atl.  145,  a  statute  real  estate.'     The  law  courts  exer- 

p;ov'ided    that    in     an    action    in  cised  the  right  to  prohibit  waste 

^  ,        .  ^,  ,  ,       .  ,     „,o.  in  ejectment  suits  before  the  pas- 

which  the  right  to  real  estate  was  ^^^^  ^^  ^^^.^  ^^^^^^^^  ^^^^  ^^^^  ^.^^^^ 

in  controversy,  the  court  or  any  ^^  ^  ^^^^  ^^^^^  ^^  ^^^^  ^^^^^^^  ^^ 
judge  thereof  may  make  an  order  ^^^  ^.^^j  estate  in  controversy, 
for  the  protection  of  the  property  through  the  intervention  of  a  re- 
in controversy  from  waste,  de-  ceiver,  has  never  been  recognized 
struction,  or  removal  beyond  the  in  our  practice.  It  would  of  neces- 
jurisdiction  of  the  court  upon  sat-  sity  imply  the  right  to  exercise 
isfactory  proof  being  made  of  the  equitable  powers,  which  do  not  m- 
necessity  for  such  order.  The  here  in  the  common  law  cour  s, 
court,  in  construing  its  meaning,  and  which,  in  my  judgment,  the 
.aid:  "No  authority  has  been  legislation  referred  to  has  not  be- 
cited,  and  none  is  known  to  the  stowed." 
court  which  holds  that  the  appro-  2  See  §  21,  supra, 
priation  of  the  rents  of  real  estate  ^  Rateman  v.  Superior  Court.  .4 
is    within    the     meaning    of    the  Cal.  2S5. 


512 


LAW   OF   RECEIVERS. 


The  question  has  arisen  under  statutes  of  that  char- 
acter whether  the  appointment  of  a  receiver  in  an  action 
of  ejectment  is  authorized  under  the  clause  allowing 
appointments  in  accordance  with  the  usages  of  courts  of 
equity,  "in  the  absence  of  specific  authority  in  the  statute," 
and  it  is  held  that  the  appointment  of  a  receiver  in  an 
action  of  ejectment  before  judgment  is  not  permissible 
in  the  absence  of  those  exceptions  to  the  rule  which  have 
been  discussed  in  this  subdivision.^     The   rule  in   this 


3  The    statute    construed    in 
Smith    V.    White,    62    Neb.    56,    86 
N.   W.   930,   is   perhaps  typical   of 
the    provisions    of    statutes    in    a 
large    number   of   states.      It    was 
§  266  of  the  Code  of  Civil  Proced- 
ure which  provided  as  follows:    "A 
receiver  may  be  appointed  by  the 
Supreme    Court,    or    the    District 
Court,  or  by  the  judge  of  either, 
in   the   following  cases:    First,   in 
an  action  by  a  vendor  to  vacate  a 
fraudulent   purchase    of    property, 
or   by    a   creditor   to   subject   any 
property  or  fund  to  his  claim,  or 
between  partners  or  others  jointly 
owning  or  interested  in  any  prop- 
erty or  fund,  on  the  application  of 
any  party   to  the   suit,   when  the 
property  or  fund  is  in  danger  of 
being  lost,  removed  or  materially 
injured.     Second,  in  an  action  for 
the    foreclosure    of    a    mortgage, 
when  the    mortgaged    property   is 
in  danger  of  being  lost,  removed, 
or  materially  injured,  or  is  prob- 
ably insufficient  to  discharge  the 
mortgage  debt.     Third,  after  judg- 
ment, or  decree  to  carry  the  same 
into    execution,    or   to    dispose    of 
the  property  according  to  the  de- 
cree or  judgment,  or  to  preserve 
it  during  the  pendency  of  an  ap- 
peal.    Fourth,   in   all   other   cases 
provided   for  by   special   statutes. 


Fifth,  in  all  other  cases  where  re- 
ceivers have  heretofore  been  ap- 
pointed by  the  usages  of  courts  of 
equity." 

The  suit  was  in  the  form  usual 
in  actions  of  ejectment,  setting  up 
ownership  of  the  property  in  con- 
troversy.      Plaintiff    claimed     his 
title  under  a  sheriff's  deed  result- 
ing from  a  mortgage  foreclosure, 
to    which    defendant    was    not    a 
party,  defendant  being  in  posses- 
sion    under    a    prior    unrecorded 
deed  from  the  mortgagor.     Plain- 
tiff sought  a  receiver  of  the  rents 
and    profits,    which   the    court   re- 
fused.     The    court   held    that    the 
appointment  of  a  receiver  if  sus- 
tainable was  so  under  the  5th  sub- 
division mentioned  above.     In  so 
holding  the  court  said:   "It  seems 
clear  that  this  subdivision  was  not 
intended  to  confer  any  additional 
authority   upon   the   court,   but  to 
make  it  plain  that  the   preceding 
subdivisions,  providing  for  the  ap- 
pointment of  receivers  in  particu- 
lar cases,  were  not  exclusive,  and 
did   not   attempt   to,    and,   indeed, 
could  not,  take  from  the  court  the 
equitable  jurisdiction  given  by  the 
constitution    to   appoint   receivers 
where    the    usages    of    courts    of 
equity   had   heretofore    authorized 
their  appointment.    Or,  differently 


INTERESTS    IN    REAL   ESTATE. 


513 


respect  is  clear  that  all  that  is  meant  by  a  clause  of  this 
character  is  a  mere  declaration  that  in  addition  to  the 
circumstances  specified  in  the  statute,  the  powers  of  a 
court  of  equity  in  respect  to  appointing  receivers  as 
determined  by  usage  are  not  impaired  by  the  statute  and 
that  in  fact  such  powers  could  not  be  impaired  if  the 
efficacy  of  courts  of  equity  are  not  to  be  interfered  with 
and  their  constitutional  functions  as  chancery  courts  not 
abrogated.'* 


stated,  the  fifth  subdivision  is  de- 
claratory of  a  power  already  exist- 
ing under  the  constitution.  (Bate- 
man  V.  Superior  Court,  54  Cal.  285.) 
It  therefore  follows  that  unless 
the  case  at  bar  is  one  where  're- 
ceivers have  heretofore  been  ap- 
pointed by  the  usages  of  courts  of 
equity'  the  order  complained  of  is 
erroneous  and  should  be  re- 
versed." After  reviewing  cases  in 
which  receivers  had  been  ap- 
pointed, the  court  continued: 
"While  reported  cases  may  be 
found  in  which  courts  of  equity, 
in  actions  in  the  nature  of  eject- 
ment, have  appointed  receivers  in 
aid  of  actions  at  law,  an  examina- 
tion discloses  that  such  appoint- 
ment is  based  upon  some  statute 
expressly  authorizing  it,  or  that 
some  very  exceptional  conditions, 
such  as  fraud,  etc.,  are  shown  to 
exist.  It  may  therefore  be  safely 
stated  as  the  rule  sustained  by  the 
weight  of  authority  that  the 
usages  of  courts  of  equity  do  not 
authorize  the  appointment  of  a 
receiver  in  ejectment  cases  before 
judgment.  So  carefully  does  the 
law  in  this  state  guard  the  rights 
of  a  defendant  in  possession,  that 
he  is  entitled  to  have  a  jury  twice 
say  that  his  possession  is  wrong- 
ful before  he  can  be  ousted.  It 
I  Rec. — \i-^ 


may  therefore  be  safely  stated  as 
the  rule  in  this  state  that  the 
court  will  not  appoint  a  receiver 
in  an  action  of  ejectment  before 
judgment.  Not  only  is  the  fore- 
going rule  based  upon  right  rea- 
son, but  it  is  supported  by  author- 
ity. (State  v.  District  Court  c: 
Second  Judicial  District,  13  Mo^it. 
416,  34  Pac.  609;  Sengfelder  v. 
Hill,  16  Wash.  355,  58  Am.  St.  Rep. 
36,  47  Pac.  757;  Bennallack  v. 
Richards,  125  Cal.  427,  58  Pac.  65; 
Emerson's  Appeal,  95  Pa.  St.  258.) 
Whether  there  may  be  authority 
to  appoint  a  receiver  in  an  action 
of  ejectment  after  judgment  is  a 
question  not  presented  in  this 
case,  and  will  not  be  considered." 

■i  The  Supreme  Court  of  Califor- 
nia in  passing  upon  a  statute  sim-' 
ilar  to  the  one  construed  by  the 
Nebraska  court,  supra,  also  held 
that  a  receiver  could  not  be  ap- 
pointed in  an  action  of  ejectment. 
Bateman  v.  Superior  Court,  54  Cal. 
285. 

In  the  above  case  the  court  in 
construing  the  meaning  of  the  sub- 
division which  allowed  receivers 
to  be  appointed  "in  all  other  cases 
where  receivers  have  heretofore 
been  appointed  by  the  usages  of 
courts  of  equity,"  said:  "We  think 
the  sixth  subdivision  of  the  Code 


514 


LAW   OF    RECEIVERS. 


§  209.    Questions  Relating  to  the  Procedure. 

Where  the  complaint  setting  up  the  facts  which  are 
urged  as  a  basis  for  the  appointment  of  a  receiver  are 
met  by  an  answer  or  affidavits  denying  the  same  or  deny- 
ing the  plaintiff's  ownership  of  the  property,  the  court 
will  not  ordinarily  appoint  a  receiver.^     And  likewise 


of  Civil  Procedure  was  but  declar- 
atory of  the  equity  jurisdiction 
conferred  upon  the  District  Courts 
by  the  former  constitution,  and 
was  intended  to  include  all  cases 
not  previously  enumerated,  in 
which  a  court  of  equity  would 
have  appointed  a  receiver.  If  the 
sixth  subdivision  had  been  omit- 
ted from  the  section,  the  District 
Courts  would  have  had  power  to 
appoint  receivers  in  'cases  where 
receivers  had  heretofore  been  ap- 
pointed by  the  usages  of  courts  of 
equity' ;  because  by  art.  6,  §  69  the 
late  constitution,  the  District 
Court  had  jurisdiction  in  'all  cases 
in  equity.'  This  power  was  recog- 
nized in  La  Societe  Francaise,  etc. 
V.  District  Court,  53  Cal.  495. 
Throughout  the  opinion  in  that 
case  it  is  assumed  that  the  sixth 
subdivision  of  §  564  of  the  code 
was  intended  to  include  only  the 
suits  in  which  (upon  the  plead- 
ings, or  upon  appropriate  showing 
by  affidavit  or  other  proofs)  it  has 
been  the  usage  of  courts  of  equity 
to  appoint  a  receiver.  If  it  had 
been  intended  to  confer  the  power 
to  appoint  an  officer  of  that  char- 
acter in  an  action  at  law  for  the 
recovery  of  the  possession  of  real 
property,  it  is  not  credible  that 
the  Legislature  would  not  have 
said  so  in  terms,  since  it  is  appar- 
ent that  it  was  their  purpose  to 
specify  all  cases,  whether  at  law 
or  equity,  in  which  receivers  could 


be  appointed.  The  five  subdivi- 
sions containing  such  specifica- 
tions are  followed  by  the  sixth 
which  provides  for  the  appoint- 
ment where  'receivers  have  here- 
tofore been  appointed  by  the 
usages  of  courts  of  equity,'  which 
expression  we  conceive  to  be  the 
equivalent  of  that  employed  in  the 
third  subdivision  of  the  143rd  sec- 
tion of  the  former  Practice  Act — 
'such  cases  as  are  in  accordance 
with  the  practice  of  courts  of 
equity  jurisdiction.'  Either  of 
these  expressions  simply  means, 
that  in  addition  to  the  particular 
instances  mentioned  in  the  preced- 
ing subdivisions,  the  appointment 
should  be  made  by  the  District 
Court,  as  a  Court  of  Equity,  in  the 
other  suits  in  which  the  power 
would  have  been  employed  had 
there  been  no  statute  on  the  sub- 
ject, and  can  not  be  construed  as 
authorizing  the  appointment  in  an 
action  at  law." 

1 A  preliminary  injunction  or 
receivership  will  not  be  granted 
upon  the  ground  that  the  com- 
plainant is  the  owner  of  the  prop- 
erty and  business  sought  to  be 
reached  in  the  action,  the  legal 
title  of  which  is  in  defendant, 
where  the  facts  set  up  in  the 
answer  and  affidavits  amount  to  a 
denial  of  such  ownership,  and  the 
case  is  not  within  any  of  the  ex- 
ceptions to  the  general  rule  deny- 
ing such  relief  under  such  circum- 


INTERESTS  IN  REAL  ESTATE.  515 

where  the  party  seeking-  the  appointmoiit  of  a  receiver  has 
no  interest  in  the  property,  the  court  will  refuse  to  make 
the  appointment. - 

A  receiver  of  the  rents  and  profits  will  not  be  appointed 
so  as  to  affect  the  interest  of  purchasers  if  they  are  not 
made  parties.^^  Nor  will  a  receiver  be  appointed  in  such 
circumstances  unless  the  person  in  possession  is  a  party 
to  the  action  and  before  the  court. ^ 

A  person  who  is  not  a  party  to  the  suit,  although  claim- 
ing certain  real  property  which  is  under  a  receivership, 
is  not  entitled  to  be  heard  on  an  order  to  show  cause 
why  a  conditional  order  for  the  appointment  of  the 
receiver  should  not  be  made  permanent.  His  remedy  is 
to  remove  the  receiver  as  to  the  lands  which  he  claims  to 
own.^ 

It  has  been  held  that  the  court  may,  instead  of  appoint- 
ing a  receiver,  direct  that  the  tenant  in  possession  pay 
an  occupation  rent.^ 

An  order  appointing  a  receiver  over  real  property 
should  clearly  designate  the  particular  property  over 
which  he  is  appointed  so  as  to  avoid  any  uncertainty  as  to 
the  extent  of  the  authority  of  the  receiver  over  the  rents 
and  profits.'^ 

stances.     Guild  v.  Meyer,  56  N.  J.  3  Lumsden    v.    Fraser,    1     Myl. 

Eq.  183,  38  Atl.  959.  &  Cr.  589. 

Where    charges    of    mismanage-  4  A    receiver   of   the    rents    and 

ment  and  appropriation  of  profits  profits  of  real  property  will  not  be 

not    constituting    an    exclusion    of  appointed    unless    the    person    in 

plaintiff    shown    by    affidavits    are  possession  is  a  party  to  the  action 

met  by  counter-affidavits   denying  and    before    the    court.     Mays    v. 

the  charges  and  setting  up  a  claim  Wherry,  3  Tenn.  Ch.  34. 

of  a  balance  due  defendant  from  5  Creed  v.  Moore,  4  Ir.  Eq.  684. 

the  plaintiff  and  an  agreement  for  «  Porter  v.  Lopes,  7  Ch.  D.  359. 

arbitration,  it  was  held  that  a  re-  7  Crow  v.  Wood,  13  Beav.  271. 

ceiver    would    not    be    appointed.  A    receiver    appointed    to    take 

Milbank  v.  Revett,  2  Meriv.  405.  charge    of    property,    particularly 

-'  Gartrell    v.    McCrary,    144    Ga.  real    estate,    should    ordinarily    be 

249,  S6  S.  E.  932.  directed    to    hold,    care    for,    and 


516  LAW    OF    RECEIVERS. 

An  equitable  interest  in  real  property  may  be  effectu- 
ally conveyed  to  a  receiver  by  the  holder  of  the  same 
even  thougi  the  title  stands  in  the  name  of  another.^ 

Where  the  order  appointing  the  receiver  and  authoriz- 
ing him  to  take  possession  of  certain  real  estate  is  void, 
he  will  become  liable  to  the  owner  for  the  rents  and  profits 
collected  by  him  from  the  property.^ 

§  210.     Appointment  of  Receiver  Pending  Appeal. 

Where  the  plaintiff  in  litigation  over  the  title  to  real 
estate  has  been  defeated  and  has  taken  an  appeal  from 
the  decree  in  the  main  case,  a  receiver  will  not  be 
appointed  for  the  rents  and  profits  at  his  instance  pend- 
ing the  appeal  on  the  ground  that  he  was  defeated  because 
of  the  erroneous  admission  of  oral  testimony  over  a 
written  contract  since  to  do  so  would  in  effect  nullify 
the  solemn  decree  of  the  trial  court  adjudging  the  title  to 
be  in  defendant.^ 

§  211.  Effect  of  Termination  of  Receivership  Upon  Real  Prop- 
erty Covered  by  It. 
Where  the  real  property  over  which  a  receiver  has 
been  appointed  has  not  been  disposed  of  during  the 
receivership  or  assigned  to  the  receiver  upon  a  termina- 
tion of  the  receivership  the  property  becomes  subject  to 

preserve  it  until  the  issues  in  the  real  estate,  the  title  to  which  was 

action      are      finally     determined.  in  the  name  of  another,  who  was, 

Boothe  V.  summit  Coal  Mining  Co.,  in  fact,  a  mortgagee  a  conveyance 

63  wash    630,  116  Pac.  269.  ?'  the  propex-ty  by  the  debtor  and 

DO  vvaaia.  u     ,  j^.g   ^jjg  ^^  ^.j^g  receiver  was   ef- 

Where    the    litigation    concerns  jg^j^j^g   ^^  convey   such   equitable 

some  specific  property  it  is  proper  interest.     Maples   v.   O'Brien,   116 

in     appointing     the     receiver     to  j^   y.  Supp.  175. 

specifically  describe  the  property  9  Bowman  v.  Hazen,  69  Kan.  682, 

in     the     order     of     appointment.  77  pac.  589. 

Havemeyer  v.  Supreme  Court,  84  1  Corbin  v.  Thompson,   141  Ind. 

Cal.  327,  18  Am.  St.   Rep.  192,  10  128,  40  N.  E.  533. 

L.  R.  A.  627,  24  Pac.  121.  In  this  connection  see  discussion 

8  Where  a  judgment  debtor  had  of   receiverships    pending   appeals 

an    equitable    interest    in    certain  in  separate  subdivision. 


INTERESTS   IN    REAL   ESTATE.  517 

the  lien  of  a  judgment  and  execution  against  it  in  the 
same  manner  as  if  there  had  been  no  receivership.^ 

§  212.  Whether  the  Appointment  of  Receiver  Prevents  Running 
of  Statute  of  Limitations. 
Inasmuch  as  the  ai^plication  for  the  appointment  of  a 
receiver  does  not  prejudice  the  action^  nor  indicate  what 
view  of  the  litigation  will  be  taken  by  the  court  at  the 
trial"  it  is  apparent  that  such  an  appointment  does  not 
affect  the  title  of  either  litigant  to  the  property.  The 
primary  object  of  the  appointment,  as  has  been  shown 
before,  is  the  preservation  of  the  property  or  of  the 
rents  and  profits,  from  destruction  or  waste  pending  the 
litigation.  The  appointment  of  the  receiver,  of  course, 
results  to  the  benefit  of  the  party  ultimately  prevailing 
in  the  litigation,  but  until  such  determination  the  prop- 
erty is  in  the  custody  of  the  court  although  the  title 
thereto  is  not  changed.  Hence  it  is  held  that  the  appoint- 
ment of  a  receiver  does  not  operate  to  interrupt  the  run- 
ning of  the  statute  of  limitations  as  far  as  it  concerns 
the  subject  matter  of  the  litigation^  and  as  applied  to 
real  estate  the  same  rule  is  held  to  be  applicable  and 
thus  the  operation  of  the  statute  of  limitations  is  not 
interrupted  pending  the  receivership  litigation."' 

§  213.    On  Breach  of  Covenants. 

A  receiver  may  be  appointed  in  litigation  between  a 
covenantor  and  covenantee  where  the  allegations  show 

1  Montgomery  v.  Merrill,  18  statute  of  limitations.  Shelby  Nat. 
Mich.  338.  Bank  v.  Hamrick,   162   N.  C.  216, 

1  Hugnenin    v.    Basley,    13    Ves.      78  S.  E.  12. 

107.  The  appointment  of  a   receiver 

2  Fripp  V.  Chard  Ry.  Co.,  11  Hare  or  the  existence  of  a  receivership 
264.  does  not  interrupt  prescription  of 

3  The  mere  appointment  of  a  re-  claims  against  the  corporation  to 
ceiver  does  not  affect  running  of  which  the  receiver  was  appointed, 
limitations.  Cain  v.  Seaboard  Air  Taylor  v.  Vossburg  Mineral 
Line  Ry.,  138  Ga.  96,  74  S.  E.  764.  Springs    Co.,    128    La.    364,    54    So. 

Payments    by    a    receiver    of    a      907. 
debtor  are  not  effective  to  toll  the  4  Anonymous,  2  Atk.  15. 


518  LAW   OF    RECEIVERS. 

the  necessity  of  a  receivership  for  the  preservation  of 
the  property  pending  the  litigation.  Such  cases  occur 
where  one  party  sues  the  other,  who  is  in  possession,  to 
compel  specific  performance  of  the  covenant.^  And  like- 
wise where  irreparable  damages  will  result  from  the 
breach  of  the  covenant,  the  court  may  interfere  by 
appointing  a  receiver  of  the  property.^ 

3.    Eeceiverships  in  Actions  Between  Vendors  and  Purchasers. 
§  214.    In  Suits  to  Set  Aside  Conveyances  on  Ground  of  Fraud. 

The  courts  always  look  with  favor  toward  the  appoint- 
ment of  a  receiver  in  a  case  w^here  fraud  is  alleged  or 
shown.  Hence  in  a  suit  to  set  aside  a  conveyance  of  real 
property  on  the  ground  that  it  w^as  obtained  by  fraud  or 
undue  influence  practiced  upon  the  plaintiff  where  a  show- 
ing is  made  by  the  bill  and  answer  raising  a  strong  likeli- 
hood of  plaintiff  prevailing  in  the  action  the  court  will 
appoint  a  receiver.^    On  the  other  hand  where  it  appears 

1  Free  v.  Hind,  2  Sim.  7.  Met-  Loaiza  v.  Superior  Court,  85  Cal. 
calf  V.  Archbishop  of  York,  6  Sim.  11,  20  Am.  St.  Rep.  197,  9  L.  R.  A. 
225;     Shakel    v.    Duke     of    Marl-      376,  24  Pac.  707. 

borough,   4    Madd.    463.      See   also  A  receiver  is  properly  appointed 

subdivision  respecting  leases.  to  take  charge  of  property  trans- 

2  Riches  v.  Owen,  L.  R.  3  Ch.  ferred  by  a  failing  debtor  in  fraud 
821.  of  creditors.     Bomar  v.  Means,  53 

1  Mitchell    V.    Barnes,    22    Hun  S.  C.  232,  31  S.  E.  234. 
{N.  Y.)  194;  Huguenin  v.  Baseley,  Property  in  the  hands  of  a  re- 

13  Ves.  105;  Lloyd  v.  Parsingham,  celver  appointed  In  an  action  by 

16  Ves.  59;  Stilwell  v.  Williams,  6  judgment  creditors  in  aid  of  their 

Madd.  49  (affirmed  under  the  name  executions    to    set    aside    certain 

of  Stilwell  V.  Wilkins,  Jac.  282) ;  transfers  by  the  debtor  as  fraudu- 

Mordaunt    v.    Hooper,    Amb.    311;  lent,  at  the  time  of  his  discharge, 

Woodyatt  v.  Gresley,  8  Sim.  187.  pursuant    to    a    decree    adjudging 

A  receiver  may  be  appointed  to  that  the  only  relief  plaintiffs  could 

take  charge  of  the  property  of  a  obtain    was    the    removal    of    the 

non-resident  pending  a  suit  by   a  transfers  as  an  obstruction  to  the 

foreign    corporation    to    rescind    a  enforcement    of    their    executions, 

contract  and  restore  the  property,  and  that  the  appointment  of  a  re- 

which  has  been  placed  in  escrow.  ceiver  was  improper,  should  be  re- 


INTERESTS   IN   REAL   ESTATE. 


il9 


that  the  property  is  being  properly  cared  for  by  the 
defendant,  who  is  solvent  and  capable  of  responding  for 
all  of  the  rents  and  profits  received  during  the  pendency 
of  the  litigation,  the  court  may  properly  refuse  to  appoint 
a  receiver.2    Where,  however,  the  showing  made  by  the 


turned  to  the  transferees,  and  not 
turned  over  to  the  sheriff  holding 
the  executions.  Home  Bank  v.  J.  B. 
Brewster  &  Co.,  33  App.  Div.  330, 
53  N.  Y.  Supp.  867. 

The  appointment  of  a  receiver 
of  the  property  of  a  debtor  will  not 
be  set  aside  where  the  debtor  does 
not  deny  the  allegations  in  the  bill 
charging  that  specified  deeds  of 
trust  were  made  with  the  intent  to 
hinder,  delay,  and  defraud  cred- 
itors and  secure  a  fictitious  debt, 
and  the  trustee  does  not  deny  that 
he  knew  of  such  fraudulent  intent. 
Lyle  V.  Commercial  Nat.  Bank,  93 
Va.  487,  25  S.  E.  547. 

A  receiver  may  be  appointed  in 
an  action  by  a  judgment  creditor 
to  set  aside  a  fraudulent  convey- 
ance of  his  land,  even  though  the 
judgment  debtor  had  only  an 
eqviity  of  redemption  in  the  land, 
where  the  fraudulent  grantee  is  in 
possession  of  the  land  and  receiv- 
ing the  rents  thereof.  Freeman  v. 
Stewart,  119  Ala.  158,  24  So.  31. 

And  where  the  grantor  was  a 
person  of  weak  intellect  and  the 
grantee  was  insolvent,  the  court 
appointed  a  receiver  in  a  suit  to 
set  aside  a  conveyance  alleged 
to  have  been  procured  by  fraud 
and  undue  influence.  Mitchell  v. 
Barnes,  22  Hun  (N.  Y.)  194. 

An  injunction  may  properly  be 
granted  and  receivers  appointed  in 
an  action  involving  the  fraudulent 
character  of  a  deed  by  the  execu- 
tor and  sole  heir  of  a  decedent,  to 


a  sister  of  the  latter  in  settlement 
of  an  alleged  debt  due  to  such  sis- 
ter, where  there  is  evidence  war- 
ranting a  judge  in  finding  that  no 
such  indebtedness  ever  really  ex- 
isted. Brown  v.  Stanley,  105  Ga. 
469,  30  S.  E.  656. 

Where  the  vendor  seeks  a  re- 
scission and  the  purchaser's  acts 
are  liable  to  cause  a  loss  to  the 
plaintiff,  a  receiver  is  properly  ap- 
pointed. Cook  v.  Andrews  (1897), 
1  Ch.  266. 

2  A  receiver  pendente  lite  will 
not  be  appointed  in  an  action  to 
set  aside  conveyances  of  real  prop- 
erty as  fraudulent,  where  it  ap- 
pears that  the  buildings  and  im- 
provements on  the  property  are 
properly  kept  and  cared  for  by  the 
defendant,  and  that  he  is  solvent 
and  capable  of  responding  for  all 
rents  or  profits  received  during  the 
pendency  of  the  action,  especially 
if  he  offers  to  enter  into  a  bond  to 
the  plaintiffs  in  such  sum,  with 
such  conditions,  and  with  such 
sureties  as  the  court  may  desig- 
nate, to  account  for  such  rents  and 
profits.  Spokane  v.  Amsterdamsch 
Trustees  Kantoor,  18  Wash.  81,  50 
Pac.  1088. 

A  mere  showing,  in  a  suit  to 
avoid  a  conveyance  for  want  of 
mental  capacity  of  deceased  gran- 
tor, of  a  probability  of  plaintiffs 
succeeding,  and  likelihood  of  in- 
jury to  the  property,  or  loss  of 
rents  and  profits,  if  left  in  defen- 
dant's possession,  is  not  sufficient 


520  LAW   OF   RECEIVERS. 

complainant  in  liis  suit  to  set  aside  the  conveyance 
amounts  to  a  mere  suspicion  of  fraud,  the  court  will 
refuse  to  appoint  a  receiver.^  Where  the  character  of  the 
property  is  of  such  a  nature  that  it  is  necessary  to  keep 
it  in  operation,  such  as  a  mine,  where  the  showing  in  a 
suit  to  rescind  the  purchase  upon  the  ground  of  fraudu- 
lent representations  is  of  the  character  mentioned  above, 
the  court  will  appoint  a  receiver  pending  the  litigation.^ 

§  215.    As  Between  Vendor  and  Purchaser  in  General. 

Sometimes  the  court  is  asked  to  appoint  a  receiver  in 
behalf  of  the  owner  of  real  estate  where  he  has  executed 
a  contract  of  sale  to  a  purchaser,  and  delivered  possession 
under  the  contract,  and  there  is  a  default  in  the  pay- 
ments. The  action  in  such  case  is  based  upon  the  plain- 
tiff's right  to  rescind  the  contract  by  reason  of  nonpay- 
ment, or  to  have  the  property  sold  in  payment  of  the 
remaining  unpaid  purchase  money,  coupled  with  proof 
showdng  insolvency  of  the  purchaser  or  waste  or  other 
inadequacy  of  security.^ 

to  warrant  the   appointment  of  a  value.      Smith  v.   Kelley,   31   Hun 

receiver  pendente  lite.    Thomas  v.  (N.  Y.)  387. 

Timonds,  179  Iowa  509,  159  N.  W.  A  vendor  who  has  sold  land  upon 

881.  a    credit    to    one    who   has    given 

3  George  v.  Evans,  4  Y.  &  C.  Ex.  notes  signed,  as  trustee,  for  the 
211.  payment  of  the  purchase  money  in 

4  Gibbs  V.  David,  L.  R.  20  Eq.  373.      two   equal   annual   instalments,   is 
1  Gunby    v.    Thompson,    56    Ga.      not    entitled    to   have    a    receiver, 

316;  Worrill  v.  Coker,  56  Ga.  666;  upon  failure  to  pay  one  of  the  in- 

Tufts  V.  Little,  56  Ga.  139;   Chap-  stalments  when  due,  where  it  does 

pell  V.  Boyd,  56  Ga.  578;  Jordan  v.  not  appear  that  the  purchaser  or 

Beal,  51  Ga.  602;   Collier  v.  Sapp,  his  cestui  que  trust  is  less  solvent 

49   Ga.   93;    Phillips   v.   Eiland,   52  than  at  the  time  of  the  purchase. 

Miss.  721.  Tumlin  v.  Vanhorn,  77  Ga.  315,  3 

A  receiver  of  rents  and  profits  S.  E.  264. 
may  be  appointed  in  an  action  to  In  a  suit  to  recover  the  purchase 
foreclose  a  contract  for  the  sale  of  price  of  land,  a  receiver  is  prop- 
land  where  the  land  affords  inade-  erly  appointed  where  the  purchaser 
quate  security  for  the  amount  due,  is  in  possession  committing  waste 
and    is    rapidly     depreciating    in  and  threatening  to  continue  doing 


INTERESTS    IN    REAL   ESTATE. 


521 


But  relief  will  not  be  granted  if  it  appears  that  the 
insolvency  of  the  purchaser  was  known  to  the  vendor 
when  the  contract  was  made,^  or  where  the  plaintiff's 
right  of  recovery  is  fully  denied,  or  the  amount  of  this 
indebtedness  is  in  dispute.^^ 


so,  such  as  threatening  to  cut 
down  and  remove  timber.  McCas- 
lin  V.  State,  44  Ind.  151. 

A  receiver  will  be  appointed  in 
behalf  of  a  vendor,  as  against  a 
vendee  who  has  obtained  posses- 
sion, and  refuses  to  pay  the  pur- 
chase money.  Payne  v  Atterbury, 
(Mich.)  Har.  414. 

And  also  where  real  estate  has 
been  sold  and  the  purchaser  is  per- 
mitting the  property  to  go  to  waste 
and  thus  lessening  the  vendor's  se- 
curity. This,  of  course,  is  based 
upon  vendor's  right  to  a  lien  for 
the  unpaid  purchase  money.  Gibbs 
V.  David,  L.  R.  20  Eq.  373;  Smith  v. 
Keliey,  31  Hun  (N.  Y.)  387;  Phil- 
lips V.  Eiland,  52  Miss.  721. 

V^'here,  on  application  for  a  re- 
ceiver of  property  sold  under  a 
vendor's  execution  for  purchase 
money,  it  appeared  that  the  claim 
of  the  vendee's  wife  was  filed  after 
the  second  entry  of  levy  made  on 
the  fi.  fa.,  the  fi.  fa.  is  properly  ad- 
mitted in  evidence  over  objection 
that  there  were  two  entries  of  levy 
thereon  and  no  showing  of  the  dis- 
position of  the  first  entry.  Young 
V.  Germania  Sav.  Bank,  133  Ga. 
699,  66  S.  E.  925. 

But  a  receiver  should  not  be  ap- 
pointed by  vendors  to  recover  the 
purchase  money  where  there  is  no 
evidence  of  waste.  Collins  v.  Rich- 
art,  14  Bush  (Ky.)  621. 

2  Jordan  v.  Beal,  51  Ga.  602. 
,A  bill  by  a  vendor,  charging  the 
insolvency  of  the  purchaser,  and 


the  deterioration  in  value  of  the 
land,  but  not  showing  that  the  pur- 
chaser was  less  able  to  pay  when 
the  debt  matured  than  when  it  was 
incurred,  or  that  the  deterioration 
is  due  to  the  purchaser's  waste  or 
mismanagement,  makes  no  case 
for  the  appointment  of  a  receiver, 
of  the  rents  and  profits  of  the  pur- 
chased premises,  or  for  an  injunc- 
tion against  transferring  obliga- 
tions taken  for  the  rent.  Tumlin  v. 
Vanhorn,  77  Ga.  315,  3  S.  E.  264. 

3  Where  no  insolvency  is  shown 
and  the  amount  of  the  indebted- 
ness is  in  dispute,  the  court  will 
not  appoint  a  receiver.  Hughes  v. 
Hatchett,  55  Ala.  631. 

Where  one  is  personally  in  pos- 
session of  premises  under  a  con- 
tract for  the  sale  thereof,  the  court 
will  not,  in  an  action  to  recover 
the  possession  of  said  premises, 
appoint  a  receiver  pendente  lite. 
La  Bau  v.  Huetwohl,  60  Hun  407, 
15  N.  Y.  Supp.  491. 

It  has  been  held,  however,  that  a 
receiver  pendente  lite  will  not  be 
appointed  in  an  action  to  recover 
possession  of  real  estate  from  one 
in  possession  under  a  contract  of 
sale.  Guernsey  v.  Powers,  9  Hun 
(N.  Y.)  78. 

See  Boehm  v.  Wood,  2  Jac.  &  W. 
236.  In  that  case  it  was  uncertain 
to  which  of  two  parties  an  estate 
belonged  because,  although  the 
plaintiff  who  was  vendor,  had  sold 
it  to  the  defendant  who,  however, 
objected  to  the  title.     If  his  objec- 


522  LAW   OF   RECEIVERS. 

So  also  where  a  purchaser  of  a  leasehold  was  let  into 
possession  before  paying  all  of  the  purchase  money  and 
while  he  was  in  default  in  his  payments,  the  vendor  was 
obliged  to  pay  the  rent  and  taxes  to  avoid  a  forfeiture,  a 
receiver  may  be  appointed  upon  application  of  the  ven- 
dor.^ 

§  216.    Effect  Where  Insolvency  of  Purchaser  Alleged. 

The  insolvency  of  a  defendant  in  a  legal  proceeding 
frequently  gives  rise  to  an  equitable  remedy  on  behalf  of 
the  plaintiff  which  often  is  analogous  to  that  of  an  equi- 
table sequestration.  But  something  more  than  the  fact 
of  mere  insolvency  is  required  although  the  fact  of  insol- 
vency, coupled  with  other  facts  tending  to  show  a  fraudu- 
lent disposition  on  the  part  of  the  defendant,  or  a  course 
of  conduct  which  will  result  in  a  waste  or  depreciation  of 
the  subject  matter  of  the  litigation,  will  be  frequently 
sufficient  ground  for  the  appointment  of  a  receiver.  These 
same  principles  obtain  in  respect  to  the  appointment  of  a 
receiver  in  litigation  between  vendors  and  purchasers. ^  In 

tions  were  well  founded,  the  estate  i  The  owner  of  land  who  has  con- 
belonged  to  the  vendor,  otherwise  tracted  to  sell  it  can  not  maintain 
to  the  purchaser.  In  these  circum-  a  bill  to  cancel  the  contract  and 
stances  the  court  appointed  a  re-  recover  the  land  and  to  have  a  re- 
ceiver of  the  property.  The  case  ceiver  appointed  to  take  charge  of 
of  Gibbs  V.  David,  L.  R.  20  Eq.  373,  the  property,  merely  on  the  ground 
was  also  to  the  same  effect.  that    the    purchaser    is    insolvent, 

4  Cook  V.  Andrews  (1897),  1  Ch.  where  it  does  not  appear  that  he 

266.  became  insolvent  after  making  the 

It  is  good  ground  for  the  appoint-  contract   of   purchase.     Jordan   v. 

ment  of  a  receiver  of  land  where  Beal,  51  Ga.  602. 

the  decree  below  declares  the  ap-  The   appointment  of  a  receiver 

plicant  to  have  a  lien  on  the  land  was  refused  where  the  plaintiff  had 

for  the  payment  of  the  purchase  sold  land,  giving  only  a  bond  for 

money,   that  there  are   taxes   due  title,  and  had  subsequently  trans- 

and  unpaid  which  are  about  to  be  ferred  the  purchaser's  notes  given 

enforced  by  a  sale  of  the  land,  un-  for   the    purchase   price,    and   had 

less   the  party  in  possession   will  been  sued  on  his  indorsements  of 

pay  the  taxes  in  a  reasonable  time.  them,  even  though  the  purchaser 

Darusmont  v.  Patton,  72  Tenn.   (4  had  become  insolvent.    Williams  v. 

Lea)  597.  Stewart,  56  Ga.  663. 


INTERESTS  IN  REAL  ESTATE.  523 

other  words  a  receiver  will  not  be  appointed  in  cases  of 
this  character  merely  on  the  ground  that  one  of  the  par- 
ties is  insolvent  without  a  showing  that  there  is  danger 
of  loss  in  respect  to  the  subject  matter. - 

.  So  also  a  receiver  will  not  be  appointed  at  the  suit  of 
trustees  on  the  ground  that  one  to  whom  they  sold  land 
failed  to  pay  a  large  part  of  the  purchase  money  and  is 
insolvent  but  remains  in  possession  of  the  property  re- 
ceiving its  profits  where  an  order  of  resale  of  the  premises 
directed  by  the  court  remains  unexecuted  by  them  and  the 
defendant  has  not  been  heard  in  reference  to  the  applica- 
tion.^ 

The  fact  that  a  receiver  has  been  appointed  over  tlie 
property  of  the  purchaser  will  not  affect  the  right  of  the 
vendor  to  enforce  his  contract  by  means  of  declaring  a 
forfeiture  and  the  fact  that  the  legislature  has  given  an 
additional  remedy  to  the  vendor  will  not  deprive  him  of 
his  equitable  remedy  upon  failure  of  the  purchaser  to 
make  his  payments.* 

2  A  receiver  may  be  appointed  to  apply  the  proceeds  to  the  purchase 

enforce  a  vendor's  lien  where  there  price.     McCaslin  v.  State,  44  Ind. 

is  danger  of  loss  through  the  pur-  151. 

chaser's  insolvency   or  otherwise.  3  Anderson  v.  Cecil,  86  Md.  490, 

Hughes  V.  Hatchett,  55  Ala.  631.  38  Atl.  1074. 

A  receiver  and   injunction   may  4  Tower  v.  Detroit  Trust  Co.,  190 

properly  be  granted  in  behalf  of  a  Mich.  670,  157  N.  W.  367.     In  the 

vendor,  where  the  purchaser  has  above  case  the  court  had  appointed 

been  put  into  possession  without  a    receiver    over    the    corporation 

paying  anything  toward   the   pur-  defendant    which    has    agreed    to 

chase  money,  is  allowing  the  prem-  purchase     certain     property     but 

ises  to  deteriorate,  and  has  gone  made  default  in  its  payments.  The 

into  bankruptcy.     Tufts  v.  Little,  receivership  was  not  created  in  a 

56  Ga.  139;  Gunby  v.  Thompson,  56  suit  respecting  the  contracts,  but 

Qa.  316.  the  vendor  filed  a  petition  in  the 

Vendor  may   have    receiver   ap-  receivership  praying,  among  other 

pointed    where    he    still    has    the  things,  that  the  contracts   be   de- 

legal  title  and  has  given  a  bond  for  clared   forfeited.     The   Chancellor 

title  and  the  vendee  is  insolvent  refused  to  so  declare.     The  appel- 

and   committing   waste  and   he   is  late  court  said: 

seeking  to   sell   the   property  and  "It  is  argued  in  defense  of  the 


524 


LAW   OP   RECEIVERS. 


action  of  the  trial  court  in  refus- 
ing relief,  that  petitioner  failed  to 
comply  with  the  provisions  of  Act 
200  of  the  Laws  of  1911,  providing 
a  method  of  forfeiting  land  con- 
tracts. It  is  conceded  by  petitioner 
that  he  did  not  comply  with  the 
terms  of  that  act  in  forfeiting  the 
contract,  because  he  brought  him- 
self within  its  proviso.  The  act 
provides  a  mode  for  forfeiting  land 
contracts  without  the  aid  of  court 
proceedings,  and  contains  the  fol- 
lowing proviso: 

"  'Provided  further,  that  this  act 
shall  not  be  held  to  debar  the  ven- 
dor or  his  proper  representatives 
or  assigns  from  enforcing  the  for- 
feiture of  said  contract  through 
proper  procedure  in  a  court  of 
chancery,  nor  to  debar  proceed- 
ings to  recover  possession  of  said 
premises  in  any  manner  now  au- 
thorized by  law  or  through  sum- 
mary proceedings,  provided  said 
contract  by  its  terms  so  allows.' 

"A  fair  construction  of  this  act 
seems  to  be  that  the  legislature 
undertook  to  and  did  provide  an 
additional  method,  whereby  land 
contracts  could  be  forfeited  with- 
out the  aid  and  expense  of  a  court 
proceeding.  There  is  nothing  in 
the  act  which  supports  the  view 
that  the  act  is  mandatory  or  ex- 
clusive with  respect  to  the  added 
remedy,  but  there  is  express  lan- 
guage in  the  proviso  which  leads 
to  the  conclusion  that  it  was  in- 
tended to  be  elective  with  the  ven- 
dor. In  other  words,  the  act  in 
effect  says  to  the  holder  of  a  de- 
faulted land  contract,  if  you  desire 
to  forfeit  your  contract,  here  is  an 
additional  method  of  doing  so,  by 
which  you  can  accomplish  it  with- 
out the  aid  of  court  proceedings. 
Or,  if  you  choose,  you  may  pursue 


one  of  the  existing  remedies.  Pe- 
titioner chose  one  of  the  existing 
remedies,  and  we  think  he  was 
well  within  his  rights  in  so  doing, 
inasmuch  as  the  contract  in  ques- 
tion makes  provision  fpr  declaring 
a  forfeiture  of  the  contract  by  giv- 
ing notice  thereof, 

"But  counsel  for  the  receiver 
argue,  in  substance,  that  to  main- 
tain the  status  quo  will  not  preju- 
dice the  rights  of  the  petitioner, 
but  will  materially  assist  the  re- 
ceiver in  disposing  of  the  assets 
of  the  vendee  on  a  sale  thereof. 
The  petitioner  executed  these  con- 
tracts with  the  Chippewa  Con- 
struction Company,  and  the  record 
shows  that  he  has  not  only  com- 
plied with  all  the  terms  of  the 
contract  which  were  incumbent 
upon  him  to  perform,  but  that  he 
has  borne  with  the  defaults  of  the 
vendee  longer  than  he  contracted 
to.  When  the  time  finally  arrived 
for  payment  in  full,  no  payment 
was  tendered.  There  is  no  show- 
ing that  the  receiver  is  in  any 
position  financially  to  tender  it, 
or,  if  it  can,  that  it  will.  The  in- 
ferences are  very  strong  that  the 
vendee  is  insolvent.  Unless  we 
are  entirely  to  overlook  the  peti- 
tioner's rights  under  the  contract 
for  the  purpose  of  augmenting  the 
value  of  the  assets  of  the  vendee 
upon  a  sale  thereof,  some  relief 
must  be  granted  him. 

"It  is  urged  that  equity  abhors 
forfeitures,  and  that  equity  will 
not  enforce  a  forfeiture,  and  peti- 
tioner is  charged  with  being  un- 
willing to  do  equity,  although  he 
is  asking  it."  This  court  not  infre- 
quently goes  beyond  the  strict 
terms  of  the  contract  to  enforce 
equities  between  parties,   and   an 


INTERESTS  IN  REAL  ESTATE.  525 

§  217.    Vexatious  Legal  Proceedings  for  Purposes  of  Delay. 

In  one  case^  a  receiver  was  appointed  on  behalf  of  the 
vendor  because  of  vexatious  legal  defenses  and  proceed- 
ings made  without  merit  for  the  purposes  of  delaying  the 
fruits  of  the  judgment.  The  plaintiff  had  alleged  that  he 
sold  the  land,  receiving  one-half  of  the  purchase  price, 
and  sought  and  recovered  judgment  for  the  balance.  Upon 
levying  execution,  the  ^purchaser's  wife  claimed  the  land 
on  the  ground  that  she  had  paid  the  amount  received  by 
plaintiff,  which  was  all  that  the  land  was  worth ;  that  after 
much  delay  the  claim  was  decided  against  the  wife,  and 
on  again  attempting  sale,  plaintiff  was  met  by  another 
frivolous  claim  by  the  wife 's  brother  pretending  to  hold 
title  under  deeds  from  the  husband  and  wife;  that  these 
parties  colluded  to  delay  the  plaintiff  with  a  view  to  keep- 
ing the  rents  and  profits,  and  that  the  purchaser  boasted 
that  he  would  retain  possession  without  paying. 

§  218.    Upon  Disagreement  Between  Vendors  Upon  Partitions 
Between  Them. 

Where  lands,  which  are  in  part  subject  to  executory 
contracts  of  sale  of  separate  parcels,  are  partitioned,  each 
parcel  of  the  common  estate  covered  by  a  contract  of  sale 
may  be  treated  as  a  distinct  estate  and  partitioned  in 
severalty,  subject  to  the  conditions  of  the  contract,  and, 
if  the  interested  parties  can  not  agree  in  respect  to  whom 

illustration  of  that  is  the  recent  the  contract,  but  such  is  not  the 
case  of  Northern  Michigan  Build-  case.  Defendant  is  simply  asking 
ing  &  Loan  Association  v.  Fors,  that  the  contract  be  not  forfeited, 
155  N.  W.  736.  If  the  receiver,  in  because  its  equity  therein  will  as- 
sist in  making  a  sale  of  its  other 
assets.  The  statement  of  counsel 
that  a  court  of  equity  will  not  en- 
default  at  this  time,  or  if  it  were  j^j.^^  ^  forfeiture  under  any  condi- 
able  to  express  some  hope  and  tJons  is  sufficiently  answered  by 
ability  to  make  payment  in  the  the  recent  case  of  Donnelly  v. 
near  future,  this  court  might  see  Lyons,  173  Mich.  515,  139  N.  W. 
fit  to  still  grant  the  defendant  the  246." 
privilege  of  making  payment  upon  i  Chappell  v.  Boyd,  56  Ga.  578. 


answer  to  the  petition,  were  ten- 
dering payment  to  make  good  the 


')26 


LAW    OF   RECEIVERS. 


payments  shall  be  made,  the  court,  in  aid  of  the  final 
judgment  of  partition,  may  appoint  a  receiver  under  a 
code  provision  which  permits  the  appointment  of  a  re- 
ceiver in  an  action  between  parties  jointly  interested  in 
any  property  or  fund.^ 

§  219.    Upon  Enforcement  of  Vendor's  Lien. 

Where  the  vendor  is  seeking  to  enforce  his  vendor's 
lien  and  there  is  danger  of  loss  from  the  purchaser's 
insolvency  or  otherwise,  a  receiver  may  be  appointed.^  In 
all  cases  of  this  character  affecting  real  property,  it  is, 
however,  essential  that  there  should  be  an  absence  of  an 


1  In  the  event  that  the  inter- 
ested parties  can  not  agree  as  to 
whom  payments  made  from  time 
to  time  under  the  contracts  of  sale 
shall  be  made,  the  court  may,  in 
aid  of  the  final  judgment  in  parti- 
tion, appoint  a  receiver  for  that 
purpose  under  the  provisions  of 
section  564  of  the  Code  of  Civil 
Procedure.  Rich  v.  Smith,  26  Cal. 
App.  775,  148  Pac.  545. 

1  Hughes  V.  Hatchett,  55  Ala. 
631. 

Civ.  Code  Prac,  §  298,  provides 
that,  on  motion  of  any  party  to  an 
action  showing  that  he  has  a  lien 
on  any  property,  the  right  to  which 
is  involved  in  the  action,  and  that 
the  property  is  in  danger  of  being 
lost,  removed,  or  materially  in- 
jured, the  court  may  appoint  a  re- 
ceiver to  take  charge  of  the  prop- 
erty. Section  299  provides  for  the 
appointment  of  a  receiver  of  mort- 
gaged property  at  the  instance  of 
the  mortgagee  for  the  same  rea- 
sons, and  further  provides  for  a 
receiver  if  the  property  is  prob- 
ably insufficient  to  discharge  the 
mortgage  debt.  Under  these  pro- 
visions it  was  held  that  a  receiver 


will  not  be  appointed  at  the 
instance  of  the  vendor,  who  has  a 
lien  for  the  purchase  price,  where 
the  property  is  in  no  danger  of 
being  materially  injured,  though  it 
may  not  be  sufficient  to  satisfy  the 
debt.  Murray  v.  Murray,  124  Ky. 
426,  30  Ky.  Law  Rep.  286,  99  S.  W. 
301. 

The  appointment  of  a  receiver 
in  an  action  to  enforce  a  vendor's 
lien  has  been  refused  upon  the 
ground  that  the  vendor  has  no 
right  to  anything  other  than  a  sale 
of  the  property  to  satisfy  the  un- 
paid portion  of  the  purchase  price 
and  the  purchaser  is  entitled  to 
the  possession  until  such  sale 
takes  place.  Morford  v.  Hamner, 
3  Baxt.  (Tenn.)  391. 

On  the  other  hand  it  has  also 
been  held  that  after  a  decree  al- 
lowing a  vendor  to  sell  land  to 
satisfy  the  unpaid  portion  of  the 
purchase  price,  where  the  pur- 
chaser appeals  and  pending  the 
appeal  fails  to  pay  the  taxes,  a 
receiver  will  be  appointed.  This 
is  for  the  purpose  of  making  the 
judgment  effective.  Darusmont  v. 
Patton,  4  Lea  (Tenn.)  597. 


IXTEUESTS    IN    REAL    ESTATE.  527 

adequate  remedy  outside  of  the  appointment  of  a  re- 
ceiver, and  the  averments  in  respect  to  the  matter 
should  not  be  vague  and  uncertain.-  It  has  been  held, 
however,  that  where  the  vendor  has  placed  the  purchaser 
in  possession,  reserving  a  lien  for  the  purchase  money, 
the  court  will  not,  in  a  suit  to  enforce  the  lien,  appoint  a 
receiver  since  the  lien  attaches  to  the  land  and  not  to  the 
rents  and  profits,  even  though  the  purchaser  is  insolvent 
and  the  land  is  merely  adequate  to  meet  the  indebtedness. 
A  receiver  might,  however,  be  appointed  upon  a  showing 
of  waste.^ 

§220.    Receiver  Takes  Property  Subject  to  Existing  Vendor's 
Liens. 

In  accordance  with  the  general  principles  applicable  to 
all  liens,  a  receiver  is  in  no  better  position  than  the  party 
over  whom  he  has  been  appointed  receiver.  He  takes  the 
property  subject  to  the  right  of  the  vendor  to  assert  his 
vendor's  lien  and  he  can  not  obtain  title  without  compli- 
ance with  the  contract  of  sale.^ 

2  Where  the  filing  of  a  lis  pen-  that  a  petition  containing  aver- 
dens  will  operate  so  as  to  prevent  ments  of  a  vague  and  general 
a  transfer  of  real  property  the  character  are  insufficient  to  war- 
title  to  which  is  in  litigation,  a  rant  an  ex  parte  appointment  of  a 
receiver  will  not  be  appointed  receiver.  Arnold  v.  Meyer,  (Tex. 
since    there    is    in    such    circum-  Civ.)  198  S.  W.  602. 

stances    an    adequate    remedy    at  i  A    receiver    of    a    corporation 

law.    Gregory  v.  Gregory,  33  N.  Y.  who  takes  possession  of  property 

Super.   Ct.  R.  1;    Spokane  v.  Am-  purchased,  but  not  paid  for,  by  the 

sterdamisch  Trustees  Kantoor,  18  corporation,  takes  it  subject  to  the 

Wash.  81,  50  Pac.  1088.  right   of   the   sellers    to   have   the 

3  Collins  V.  Richart,  14  Bush  property  sold  for  their  payment, 
(Ky.)  621.  and  so  a  proceeding  by  the  sellers 

Under   statutory    provisions   au-  to   assert   their   privilege    in    that 

thorizing  the  appointment  of  a  re-  respect    can    not    be    stayed    until 

ceiver  in  foreclosure  where  prop-  liquidation  of  the  receivership.    In 

erty  is  in  danger  of  being  lost  or  re  Receivership  of  Augusta  Sugar 

materially    injured,    in    a    suit    to  Co.,  134  La.  971,  64  So.  870. 
foreclose  certain  liens  on  personal  The    receiver   of   a   corporation 

property  and  crops  and  a  vendor's  has  the  same  right  which  it  had  to 

lien  on  certain  land,  it  was  held  perfect  title  to  property  in  its  pos- 


523 


LAW   OF   RECEIVERS. 


§  221.    Receiverships  in  Suits  for  Specific  Performance.     . 

In  an  action  for  specific  performance  where  there  is 
danger  of  loss  from  waste,  insolvency,  or  other  perils  to 
the  property  cognizable  by  the  rules  relating  to  receiver- 
ships, a  receiver  will  be  appointed  pending  the  litigation.^ 


session  under  a  contract  with  the 
vendor  that  title  should  not  pass 
to  it  until  the  property  was  paid 
for.  Moore  v.  Mercer  Wire  Co., 
(N.  J.)  15  Atl.  305. 

Where  an  order  of  the  court  re- 
quires a  purchaser  of  lands  to  give 
security  for  the  application  of  the 
rents  and  profits  to  the  payment  of 
the  purchase  price,  or  on  his  fail- 
ure to  do  so  directs  that  a  receiver 
of  the  rents  and  profits  be  ap- 
pointed, a  further  condition  of  the 
order  restraining  him  from  trans- 
ferring in  any  manner  any  obliga- 
tion for  the  rents  is  onerous  and 
should  not  be  made.  Tumlin  v. 
Vanhorn,  77  Ga.  315,  3  S.  E.  264. 

A  receiver  for  corporation  can 
not  compel  the  vendor,  under  an 
executory  contract  with  the  cor- 
poration for  the  purchase  of  land, 
to  deliver  possession  without  pay- 
ment of  the  purchase  price  in  ac- 
cordance with  the  contract.  Con- 
tinental Trust  Co.  V.  Brown,  (Tex. 
Civ.  App.)  179  S.  W.  939. 

In  a  suit  by  receiver  of  federal 
court  to  enforce  vendor's  lien  on 
property  sold  under  a  decree  ren- 
dered in  a  federal  court,  he  should 
not  be  required  to  procure  title 
papers,  making  description  of  prop- 
erty sold  more  definite  than  that 
in  deed  conforming  to  decree  of 
federal  court.  McClintic  v.  Hech- 
mer,  (W.  Va.)  92  S.  E.  653. 

1  A  receiver  was  appointed  in 
a  suit  for  specific  performance. 
Reade  v.  Hamlin,  62  N.  C.   (.Phill. 


Eq.)  128;  Munns  v.  Isle  of  Wight 
Ry.  Co.,  L.  R.  5  Ch.  App.  414. 

McCaslin  v.  State,  44  Ind.  151. 

In  an  action  for  specific  per- 
formance of  a  contract  for  sale  of 
land,  under  which  defendant  was 
to  retain  the  land  for  a  certain 
time  and  pay  plaintiff  half  the 
crops,  plaintiff  asked  for  a  re- 
ceiver, and  subsequently  filed  a 
separate  petition  for  such  appoint- 
ment, on  the  ground  that  defendant 
threatened  to  convert  grain  grown. 
Both  appeared,  and  a  continuance 
was  granted,  pending  which  defen- 
dant prepared  to  thresh  the  grain 
under  threat  to  convert  it,  and 
plaintiff  applied,  during  vacation, 
for  the  appointment  of  a  receiver. 
It  was  held  that  the  court  had 
power  to  appoint  this  receiver  on 
the  application  in  vacation.  Wil- 
son V.  Hays,  139  Mo.  App.  513,  123 
S.  W.  540. 

But  under  a  contract  between 
father  and  son  that  in  considera- 
tion of  the  son  cultivating  the 
father's  land  until  the  latter's 
death,  it  would  be  given  to  the 
son,  the  father  having  outlived  the 
son,  it  was  held,  in  an  action  for 
the  specific  performance  by  the 
son's  widow,  that  the  farm  would 
not  be  placed  in  the  hands  of  a 
receiver.  Walters  v.  Walters,  132 
111.  467,  23  N.  E.  1120. 

In  Hyde  v.  Warden,  1  Ex.  D.  309, 
the  plaintiff  in  a  suit  to  enforce 
specific  performance  of  an  agree- 
ment   to    lease    a    farm    was    ap- 


INTERESTS    IN    REAL   ESTATE. 


529 


In  a  suit  for  specific  performance  instituted  by  the  vendor, 
if  the  property  is  an  inadequate  security  for  the  balance 
of  the  purchase  money  and  the  purchaser  is  insolvent,  a 
receiver  will  be  appointed  upon  the  same  sort  of  a  show- 
ing in  which  one  would  be  appointed  in  an  ordinary  fore- 
closure proceeding.-  And  in  an  action  to  compel  a  con- 
veyance from  the  heirs  of  a  deceased  person,  many  of 
whom  are  minors,  it  is  proper  to  appoint  a  receiver  in 
whom  the  legal  title  may  be  vested  for  the  purpose  of 


pointed  receiver  pending  his  ap- 
peal from  a  judgment  in  favor  of 
the  defendant. 

In  one  case  of  specific  perform- 
ance a  receiver  was  appointed  be- 
cause the  purchaser  was  managing 
the  land  in  a  manner  contrary  to 
the  usual  course  of  husbandry. 
Osborne  v.  Harvey,  1  Y.  &  C.  C.  C 
116. 

And  where  by  a  post-nuptial  set- 
tlement between  husband  and  wife 
the  rights  of  a  purchaser  from  the 
husband  were  being  jeopardized,  a 
receiver  was  appointed  at  his  ap- 
plication upon  the  court  being  sat- 
isfied that  he  would  probably  ob- 
tain a  decree  for  specific  perform- 
ance. Metcalf  V.  Pulvertoft,  1 
Ves.  &  B.  181. 

In  George  v.  Evans,  4  Y.  &  C. 
211,  the  court  refused  to  appoint  a 
receiver  in  a  suit  by  a  beneficiary 
to  set  aside  a  purchase  made  by 
his  trustee  from  him  on  the 
ground  that  there  was  no  showing 
that  the  property  was  likely  to  be 
damaged  by  the  de^fendant  and 
that  the  facts  set  forth  in  the  bill 
merely  raised  a  suspicion  of  unfair 
dealing  on  the  part  of  the  trustee. 
A  vendee  may  procure  the  ap- 
pointment of  a  receiver  pending  a 
suit  for  specific  performance  of  a 
I  Rec— 31 


contract  to  convey  where  through 
fraud  the  vendor  is  in  possession. 
Dawson  v.  Yates,  1  Beav.  301. 

A  vendor  may  obtain  the  ap- 
pointment of  a  receiver  in  an  ac- 
tion of  specific  performance  of  a 
contract  of  purchase  on  a  showing 
of  the  insolvency  of  the  vendee 
and  that  he  is  about  to  convey  hia 
property  to  trustees  for  the  benefit 
of  creditors.  Hall  v.  Jenkinson, 
2  Ves.  &  B.  125. 

On  the  refusal  of  one  who  has 
contracted  to  purchase  property  to 
complete  the  purchase  because  of 
not  being  satisfied  with  the  title, 
a  receiver  may  be  appointed  pend- 
ing the  determination  of  the  suffi- 
ciency of  the  title.  In  this  cast; 
the  property  had  large  ornamental 
grounds  which  required  consider- 
able care  and  expense  to  main- 
tain, besides  insurance.  Boehm  v. 
Wood,  2  Jac.  &  W.  236. 

A  receiver  and  manager  of  a 
hotel  business  may  be  appointed 
in  a  suit  for  specific  performance 
of  a  contract  for  the  sale  of  the 
lease,  furniture,  and  good  will  of 
the  business,  but  he  can  take  no 
chattels  other  than  those  which 
would  pass  by  an  assignment  of 
the  lease.  Poole  v.  Downes,  76 
L.  T.  N.  S.  110. 

2  Phillips  v.  Eiland,  52  Miss.  721, 


530  LAW   OF    RECEIVERS. 

carrying  the  judgment  into  effect.^  Where  there  is  no 
such  default  as  entitles  the  vendor  to  sell  the  property, 
the  order  appointing  the  receiver  should  be  revoked  since 
the  receivership  is  merely  incidental  to  the  main  action/ 

The  same  class  of  relief  by  the  appointment  of  a  re- 
ceiver in  a  proper  case  is,  of  course,  accorded  the  pur- 
chaser in  a  suit  to  compel  performance  by  the  vendor. 
Thus  where  the  vendor  has  fraudulently  obtained  re- 
possession of  the  property,  a  receiver  was  appointed  at 
the  instance  of  the  purchaser  in  a  suit  for  specific  per- 
formance.^ 

A  receiver  will  be  appointed  over  property  in  the  hands 
of  a  vendor  at  the  suit  of  a  purchaser  who  has  completely 
performed  his  contract  of  purchase  upon  the  principle 
that  in  such  a  case  the  purchaser  holds  the  entire  benefi- 
cial interest  in  the  property  and  the  vendor  holds  it 
simply  as  trustee  for  him.^  A  receiver  was  appointed  in 
one  case  for  the  purpose  of  applying  the  rents  and  profits 
in  payment  of  the  interest  and  costs  awarded  a  purchaser 
upon  failure  of  the  vendor  to  make  title.^ 

§  222.    Receivership  in  Aid  of  Judicial  Sales. 

A  receiver  will  be  appointed  at  the  instance  of  a  pur- 
chaser at  a  judicial  sale  on  a  bill  alleging  fraudulent 
conveyances  by  the  judgment  debtor  of  the  estate  so  sold 
for  the  purpose  of  defeating  plaintiff's  title.^ 

If  the  judgment  debtor  after  a  judicial  sale  continues 
in  possession  of  the  property  and  uses  it,  the  purchaser 
may  have  a  receiver  appointed  w^here  the  defendant  is 
insolvent  and  waste  is  likely  to  occur. ^ 

3  Scadden  Flat  etc.  Min.  Co.  v.  i  Mays  v.  Rose,  Freem.  Ch. 
Scadden,  121  Cal.  33,  53  Pac.  440.  (Miss.)  703. 

4  Jones  V.  Boyd,  80  N.  C.  258.  2  HiU  v.  Taylor,  22  Cal.  191.   See 

5  Dawson  v.  Yeates,  1  Beav.  301.  also   Harris   v.   Reynolds,    13    Cal. 

6  Mead  v.  Burke,  156  Ind.  577,  60  514,  73  Am.  Dec.  600. 

N.  E.  338.  And   a  purchaser  at  a  sheriff's 

7  Hill  V.  Kirwan,  1  Hog.  175.  sale   who   is   entitled   to   the   pos- 


INTERESTS    IN    REAL    ESTATE.  531 

And  where  defendant  in  possession  of  land  sold  at  a 
sheriff's  sale  obtained  possession  through  fraud,  and 
the  rents  and  profits  are  in  danger  of  being  lost  by  reason 
of  the  insolvency  and  fraudulent  actions  of  the  defen- 
dant, a  receiver  may  be  appointed.^ 

But  a  receiver  will  not  be  appointed  to  collect  the  rents 
and  profits  of  land  sold  at  a  judicial  sale  for  the  time 
between  the  sale  and  its  confirmation  by  the  court  since 
the  purchaser  is  not  entitled  to  them.  And  a  receiver 
will  not  be  appointed  in  such  a  case  where  an  appeal 
from  the  order  of  confirmation  has  in  effect  suspended 
the  sale.^ 

And  executors  who  have  placed  a  purchaser  of  the 
propert}"  in  possession  under  a  sale  and  deed  made  by 
them  and  permitted  him  to  make  large  improvements 
thereon  can  not,  while  refusing  to  report  the  sale  to  the 
court  for  confirmation,  invoke  the  aid  of  a  court  of  equity 
to  compel  an  accounting  of  rents  and  profits  or  to  place 
the  property  in  the  hands  of  a  receiver.^  • 

§  223.    Receivership  Over  the  Rents  and  Profits. 

Where  the  contract  of  sale  does  not  reserve  to  the 
vendor  any  right  to  the  crops  or  rents  and  profits  to 
apply  upon  the  purchase  price,  the  right  of  the  vendor 
to  enforce  his  vendor's  lien  will  be  limited  to  the  land 
itself,  and  in  such  circumstances  the  court  will  not 
appoint  a  receiver  of  the  rents,  at  least  not  until  the 
property  has  been  sold  under  a  decree,^  although  receiv- 

session  may  have  a  receiver   ap-  s  Mays     v.     Rose,     Freem.     Ch. 

pointed    to    take    possession    of    a  (Miss.)  703. 

crop  thereon  and  harvest  the  same  4  Pearson     v.     Gillenwaters.     99 

where  the  judgment  debtor  is  in-  Tenn.    446,    63    Am.    St.    Rep.   844, 

solvent.     Corcoran  v.  Dall,  35  Cal.  42  S.  W.  9. 

476  5  Bennallack    v.    Richards,     125 

A    receiver    may    be    appointed  Cal.  427,  58  Pac.  65. 

upon    the    application    of    a    pur-  i  Morford  v.  Hammer,  62  Tenn. 

chaser  at  a  sheriff's  sale  pending  (3  Baxt.)  391. 

litigation.     McFadden  v.  Nolan,  15  Where,   pending  a   bill    to   fore- 

Phila.  187.  close    a    vendor's    lien,    the    land 


534 


LAW    OP   RECEIVERS. 


§  224.    The  Rule  as  Applied  to  Personal  Property. 

Unless  reservations  of  title,  amounting  to  a  condi- 
tional sale  are  made  in  a  sale  of  personal  property,  the 
seller  ordinarily  has  no  such  interest  in  the  property  as 
entitles  him  to  the  appointment  of  a  receiver.^  But 
where  the  litigation  is  in  respect  to  an  executory  sale  of 
a  stock  of  merchandise  which  the  buyer  refuses  to  accept, 
it  is  proper  to  appoint  a  receiver  to  take  charge  of  and 
sell  the  goods,  since  to  do  so  is  a  step  reasonably  calcu- 
lated to  protect  both  litigants  and  insure  a  fair  sale.- 
Likewise  where  there  is  reasonable  ground  to  apprehend 
that  pending  the  litigation  the  property,  w^hich  is  the 
subject  matter   of  the  litigation,   may  be  disposed   of 


be  in  effect  to  hold  that  any  cred- 
itor may  obtain  a  receiver  over 
personal  property,  before  judg- 
ment, to  secure  the  payment  of 
any  simple  and  unsecured  debt. 
Neither  our  statute  nor  the  policy 
of  our  laws  contemplates  any  such 
remedy."  Golden  Valley  Land  etc. 
Co.  V.  .Johnstone,  21  N.  D.  101, 
Ann.  Cas.  1913B  631,  128  N.  W. 
691. 

In  Hendrix  v.  American  Free- 
hold etc.  Co.,  95  Ala.  313,  11  So. 
213,  a  receiver  was  appointed  ex 
parte  of  a  growing  crop  upon  a 
showing  that  defendants,  after 
they  had  mortgaged  the  land  to 
plaintiff,  had  conveyed  it  to  an- 
other party  for  the  purpose  of  de- 
frauding plaintiff  out  of  the  rents 
and  profits  of  the  land,  and  that 
upon  a  foreclosure  of  the  mortgage 
plaintiff  had  bid  in  the  land  for  its 
reasonable  value,  but  nevertheless 
there  remained  a  deficiency. 

1  The  seller  of  a  stock  of  goods 
upon  condition  that  they  shall  not 
be  removed  from  town,  and  that 


the  proceeds  of  sales  shall  be 
turned  over  to  him  until  the  bal- 
ance of  the  purchase  price  is  paid, 
has,  in  the  absence  of  an  express 
reservation  of  title,  no  such  inter- 
est therein  as  to  entitle  him  to  a 
receiver  upon  the  failure  of  the 
purchaser  to  comply  with  the 
agreement  as  to  proceeds,  though 
the  latter  is  insolvent.  Steele  v. 
Aspy,  128  Ind.  367,  27  N.  E.  739. 

That  he  may  by  stipulation  re- 
tain title  is  well  settled,  but  it 
must  be  plain  and  express.  Win- 
chester Wagon  W^orks  &  Mfg.  Co. 
v.  Carman,  109  Ind.  31,  58  Am.  Rep. 
282,  9  N.  E.  707;  Hodson  v.  War- 
ner, 60  Ind.  214. 

2  Swisher  v.  Dunn,  89  Kan.  412, 
131  Pac.  571,  45  L.  R.  A.  (N.  S.) 
810,  131  Pac.  571. 

In  an  action  to  enforce  specific 
performance  of  a  parol  agreement 
to  sell  certain  personal  property,  a 
receiver  was  appointed  upon  a 
showing  of  imminent  danger  of 
loss.  Taylor  v.  Eckersley,  2  Ch. 
D.  302,  5  Ch.  D.  740. 


INTERESTS   IN   REAL  ESTATE. 


535 


fraudulently  or  in  such  a  manner  as  to  make  futile  any 
judgment  which  may  be  recovered  in  respect  to  it,  the 
court  is  justified  in  appointing  a  receiver.^ 

§  225.    Equitable  Lien  for  Purchase  of  Personalty. 

An  equitable  lien  for  the  price  of  personalty  may  be 
enforced,  even  though  the  property  be  in  the  hands  of  a 
receiver,  as  the  receiver  takes  the  title  burdened  with  the 
equities  to  which  it  was  subject  when  in  the  hands  of  the 
debtor.^ 

But  a  seller  of  goods,  who  reserved  title  to  the  same, 
by  filing  purchase  money  notes  with  the  receiver  of  tlie 
corporation  which  had  been  the  purchaser,  waived  a  right 


3  EUett  V.  Newman,  92  N.  C.  519. 

Under  Burns's  Ann.  St.  1901, 
§  1236,  which  provides  that  a  re- 
ceiver may  be  appointed  where  it 
is  shown  that  the  property  in  con- 
troversy is  in  danger  of  being  lost 
or  materially  injured,  or  where,  in 
the  discretion  of  the  court,  it  may 
be  necessary  to  secure  ample  jus- 
tice to  the  parties,  where  a  com- 
plaint in  an  action  by  administra- 
tors for  the  appointment  of  a 
receiver  showed  that  during  the 
lifetime  of  decedent  defendant,  by 
fraud  and  undue  influence,  had  ob- 
tained possession  of  certain  notes 
belonging  to  said  decedent  and 
purporting  to  be  indorsed  by  the 
latter,  that  the  indorsements  were 
forged,  that  no  consideration  was 
received  for  the  notes;  and  that 
defendant  was  wholly  insolvent, 
and,  if  not  restrained,  would  col- 
lect and  sell  the  notes  and  convert 
the  proceeds,  the  appointment  of  a 
receiver  was  warranted.  Sallee  v. 
Soules,  168  Ind.  624,  81  N.  E.  587. 

On  application  of  the   seller  of 


goods  in  an  action  to  rescind  a 
sale  for  fraud,  the  court  may  ap- 
point a  receiver,  where  the  goods 
are  in  the  hands  of  a  sheriff,  to 
secure  the  payment  of  mortgages, 
even  though  the  mortgagees  are 
solvent.  Exchange  Bank  v.  H.  B. 
Claflin  Co.,  100  Ga.  640,  28  S.  E. 
439. 

A  receiver  will  be  appointed  to 
take  possession  of  property  pen- 
dente lite  in  a  replevin  suit  only 
under  circumstances  requiring 
summary  relief  or  where  there  is 
imminent  danger  of  loss  vvithout 
adequate  remedy  at  law,  but  not 
ordinarily  where  title  is  in  dispute 
until  there  has  been  a  determina- 
tion of  the  title  or  the  plaintiff  at 
least  establishes  a  reasonable  prob- 
ability of  his  ultimate  success  in 
establishing  title.  The  question  is 
addressed  to  the  discretion  of  the 
court.  Bacon  v.  Engstrom,  129 
Minn.  229,  152  N.  W.  264,  537. 

1  Arkansas  Cypress  Shingle  Co. 
v.  Meto  Valley  Ry.  Co.,  97  Ark. 
534,  134  S.  W.  1195. 


536  LAW   OF   RECEIVERS. 

to  reclaim  the  property  and  have  his  claim  allowed  as  a 
preferred  claim,  the  property  having  been  sold  by  the 
receiver.  2 

4.    Receiverships  at  Instance  of  Landlord  or  Tenant. 
§  226.     Circumstances  in  Which  Receiver  Appointed. 

Where  a  person  is  clothed  with  title  and  possession, 
such  as  are  conferred  by  a  lease  in  w^riting,  and  is  in  the 
possession  and  enjoyment  of  rights  apparently  legal,  a 
receiver  will  not  be  appointed  unless  under  urgent  and 
peculiar  circumstances.  The  plaintiff  in  such  a  case  must 
show  a  clear  right  or  a  prima  facie  one  with  such  attend- 
ing circumstances  of  danger  or  probable  loss  as  will  move 
the  conscience  of  a  chancellor  to  interfere.^  Thus  a 
receiver  has  been  appointed  to  take  possession  and  hold 
the  rents  and  profits  until  final  decree  in  a  suit  by  a  land- 
lord against  an  insolvent  tenant  who  is  allowing  the  land 
to  deteriorate.-  But  where  the  landlord  has  an  adequate 
remedy  at  law,  a  receiver  will  be  refused.^ 

2  Gordon  Hollow  Blast  Grate  Co.  stantial  breaches  by  the  tenant,  in- 

V.  Zearing  (Ark.),  198  S.  W.  97.  eluding   the   selling   of  live    stock 

1  Chicago,    etc.,    Mining    Co.    v.  and  grain,  without  the  knowledge 

United    States    Petroleum    Co.,    57  of  the  owner,  who  was  entitled  to 

Pa.  St.  83;    Burton  v.  Pepper,  116  share    in    the    proceeds    of    such 

Miss.  139,  76  So.  762.     See  Wilson  sales,     and     who     had     originally 

V.  Wilson,  2  Keen  249;  Charrington  equipped     the     farm    with    stock. 

&  Co.  V.  Camp   (1902),  1  Ch.  387;  Baker   v.    Bohnert,    158    Wis.    337, 

Levey    v.     Callingham     (1908),     1  148  N.  W.  1093. 

K.  B.  79.  Possession    of    leased    premises 

In   an    action    by   a   landlord    to  will  not  be  awarded  a  landlord  by 

enforce   his    lien   for    rent,    where  the     appointment     of    a    receiver 

other  persons  claim  an  interest  in  without  notice.     Burton  v.  Pepper, 

the    property,    which    consists    of  116  Miss.  139,  76  So.  762. 

live  stock,  farm  produce  and  ma-  2  Hunter  v.  Bowen,  137  Ga.  258, 

terials,   the   appointment  of  a  re-  73  S.  E.  380. 

ceiver  is  proper.    Smith  v.  Dayton,  3  Where  the  crops  were  severed 

94  Iowa  102,  62  N.  W.  650.  from  the  soil  and  became  personal 

Under  St.   1913,   §  2787,  subd.  1,  property,  claim  and  delivery  would 

a  receiver  may  be  appointed,  in  an  be   a  plain,  speedy,  and   adequate 

action  by  the  landlord,  to  cancel  a  remedy,  and  the  receiver  will  not 

farm  lease,  where  he  shows  sub-  be    appointed.     Montana    Ranches 


INTERESTS    IN   REAL   ESTATE.  537 

§  227.    Receivership  Over  Growing  Crops. 

Eeceiverships  are  more  apt  to  arise  in  litigation  be- 
tween a  landlord  and  tenant  where  the  relation  arises 
over  a  growing  crop  than  in  other  circumstances  for  the 
simple  reason  that  the  existence  of  such  growing  crops 
in  connection  with  friction  between  the  parties  is  liable 
to  give  rise  to  what  might  be  termed  receivership  facts. 
Thus  where  by  the  terms  of  a  crop  lessee  the  landlord 
and  tenant  are  tenants  in  common  of  the  crop  and  the 
tenant  denies  the  right  of  the  landlord  to  any  part  of  the 
crop  and  threatens  to  sell  the  crop,  a  receiver  may  be 
appointed  where  in  addition  it  is  shown  that  the  tenant 
is  insolvent.^  But  where  by  the  terms  of  the  lease  the 
rent  is  not  paid  by  way  of  a  share  in  the  crop  but  in  the 
shape  of  a  money  rental  and  no  lien  is  reserved  upon  the 
crops,  a  receiver  will  not  be  appointed  to  irrigate  and 
cultivate  the  crops  even  though  the  tenant  has  failed  to 
perform  the  conditions  of  the  lease  and  is  insolvent.^ 
The  mere  fact  that  the  landlord  is  entitled  to  a  share  in 
the  crop  without  any  other  showing  will  not  entitle  the 
landlord  to  the  appointment  of  a  receiver  to  take  posses- 
sion of  a  growing  crop.^  Courts,  however,  are  reluctant 
to  appoint  a  receiver  over  growing  crops  unless  it  be 
shown  that  the  tenant  is  doing  or  threatening  to  do  some 
act  in  respect  to  the  crop  or  the  leased  premises  which 
will  tend  to  destroy  the  property  or  if  the  landlord  has 

Co.    V.    Dolan,    53    Mont.    397,    164  crops  would  be  removed  and  sold 

Pac  306  *°    innocent    purchasers    and    the 

proceeds  converted;  and  it  was  not 

Where  the  statutory  remedy  to  ^^^^^   ^^^^   defendant   threatened 

collect    for   rent   and    supplies    to  ^^  intended  to  act  in  that  manner, 

tenant  is  ample  a  receiver  will  not  Montana  Ranches  Co.  v.  Dolan,  53 

be    appointed    to    administer    ma-  Mont.  397,  164  Pac.  306. 
tured    crops.    Barfield   v.    Dwight,  i  Paughman    v.    Reed,    75    Cal. 

146  Ga.  824,  92  S.  E.  633.  319,  7  Am.  St.  Rep.  170,  17  Pac.  222. 

A  receiver  will  not  be  appointed  2  Ibbetson    v.    Peairson,    7    Cal. 

where  the  only  necessity  shown  is  App.  261,  94  Pac.  252. 
that   there   was   danger    that   the         3  Williams  v.  Green,  37  Ga.  37. 


538  LAW   OF   RECEIVERS. 

a  lien  upon  the  crop  that  the  security  upon  which  his  lien 
operates  is  being  impaired,  or  destroyed.* 

§  228.    Combined  Lease  and  Sale  Contract. 

Even  though  a  lease  of  a  dairy  farm  contained  provi- 
sions for  the  sale  of  cows  therein  on  installments  the  fact 
that  the  tenant  failed  to  meet  the  installments  is  not 
ground  for  the  appointment  of  a  receiver  even  though 
the  tenant  is  insolvent  since  he  has  an  adequate  remedy 
at  law.  That  is  true  even  though  the  tenant  was  alleged 
to  have  placed  the  cows  elsewhere  with  a  view  to  selling 
them.^ 

§  229.    Deed  of  Trust  to  Secure  Advances  to  Tenants. 

Where  a  tenant  gives  a  deed  of  trust  upon  growing 
crops  and  various  personal  property  used  in  his  planta- 
tion operations  to  secure  the  landlord  for  advances  to  be 
made  for  the  purposes  of  managing  the  crop,  he  can  not 
refuse  to  make  the  advances  and  then  in  a  suit  to  fore- 
close the  deed  of  trust  obtain  the  appointment  of  a 
receiver  to  plant  and  harvest  the  crop,  even  though  the 
tenant  may  be  a  man  of  limited  means  and  practically 
insolvent.  In  such  circumstances  the  tenant  should  have 
had  an  opportunity  to  expend  the  funds  and  manage  the 
business  in  the  absence  of  a  shomng  that  he  had  a  fraud- 
ulent intent  of  misappropriating  the  funds  or  abandoning 
the  property  and  especially  so  where  he  had  been  a  ten- 
ant for  several  years  previously  and  had  been  spending 
money  advanced  for  similar  purposes  by  the  landlord.^ 

§  230.    Breach  of  Covenants  of  Lease. 

The  fact  that  a  tenant  has  breached  the  covenants  of 
his  lease  is  not  ground  for  the  appointment  of  a  receiver 

4  Burton  v.  Pepper,  116  Miss.  139,  76  So.  762. 

1  Davis  V.  Kemp  (Ala.),  77  So.  745. 

2  Burton  v.  Pepper.  116  Miss.  139,  76  So.  762. 


INTERESTS   IN   REAL   ESTATE.  539 

since  in  sucli  circumstances  the  landlord  has  an  adequate 
remedy  at  law  to  regain  possession  of  the  property.^ 

But  where  the  purchaser  of  a  leasehold  was  placed  in 
possession  before  paying  the  whole  of  the  purchase 
money  and  thereafter  made  default  and  the  vendor  was 
obliged  to  pay  the  rent  and  taxes  in  order  to  prevent  a 
forfeiture  of  the  lease,  a  receiver  was  appointed  at  the 
instance  of  the  vendor.- 

§231.  Status  of  Receiver  of  Landlord  in  Relation  to  the 
Property. 
A  receiver  of  a  landlord,  who  had  mortgaged  the  prem- 
ises, is  not  an  assignee  of  the  lease  and  an  action  for  rent 
should  be  brought  in  the  name  of  the  landlord  and  not 
that  of  the  receiver.^ 

§232.  Receivership  Determined  Upon  Conditions  at  Time  of 
Application. 
The  question  whether  a  receiver  will  or  will  not  be 
appointed  at  the  instance  of  a  landlord  in  litigation  with 
his  tenant  is  determined  by  the  circumstances  and  con- 
ditions existing  at  the  time  of  the  application  and  not 
by  conditions  which  may  exist  later  on.  The  legality  of 
the  appointment  will  be  determined  by  the  facts  existing 
at  the  time  of  the  appointment.^ 
§  233.    Duration  of  the  Receivership. 

Where  a  receiver  is  appointed  for  the  purpose  of  en- 
forcing and  preserving  a  lien  for  rent,  the  receiver  should 
be  discharged  upon  the  payment  of  the  rent  charge  which 
forms  the  basis  of  the  litigation.^ 

1  Burton    v.    Pepper,    116    Miss.  2  Cook  v.  Andrews  (1897),  1  Ch. 

139,  76  So.  762.  266. 

But  in  a  suit  by  the  landlord  to  ^  Noble  v.  Brooks,  224  Mass.  288, 

recover  the  land  under  a  provision  ^^^  n    E    649 

in  the  lease  for  re-entry  for  breach  ^  ^'^^^^^    ^-    ^^^^^^^^    ^^^    ^^.^^ 

of  covenant,  a  receiver  may  be  ap-  ^^^ 

pointed  over  the  rents  and  profits  i-^  •             •       "■ 

pending  the  litigation.  Gwatkia  v.  r  Patterson    v.    Northern    Trus 

Bird,  52  L.  J.  Q.  B.  263.  Co.,    132    111.    App.    208    (judgment 


540  LAW   OF   RECEIVERS. 

5.    Receiverships  Affecting  Leases. 
§  234.    Receivers  to  Collect  Rent. 

We  have  seen  that  in  an  action  to  foreclose  a  mortgage 
or  other  lien  upon  real  property,  either  because  the  lienor 
may  be  entitled  to  the  rent  as  additional  security  for  his 
lien  or  because  it  is  necessary  to  use  the  income  of  the 
property  to  repair  waste  already  committed  or  to  pre- 
serve the  property  pending  the  result  of  the  litigation,  a 
receiver  may  be  appointed  pendente  lite  to  collect  the 
rent  of  the  property  involved  in  the  action.  Such  a 
receiver  while  in  performance  of  his  functions  is  entitled 
to  the  protection  and  assistance  of  all  orders  that  the 
receivership  court  has  power  to  make.^  Conflicting  claims 
as  to  the  rent  are  to  be  decided  in  the  receivership  pro- 
ceedings themselves  or  in  actions  commenced  with  the 
consent  of  the  receivership  court.^  If  such  a  receiver 
resorts  to  litigation  to  enforce  his  rights  he  is  bound,  as 
other  litigants,  by  statutory  requirements  concerning 
pleadings.^  Though  the  tenant  may  have  claims  arising 
before  the  appointment  of  the  receiver  of  such  a  nature 
that  they  could  be  set-off  against  claims  for  rent,  they 

affirmed  in  230  111.   334,  82  N.   E.  erty  upon  which  the  personalty  Is 

837,  and   231   111.   22,   121   Am.   St.  to  be   used   does  not  deprive   the 

Rep.  299,  82  N.  E.  840).  lessor  of  the  personalty  from  col- 

1  Reid  V.  Middleton,  Turn.  &  R.  lecting  his  rent  from  other 
455.  sources  when  a  receiver  has  been 

2  Where  a  mortgage  is  made  appointed  to  collect  the  rent  of  the 
subsequent  to  and  with  notice  of  realty.  J.  M.  Overall  Furniture  Co. 
a  lease  that  gives  the  landlord  a  v.  Superior  Court,  36  Cal.  App.  745, 
lien  upon  the  rents  due  from  sub-  173  Pac.  176.  A  tenant  who  has 
tenants,  the  landlord  is  entitled  to  paid  rent  in  advance  contrary  to 
rents  collected  by  a  foreclosure  the  binding  effect  of  the  filing  of 
receiver.  Mellon  v.  St.  Louis  a  notice  of  lis  pendens  may  be 
Union  T.  Co.,  225  Fed.  693,  140  compelled  to  pay  again.  Gaynor 
C.  C.  A.  567.  A  stipulation  in  a  v.  Blewett,  82  Wis.  313,  33  Am.  St. 
lease  of  personal  property  that  the  Rep.  47,  52  N.  W'.  313. 

rental  of  the   personalty   shall   be  3  Everett  v.  Sglobiski,  125  N.  Y. 

paid  from  the  rents  of  real  prop-      Supp.  455. 


INTERESTS   IN   REAL   ESTATE. 


541 


can  not  be  so  used  against  rent  accruing  after  the  ap- 
pointment unless  they  arise  from  contracts  to  which  the 
lienor  was  privy  and  to  which  he  consented.^  Where  a 
lease  is  taken  subject  to  a  mortgage  the  rights  of  the 
lessee  continue  until  there  is  a  change  of  ownership  by 
foreclosure  and  the  foreclosure  receiver  is  bound  by  the 
terms  of  the  lease.^  Conflicting  claims  as  to  whether  or 
not  a  lease  is  part  of  the  receivership  estate  are  to  be 
settled  in  the  receivership  proceeding  or  in  a  separate 
action  brought  with  consent  of  the  receivership  court." 

§  235.    Receiver  of  a  Lessee. 

It  may  of  course  happen  that  the  person  whose  estate 
a  receiver  is  appointed  to  administer  is  a  lessee  and  that 
it  may  become  the  duty  of  the  receiver  to  take  possession 


4  Farmers'  Loan,  etc.,  Co.  v. 
Northern  Pac.  R.  Co.,  58  Fed.  257. 

When  a  lessee  contracts  with 
the  lessor  to  make  certain  repairs 
at  his  own  expense  on  condition 
that  he  is  to  be  reimbursed  from 
the  rents,  and  the  contract  was 
made  with  the  consent  of  the 
mortgagor,  the  lessee  can  recoup 
against  the  foreclosure  receiver. 
Thomson  Estate  v.  Washington 
Inv.  Co.,  146  Pac.  617. 
.  5  Busbe  V.  Wolff,  171  N.  Y.  Supp. 
253. 

6  James  Everards'  Breweries  v. 
Wohlstadter,  177  App.  Div.  862, 
164  N.  Y.  Supp.  899.  This  was  an 
action  to  foreclose  a  mortgage  on 
a  leasehold  and  to  have  it  declared 
that  a  certain  "renewal"  lease  was 
subject  to  the  mortgage.  Pending 
the  term  of  the  lease  the  landlord 
had  regained  possession  in  sum- 
mary proceedings  based  on  failure 
to  pay  rent.  The  proceedings  had 
been  undefended  and  no  notice  had 
been  given  to  the  mortgagee.  Im- 
mediately thereafter  a  new  lease 


was  given  to  the  wife  of  the  lessor 
and  the  possession  of  the  premises, 
the  husband  continuing  the  busi- 
ness therein  conducted,  under  her 
name.  On  an  appeal  from  an  order 
vacating  a  receivership  that  hal 
been  created  on  the  commence- 
ment of  the  action,  it  was  held 
that  the  showing  of  fraud  was 
sufficient  to  warrant  the  continu- 
ance of  the  receivership  until  the 
issue  could  be  determined  on  a  full 
trial. 

Downs  V.  Gunther,  128  Md.  626, 
98  Atl.  138.  This  was  a  proceed- 
ing, instituted  in  the  receivership 
court,  on  petition  of  the  receiver 
of  an  insolvent  corporation,  to 
have  the  respondent,  an  officer  of 
the  corporation,  ordered  to  assign 
to  the  receiver  a  certain  lease  that 
he  claimed  as  his  own,  and  to  have 
him  enjoined  from  collecting  rents 
from  subtenants.  On  the  hearing 
of  an  order  to  show  cause,  the 
matter  was  decided  against  the  re- 
ceiver and  the  decision  sustained 
on  appeal. 


542  LAW   OF   RECEIVERS. 

of  the  leased  property  as  an  asset  of  tlie  estate.  The 
important  special  point  to  be  observed  in  this  regard  is 
that  a  chancery  receiver  is  not,  merely  by  virtue  of  his 
appointment,  an  assignee  of  the  lease.  In  considering 
an  argument  based  upon  a  provision  of  a  lease  to  the 
effect  that  an  assignment  thereof  without  the  consent  of 
the  lessor  would  give  the  lessor  the  right  to  claim  a  for- 
feiture of  the  lease  the  United  States  Circuit  Court  of 
Appeals,^  in  holding  that  such  a  provision  is  not  appli- 
cable to  an  involuntary  assignment  produced  by  opera- 
tion of  law,  said:  ''There  has  been  no  assignment  what- 
ever, either  voluntary  or  involuntary,  of  the  lease.  The 
chancery  receivers  are  not  assignees  of  the  lease.  By 
their  appointment  they  acquired  no  title.  They  only 
obtained  a  right  to  the  possession  of  the  property  as 
officers  of  the  court. ' '  The  receiver  is  merely  a  custodian 
of  the  property,  representing  the  possession  and  author- 
ity of  the  court,  and  is  not  liable  under  the  terms  of  the 
lease.2 

The  lease  contract  is  in  the  nature  of  an  executor}'' 
contract  of  the  owner  of  the  estate.  The  receiver  may 
adopt  or  reject  it.^  He  is  entitled  to  a  reasonable 
time  in  which  to  form  a  decision.*  He  may  hold  posses- 
sion during  such  reasonable  time  as  is  necessary  for 
investigation  to  determine  which  policy  will  be  for  the 
best  interests  of  the  receivership  estate;^  and  in  the 

1  Durand  &  Co.  v.  Howard  &  Co.,  v.  Kalkhoff,  60  Minn.  305,  62  N.  W. 
216  Fed.  585,  132  C.  C.  A.  589;  335;  see  De  Wolf  v.  Royal  Trust 
citing  Keeney  V.  Home  Ins.  Co.,  71  Co.,  173  111.  435,  50  N.  E.  1049; 
N.  Y.  396,  27  Am.  Rep,  60,  and  People  v.  National  Trust  Co.,  82 
Stokes  V.  Hoffman  House,  167  N.  Y.  N.  Y.  283. 

554,  53  L.  R.  A.  870,  60  N.  E.  667.  3  See,  §  34,  supra. 

2  Pennsylvania  Steel  Co.  v.  New  4  Sunflower  Oil  Co.  v,  Wilson, 
York  City  Ry.  Co.,  190  Fed.  609;  142  U.  S.  313,  322,  35  L.  Ed.  1025, 
Gaither  V.  Stockbridge,  67  Md.  222,  12  Sup.  Ct.  235;  Quincy,  M.  &  P. 
9  Atl.  632,  10  Ail.  309;  Bell  v.  R.  Co.  v.  Humphreys,  145  U.  S.  82, 
American  Protective  League,  163  36  L.  Ed.  632,  12  Sup.  Ct.  787. 
Mass.  558,  47  Am.  St.  Rep.  481,  28  5  United  States  Trust  Co.  v. 
L.  R.  A.  452,  40  N.  S.  857;  Nelson  Wabash  W.  R.  Co.,  150  U.  S.  287, 


INTERESTS   IN   REAL  ESTATE. 


543 


meantime  may  use  the  property  in  sucli  way  as  may  best 
serve  the  interests  of  the  estate.^    What  is  a  reasonable 
time  for  this  purpose  depends  entirely  on  circumstances 
and  is  a  question  of  fact/  though  mere  lapse  of  time  may 
be  sufficient  to  imply  an  adoption.^    A  formal  or  express 
adoption  is  not  necessary,  but  an  adoption  may  be  implied 
from  the  conduct  of  the  receiver  in  respect  to  the  prop- 
erty.^   In  this  respect,  as  in  all  other  matters,  the  receiver 
is  under  the  dominion  and  direction  of  the  court.    He  is 
bound  by  any  express  limitations  in  the  orders  of  the 
court  setting  forth  his  powers.^"    If  he  decides  to  reject 
the  lease,  the  lessor  is  entitled  to  a  hearing  by  the  court 
and  an  order  to  show  cause  in  the  matter  should  be  issued 
as  to  why  the  lease  should  not  be  rescinded.^^ 


37    L.    Ed.    1085,    14    Sup.    Ct.    86; 
Farmers'    Loan    &    Trust    Co.    v. 
Northern  Pac.  R.  Co.,  58  Fed.  257; 
Carswell  v.  Farmers'  Loan  &  Trust 
Co.,   74  Fed.  88,  20  C.  C.  A.  282; 
Empire  Distilling  Co.  v.  McNulta, 
77  Fed.  700,  23  C.  C.  A.  415;  New 
York,  P.  &  Q.  R.  Co.  v.  New  York, 
L.  E.  &  W.  R.  Co.,   58  Fed.  268; 
Park  V.  New  York,  L.  E.  &  W.  R. 
Co.,   57   Fed.   799;    Clyde  v.  Rich- 
mond &  D.  R.  Co.,  63  Fed.  21;  Day- 
ton  Hydraulic   Co.  v.  Felsenthall, 
54    C.    C.    A.    537,    116    Fed.    961; 
Tradesman  Pub.  Co.  v.  KnoxviUe 
Car  Wheel  Co.,  95  Tenn.   634,   49 
Am.  St.  Rep.  943,  31  L.  R.  A.  593, 
32  S.  W.  1097. 

6  Fisher  v.  Columbia  Nat.  Bank, 
54  Ind.  App.  558,  103  N.  E.  119; 
Forepaugh  v.  Westfall,  57  Minn. 
121,  58  N.  W.  689;  Nelson  v.  Kalk- 
hoff,  60  Minn.  305,  62  N.  W.  335; 
Welch  V.  Central  San  Cristobal,  6 
Porto  Rico  (Fed.)  310;  Tradesman 
Pub.  Co.  V.  Knoxville  Car  Wheel 


Co.,  95  Tenn.  634,  49  Am.  St.  Rep. 
943,  31  L.  R.  A.  593,  32  S.  W.  1097 

7  Fisher  v.  Columbia  Nat.  Bank, 
54  Ind.  App.  558,  103  N.  E.  119. 

8  Easton  v.  Houston  &  T.  C.  R. 
Co.,  38  Fed.  784 ;  De  Wolf  v.  Royal 
Trust  Co.,  173  HI.  435,  50  N.  E. 
1049,  reversing  72  111.  App.  411; 
Link  Belt  Machinery  Co.  v. 
Hughes,  174  111.  155,  51  N.  E.  179, 
affirming  62  111.  App.  318. 

9  Central  Trust  Co.  v.  Conti- 
nental Trust  Co.,  86  Fed.  517,  30 
C.  C.  A.  235;  Spencer  v.  World's 
Columbian  Exposition,  163  111.  HT, 
45  N.  E.  250;  Fisher  v.  Columbia 
Nat.  Bank,  54  Ind.  App.  558,  103 
N.  E.  119;  Moore  v.  Higgins,  53 
Hun  629,  5  N.  Y.  Supp.  895,  2 
Silvernail  298. 

10  Kansas  City  Pipe  Line  Co.  v. 
Fidelity  Title  &  Trust  Co.,  217  Fed. 
187,  133  C.  C.  A.  181. 

11  Welch  V.  Central  San  Cristo- 
bal, 6  Porto  Rico  310;  Berwind- 
White  Min.  Co.  v.  Boringner 
Sugar  Co.,  7  Porto  Rico  172. 


544 


LAW   OF    RECEIVERS. 


When  tlie  receiver  abandons  the  lease,  he  is  liable  only 
for  a  reasonable  rent  of  the  premises  during  the  time  he 
was  in  possession,!^  if  ^ny  rent  has  become  due  in  the 
meantime  ;!2  circumstances  may,  however,  render  the 
amount  reserved  in  the  lease  a  reasonable  amount  for  the 
receiver  to  pay.^^  When  the  receiver  elects  to  adopt  the 
lease  he  is  liable  for  the  full  rent  reserved  in  the  lease 
unless,  of  course,  other  terms  are  made  with  the  lessor.^^ 
The  burden  of  showing  that  the  receiver  has  elected  to 
adopt  the  lease  is  on  the  lessor.^^^  Although  there  may 
not  be  an  express  adoption,  if  the  receiver  holds  posses- 
sion during  the  full  balance  of  the  term  of  the  lease,  he 
is  liable  for  the  full  rent  as  prescribed  by  the  lease.^^ 


12  Atkinson  &  Co.  v.  Aldrich- 
Clisbee  Co.,  248  Fed.  134.  In  this 
case  it  is  also  held  that  where 
there  was  a  claim  against  the  re- 
ceiver for  damages  to  the  leased 
premises,  the  claim  must  be  dis- 
allowed as  an  expense  of  the  re- 
ceivership where  the  evidence  did 
not  show  what  damage  had  been 
caused  during  the  receivership 
and  what  damage  had  been  caused 
during  the  occupancy  of  the  owner 
of  the  estate.  Fisher  v.  Columbia 
Nat.  Bank,  54  Ind.  App.  558,  103 
N.  E.  119. 

The  reason  for  this  is  that  he 
does  not  become  an  assignee  of 
the  term  and  is  not  liable  on  the 
covenants  of  the  lease.  Bell  v. 
American  Protective  League,  163 
Mass.  558,  47  Am.  St.  Rep.  481,  28 
L.  R.  A.  452,  40  N.  E.  857;  Welch 
V.  Central  San  Cristobal,  6  Porto 
Rico  (Fed.)  310. 

13  Gaither  v.  Stockbridge,  67  Md. 
222,  9  Atl.  632,  10  Atl.  309. 

14  Frank  v.  New  York,  L.  E.  & 


W.  R.  Co.,  122  N.  Y.  197,  25  N.  E. 
332;  Stoepel  v.  Union  Trust  Co., 
121  Mich.  281,  80  N.  W.  13.  Thus, 
where  the  lessor  demands  an  im- 
mediate surrender  or  adoption  of 
the  lease  and  several  months  are 
allowed  to  elapse  before  the  re- 
ceiver determines  his  policy  in  the 
matter,  the  receiver  may  be  re- 
quired to  pay  full  rent  for  the 
period  occupied  by  him.  Farmers' 
Loan  &  Trust  Co.  v.  Northern  Pac. 
R.  Co.,  58  Fed.  257. 

15  Peoria,  etc.,  R.  Co.  v.  Chicago, 
etc.,  R.  Co.,  127  U.  S.  200,  32  L.  Ed. 
110,  8  Sup.  Ct.  1125;  Thomas  v. 
Peoria,  etc.,  R.  Co.,  36  Fed.  808; 
Brown  v.  Toledo,  etc.,  R.  Co.,  35 
Fed.  444;  Martin  v.  Black,  9  Paige 
(N.  Y.)  641,  38  Am.  Dec.  574; 
Woodruff  v.  Erie  R.  Co.,  93  N.  Y. 
609. 

16  Fisher  v.  Columbia  Nat.  Bank, 
54  Ind.  App.  558,  103  N.  E.  119. 

IT  Spencer  v.  World's  Columbian 
Exposition,  163  111.  117,  45  N.  E. 
250;  Morrison  v.  Blackall,  68  111. 
App.  504. 


INTERESTS   IN    REAL   ESTATE. 


545 


Rent  accruing  before  the  appointment  of  the  receiver, 
unless  secured  by  some  contract  lien  upon  the  property, 
or  protected  by  forbearance  to  enforce  a  right  of  re-entry, 
is  an  unsecured  claim  against  the  estate  and  ranks  with 
other  claims  of  like  character  on  distribution.  But  rent 
accruing  after  the  appointment  is  an  expense  connected 
with  the  administration  of  the  estate  and  has  such  pri- 
ority as  may  be  accorded  claims  against  the  receiver 
himself.  ^^ 


18  Prenatt  v.  Messenger  Printing 
Co.,   250   Pa.   St.   406,   95   Atl.   564. 
In  this   case   the   leased   property 
was  certain  machinery  absolutely 
essential  to  the  continuance  of  the 
business.      The     appellate     court 
quotes    with    approval    from    the 
opinion  of  the  trial  court  as   fol- 
lows:    "There    can    be    no    doubt 
that    the    retention    and    use    of 
these  machines  by  the  receiver  for 
a   period    of   one    year   and    eight 
months    enabled   him   to    continue 
the  publication  of  a  daily   paper, 
thereby    conserving   the    principal 
value  of  the  plant  by  keeping  it  a 
living  institution.    This  is  one  in- 
solvent institution   whose  market 
price  peculiarly  depended  upon  its 
being  a  going  business.    While  it 
is    true    that    the    preferred    rent 
claim  of  these  two  machines,  about 
$3100,  being  the  amount  due  them 
as  the  cost  of  continuing  the  busi- 
ness,  leaves   only   about   $550   for 
general    creditors,    it    is    equally 
true    that    there    would    not    have 
been  a  penny  for  general  creditors, 
except  for  the  marketability  of  this 
insolvent  plant,  which  marketabil- 
ity  was   preserved   or  created   by 
the  use  of  these  two  indispensable 
machines." 

In  Ball  V.  Improved  Projierty 
Holding  Co.  of  N.  Y.,  247  Fed.  645, 
I  Rec. — 35 


the  rent  was  in  arrears  when  the 
receiver  was  appointed  and  took 
possession.     The    lessor   obtained 
an  order  of  court  permitting  him 
to    dispossess    the    receiver.     Re- 
ceiver's certificates  were  issued  to 
represent  money  borrowed  to  pay 
the  accrued  rent  and  through  tho 
forbearance  of  the  lessor  the  re- 
ceiver remained  in  possession.   On 
the  question  of  the  priority  of  the 
certificates  over  the  claim  for  rent 
accruing  during  the  receivership, 
the   Circuit  Court  of  Appeals,  re- 
versing an  order  made  by  the  Dis- 
trict   Court,    says:      "Among    the 
creditors  of  a  receiver  we  see  no 
reason  why  either  the  lessors  or 
the  certificate  holders  should  enjoy 
a  priority  unless   some   such   was 
established  by   the  court.     .     .     . 
We     recognize    no    difference    in 
equity  between  the  rent  due  before 
the  insolvency  which  was  secured 
by  the  right  of  re-entry  and  which 
the  certificates  paid,  and  that  due 
afterwards     which     was     equally 
secured,    and    which    the    lessors 
forebore  to  assert  by  re-entry.    It 
is  true  that  under  Durand   &  Co. 
V.    Howard    &    Co.,    216    Fed.    585, 
132  C.  C.  A.  589,  the  claim  for  rent 
due  before  the  insolvency  was  held 
not  to  be  iireferred  in  distribution, 
but    that    case    rested    upon    the 


546 


LAW   OF   RECEIVERS. 


Since  property  in  the  possession  of  a  receiver  is  in 
custodia  legis,  the  lessor  can  not  enter  and  distrain  for 
rent  after  the  appointment  of  the  receiver.  This  is  upon 
the  theory  that  the  receivership  proceedings  constitute 
an  equitable  execution  upon  the  property  which  is  the 
subject  of  the  receivership.^^ 

When  the  receiver  rejects  the  lease,  the  lessor  has  a 
claim  against  the  estate,  ranking  as  that  of  an  unsecured 
creditor,  for  any  damage  he  may  suffer ;  the  damage  to 
be  measured  by  the  rent  reserved  for  the  balance  of  the 
term  or  the  difference  between  that  amount  and  the  rent 
that  the  lessor  is  able  to  obtain  from  some  other  tenant.^*^ 

Where  the  lessor,  before  the  appointment  of  the  re- 
ceiver, had  brokeii  the  terms  of  the  lease  and  thereby 


waiver  of  the  existing  forfeiture 
involved  in  asking  the  court  to 
compel  the  receiver  to  exercise 
his  option  to  affirm  or  reject.  The 
lessors  did  not  do  so  here  and 
theirs  was  a  claim  upon  which 
they  could  have  re-entered.  .  .  . 
The  consideration  advanced  by 
each  class  of  creditors,  the  lessors 
and  certificate  holders,  was  for  the 
essential  preservation  of  the 
estate,  since  without  it  the  best 
asset  would  have  been  lost.  Each 
was  a  debt  strictly  within  the 
powers  of  a  court  of  equity  which 
may  pledge  a  part  of  the  assets 
for  the  preservation  of  the  rest; 
each  was  as  much  an  operating 
expense  as  the  other." 

See  also,  Prince  v.  Schlesinger, 
116  App.  Div.  500,  101  N.  Y.  Supp. 
1031;  Welch  v.  Central  San  Cris- 
tobal, 7  Porto  Rico  (Fed.)  205; 
Lockport  Felt  Co.  v.  United  Box 
Board,  etc.,  Co.,  189  Fed.  767. 

10  The  above  rule  is  based  upon 
the  common-law  rule  to  the  effect 
that   a   landlord   can    not   distrain 


upon  goods  on  which  an  execution 
levy  has  been  made,  and  as  against 
a  receiver,  a  lessor  is  not  pro- 
tected by  a  statute  that  gives  him 
the  right  to  restrain  for  one  year's 
rent  after  levy  of  execution  or  an 
assignment  for  the  benefit  of 
creditors.  Grayson  v.  Richard  H. 
Aiman,  Inc.,  252  Pa.  St.  461,  97 
Atl.  695;  the  lessor's  right  is  pro- 
tected where  the  statute,  giving  a 
preference  to  the  landlord's  claim,, 
in  enumerating  the  circumstances 
under  which  the  preference  is 
given,  contains  the  expression, 
"other  causes."  Franz  Realty  Co. 
V.  Welsh,  86  N.  J.  Bq.  228,  98  Atl. 
387. 

A  lessor's  right  to  pledge  rents 
is  limited  to  one  year  after  the 
appointment  of  a  receiver  of  the 
lessee  under  a  statute  limiting  that 
right  to  one  year  after  the  failure 
or  death  of  the  lessee.  I.  Trager 
Co.  V.  Cavaroc  Co.,  124  La.  611,  50 
So.  598. 

20  In  re  Mullings  Clothing  Co., 
252  Fed.  667;  Quincy,  etc.,  R.  Co. 


INTERESTS   IN   KEAL   ESTATE.  547 

given  the  lessor  the  right  to  claim  a  forfeiture  and  to 
retake  the  property,  the  lessor  may  pursue  his  rights 
against  the  receiver.  He  must,  however,  seek  his  relief 
either  in  the  receivership  proceedings  or  in  an  action 
brought  with  the  consent  of  the  receivership  court.-^  A 
notice  to  quit  served  upon  the  lessee  before  the  appoint- 
ment of  the  receiver  is  binding  upon  the  latter ;--  but  after 
the  appointment,  service  of  notice  on  an  officer  of  the 
lessee  corporation  is  of  no  avail,  nor  is  service  upon  the 
receiver  or  ouster  of  the  receiver  without  permission  of 
the  court  effective. ^^  The  right  to  claim  a  forfeiture 
because  of  default  on  the  part  of  the  lessor  may  be  waived 
or  lost,  as  against  the  receiver,  and  can  not  be  revived 
until  there  has  been  some  default  on  his  part.^* 

With  the  consent  and  in  pursuance  of  an  order  of  the 
court,  the  receiver  may  sell  the  lease.  A  sale,  or  assign- 
ment, by  the  receiver,  being  involuntary  and  produced 
by  operation  of  law,  is  not  in  violation  of  a  provision 
against  assignment  in  the  lease.^^     The  purchaser  is  of 

V.    Humphrey's,    145   U.    S.    82,    36  Procuring  an  order  of  court  di. 

L,   Ed.  632,  12  Sup.  Ct.   787;    Chi-  recting  the  receiver  to  make  his 

cago  Fire  Place  Co.  v.  Tait,  58  III.  election  between  adoption  and  re- 

App.  293;   Woodland  v.  Wise,  112  jection  within  a  certain  period  may 

Md.  35,  76  Atl.  502.  constitute    a    waiver.     Durand    & 

21  Odell  V.  H.  Batterman  Co.,  223  Co.  v.  Howard  &  Co.,  216  Fed.  585, 
Fed.  292,  138  C.  C.  A.  534;    Palys  132  C.  C.  A.  589. 

v.  Jewett,  32  N.  J.  Eq.  302.     See  Seeking   to    enforce   a   lien    for 

also,    Porter   v.    Sabin,    149    U.    S.  the  rent  may  constitute  a  waiver. 

473,  13  Sup.  Ct.  1008,  37  L.  Ed.  815;  Blank  v.  Independent  Ice  Co.,  153 

Durand  &  Co.  v.  Howard  &  Co.,  216  Iowa  241,  43  L.  R,  A.  (N.  S.)   115. 

Fed.  585,  132  C.  C.  A.  589.  133  N.  W.  344. 

22  Woodward  v.  Winchill,  14  25  Zwietusch  v.  Luehring,  156 
Wash.  394,  44  Pac.  860.  Wis.  96,  144  N.  W.  257. 

23  Commercial  Trust  Co.  v.  L.  Where  the  lease  grants  also  an 
Wertheim  Coal  Co.,  88  N.  J.  Eq.  option  to  purchase  the  receiver 
143,  102  Atl.  448.  may  sell  the  option.    Blank  v.  In- 

24  Long  delay  in  claiming  the  dependent  Ice  Co.,  153  Iowa  241, 
forfeiture  may  amount  to  a  waiver.  43  L.  R.  A.  (N.  S.)  115,  133  N.  W. 
Commercial  Trust  Co.  v.  L.  Wer-  344. 

theim    Coal,    etc.,    Co.,    88    N.    J.  For  a  general  discussion   as  to 

Eq.  143,  102  Atl.  448.  the  rights  arising  out  of  sales  of 


548  LAW    OF    RECEIVERS. 

course  bound  by  the  covenants  of  the  lease,-''  and  by  the 
conditions  of  the  notice  of  sale  and  the  bill  of  sale.-' 

§  236.   Receiver  of  Lessor. 

A  receiver  may  be  appointed  to  administer  the  estate 
of  a  lessor.  Such  a  receiver  is  not  an  assignee  of  the 
lease  and  must  distrain  in  the  name  of  the  person  entitled 
to  the  rent,^  unless  by  assignment  or  attornment  a  right 
in  himself  has  been  created.-  Payment  of  rent  to  a 
receiver  will  constitute  an  attornment,^  and  tenants  who 
have  once  attorned  to  a  receiver  can  not  thereafter  ques- 
tion the  validity  of  his  appointment  nor  his  right  to  pos- 
session.'* A  supi)osed  tenant  may  resist  attornment  on 
the  score  that  he  has  the  right  to  purchase  the  property.^ 
In  the  management  of  this  asset  of  the  estate,  as  in  all 
other  matters,  the  receiver  acts  under  the  authority  and 
direction  of  the  court  and  in  the  event  of  doubt  as  to  the 
extent  of  his  rights  and  obligations  under  the  terms  of 
the  lease,  he  should  seek  an  adjudication  by  the  court 
upon  the  subject.^ 

the  assets  of  the  receivership  see          3  Brown   v.   O'Connor,   2   Hogan 

the  subject  Sales.  77. 

26  Zwietusch  V.  Luehring,  156  ^  Albany  City  Bank  v.  Schermer- 
Wis.  96,  144  N.  W.  257.  ^O''^'  ^  ^^'^^   ^^-  Y-)   272,  38  Am. 

Dec.  551. 

27  The    notice    of   sale    and    the  ^  g^,^^^  ^    j^^^^^  5  W.  W.  &  A. 

bill  of  sale  may  be  open   to   con-  ^    (Victoria  Eq.)   189;   Sercomb  v. 

struction  by  the  court;  and,  if  so,  ^^^^.^^  ^gS  111.  556,  15  Am.  St.  Rep. 

the  fact  that  they  were  given  by  a  ^^rj   21  N  E    606 

receiver  may   lead   to  a   different         g'where    "the"   lease      contains 

conclusion  from  that  which  might 

be  reached  if  they  had  been  given 


numerous    restrictions    as    to    the 

use  of  the  propertv  and  a  relief  as 
by  the  lessor.    Schwartz  v.  Cahill,      .  ,  j.  ■  j.-  ,  •, 

•^  'to  such  restrictions  would  consti- 


175  App.  Div.  68,  161  N.  Y.  Supp 
750. 


tute   a   valuable   asset  to   the   re- 
ceivership   and    such    restrictions 

1  Hughes  v.  Hughes,  3  Bro.  C.  C.  are  governed  by  other  paragraphs 
87,  1  Ves.  Jr.  161.  of  the  lease  and  other  acts  of  the 

2  Evans  v.  Mathias,  7  El.  &  Bl.  parties,  the  question  should  be 
590;  White  v.  Smale,  22  Beav.  presented  to  the  court  for  adjudi- 
72;  Jolly  v.  Arbuthnot,  4  De  Gex  cation.  Holmes  v.  Dowie,  177  Fed. 
&  J.  224.  182.  100  C.  C.  A.  390. 


INTERESTS   IN    REAL   ESTATE. 


549 


§  237.    Receiver  as  Lessor  or  Lessee. 

The  receiver  of  an  estate  may  enter  into  lease  contracts 
in  his  own  name  either  as  lessor  or  lessee.    His  acts  in 
this  regard  must  receive  the  permission  or  ratification  of 
the  court  and  contracts  made  without  this  sanction  are 
not  binding  upon  the  estate.^     The  chief  practical  diffi- 
culty in  this  matter  is  with  reference  to  the  term  of  the 
contract.    It  is  only  under  exceptional  circumstances  that 
such  contracts  can  remain  in  force  after  the  tenure  of 
the  receiver  has  ceased  and  in  most  cases  just  how  long 
the  receiver  will  remain  in  authority  is  uncertain.    How- 
ever, a  court  that  has  once  authorized  a  receiver  to  make 
a  lease  contract  for  a  certain  term  may  afterwards  amend 
the  contract  by  shortening  the  term,  if  it  appears  that, 
as  originally  made  the  contract  will  extend  beyond  the 
continuation  of  the  receivership;  and  in  so  doing  may 


Where  the  receiver  has  no 
knowledge  of  material  facts  and 
circumstances  affecting  the  valid- 
ity of  the  lease,  his  acceptance  of 
the  rents  reserved  under  the  lease 
will  not  constitute  an  acceptance 
of  the  lease.  Groveland  Imp.  Co.  v. 
Farmers'  Supply  Co.,  25  Wash.  344, 
87  Am.  St.  Rep.  755,  65  Pac.  529. 
1  Weeks  v.  Weeks,  106  N.  Y. 
626,  13  N.  E.  96;  Simmons  v.  Alli- 
son, 118  N.  C.  761,  24  S.  E.  740; 
Farmers'  Loan  &  Trust  Co.  v. 
Eaton,  51  C.  C.  A.  640,  114  Fed. 
14;  Neale  v.  Sealing,  3  Swanst. 
304;  Roberts  v.  Armstrong,  1  Wall. 
27,  note;  W^nne  v.  Newborough, 
1  Ves.  Jr.  164, 

In  Shreve  v.  Hankinson,  34  N.  J. 
Eq.  413,  it  was  held  that  a  receiver 
could  without  a  special  order  to 
that  effect,  execute  a  lease  of  a 
farm  for  one  year,  where  the  order 
appointing  the  receiver  gave  him 
authority  to  let  the  property  from 
time  to   time.    In  this  connection 


see  also,.  DufReld  v.  Elves,  11  Beav. 
590. 

In  Berwind-White,  etc.,  Co.  v. 
Barinquen  Sugar  Co.,  6  Porto  Rico 
(Fed.)  454,  the  property  involved 
was  a  sugar  plantation.  The  court 
refused  to  permit  the  receiver  to 
lease  except  on  condition  that  the 
receiver  should  supervise  the  oper- 
ation of  the  property  and  have 
the  right  to  cancel  the  lease  on 
reasonable  notice  if  the  property 
did  not  net  sufficient  to  pay  cur- 
rent interest  to  bondholders.  It 
must,  however,  be  noted  that  the 
property  in  question  constituted 
the  business  of  the  receivership. 

An  application  for  an  order  di- 
recting a  receiver,  appointed  in 
creditors'  proceedings,  to  make  a 
lease  binding  on  an  infant  remain- 
derman, has  been  refused.  Gibbons 
V.  Howell,  3  Madd.  469. 

See,  also,  Kimball  v.  Waldemar 
Co.  et  al.,  169  App.  Div.-  239,  154 
N.    Y.    Supp.    415;     Steanmer    v. 


550 


LAW   OP   RECEIVERS. 


make  sucli  compensation  to  the  lessee  for  damages  as 
may  be  just.  Such  a  lease  may,  however,  remain  in  force 
after  the  termination  of  the  litigation.^  Because  of  this 
limitation  upon  the  receiver  as  to  the  term  of  any  con- 
tract he  may  make,  a  receiver  is  not  bound  by  stipulations 
as  to  renewal  occurring  in  a  lease  contract  belonging  to 
the  estate,  unless  he  is  estopped  by  reason  of  expendi- 
tures made  by  the  lessor  upon  the  strength  of  the  renewal 
clause  f  and,  if,  as  receiver  of  a  lessor,  he  holds  over,  he 
is  regarded  as  a  tenant  at  will  rather  than  as  one  holding 
from  year  to  year.^  A  receiver  desiring  to  lease  out 
property  of  the  estate  is  not  bound  to  accept  the  highest 
bid.^  A  receiver,  either  as  lessor  or  lessee,  has  generally 
the  same  rights  and  is  subject  to  the  same  liabilities  as 
other  parties  making  such  contracts  with  reference  to 
matters  connected  with  the  performance  of  the  contracts.*^ 


French,  13  Ir.  Eq.  161;  Chicago 
Deposit  Vault  Co.  v.  McNulta,  153 
U.  S.  554,  38  L.  Ed.  819,  14  Sup.  Ct. 
915;  Garlington  v.  McKibben,  99 
Ga.  128,  24  S.  E.  873. 

2  Farmers"  Loan  &  Trust  Co.  v. 
Eaton,  114  Fed.  14,  51  C.  C.  A.  640; 
Shreve  v.  Hankinson,  34  N.  J.  Eq. 
413;  Weeks  v.  Weeks,  106  N.  Y. 
626,  13  N.  E.  96;  Stanley  v.  Na- 
tional Union  Bank,  115  N.  Y.  122, 
22  N.  E.  29 ;  Shaw  v.  Shaw,  51  Tex. 
Civ.  55,  112  S.  W.  124. 

3  Coy  V.  Title  Guarantee  &  Trust 
Co.,  198  Fed.  275. 

4  Dietrich  v.  O'Brien,  122  Md. 
482,  89  Atl.  717. 

Where  a  receiver  holds  over  for 
a  short  time  after  the  expiration 
of  the  term,  and  then  sells  per- 
sonalty on  the  premises  to  a  pur- 
chaser who  continues  in  posses- 
sion for  a  short  time  while  dispos- 
ing  of  his  purchase,  paying  rent 
for  the  time  he  actually  holds, 
there  is  not  such  an  uninterrupted 


continuance  of  the  holding  as  to 
make  the  purchaser  liable  for  a 
year's  rent.  Kyle  v.  Gadsden,  etc.. 
Supply  Co.  (Ala.),  76  So.  951. 

5  Knott  V.  Receivers  of  Morris 
Canal,  etc.,  Co.,  4  N.  J.  Eq.  423; 
Berwind-White,  etc.,  Co.  v.  Berni- 
quen,  etc.,  Co.,  6  Porto  Rico  (Fed.) 
454. 

6  Pennsylvania  Steel  Co.  v.  New 
York  City  Ry.  Co.,  188  Fed.  680; 
Bodman  v.  Murphy,  35  Md.  154; 
Balfe  v.  Blake,  1  Ir.  Ct.  Rep.  365. 

A  receiver  of  a  leasehold  who 
sublets  a  portion  of  the  business 
is  not  liable  for  damages  nor  for 
improvements  to  his  tenant  if  the 
latter  is  evicted  by  the  superior 
landlord.  Kimbark  v.  Waldemar 
Co.,  169  App,  Div.  239,  154  N.  Y. 
Supp.  415. 

He  may  institute  forcible  de; 
tainer  proceedings.  McKeag  v. 
Pirie,  134  111.  App.  652. 

A  receiver  may  terminate  the 
tenancy  upon  notice  in  the  same 


INTERESTS  IN  REAL  ESTATE. 


551 


After  the  creation  of  the  receivership  the  owner  can  not 
make  a  lease  binding  upon  the  receiver  even  though  such 
a  lease  may  create  liabilities  as  between  himself  and  the 
party  with  whom  he  contracts.^ 


manner    as    an    individual    lessor. 
Doe.  Marsack  v.  Read,  12  East  58. 
Rent  wrongfully  paid   to   a  re- 
ceiver may  be  offset  against  future 


rents.   Grant  v.  Buckner,  172  U.  S. 
232,  43  L.  Ed.  430,  19  Sup.  Ct.  163. 
7  Thornton  v.  Washington  Sav. 
Bank,  76  Va.  432, 


CHAPTER  XL 

MORTGAGES,   PLEDGES,    MECHANICS*   AND   OTHER  LIENS. 

1.   Mortgages  on  Real  Property, 

a.    General  Vieiv  of  the  Subject. 

§  238.    Scope  of  Treatment  of  Subject. 

The  use  of  the  auxiliary  remedy  of  a  receivership  in 
connection  with  litigation  affecting  real  property  covered 
by  a  mortgage  has  been  allowed  from  a  very  early  time, 
courts  of  equity,  in  this  regard,  exercising  their  inherent 
jurisdiction,  without  the  aid  of  statute.^  To  the  prac- 
ticing attorney  it  ^\dll  immediately  occur  that  its  use  in 
this  connection  is  primarily  in  aid  of  a  suit  brought  by  a 
first  mortgagee  to  foreclose  the  mortgage ;  and,  since  the 
time  when  the  Common  Law  view  of  a  mortgage — that 
such  an  instrument  is,  in  law,  what  it  is  in  form,  a  convey- 
ance of  the  title — began  to  be  displaced  by  the  now  preva- 
lent \dew — that  a  mortgage  is  simply  security  for  a  debt 
and  grants  to  the  mortgagee  only  a  lien  on  the  property 
covered  thereby—such  has  been  its  primary  and  probably 
its  most  extensive  use.  There  are  other  instances,  how- 
ever, in  which  the  remedy  is  employed  in  actions  relating 
to  such  property.  It  is,  for  instance,  at  times  an  impor- 
tant aid  to  a  junior  mortgagee,  either  in  collecting  his 
debt  or  in  protecting  his  rights.-  It  frequently  happens 
that  the  real  property,  or  a  portion  thereof,  of  an 
insolvent  or  bankrupt  debtor  is  mortgaged  and  this  prop- 
erty will  be  involved  in  a  general  receivership  created  to 
take  charge  of  such  debtor's  affairs.^    It  is  the  purpose 

1  Grant  v.  Phoenix  Mut.  L.  Ins.      101  N.  Y.  478,  5  N.  E.  316;  Holleu- 
Co.,  121  U.  S.  105,  30   L.  Ed.  905,      beck  v.  Donnell,  94  N.  Y.  342. 
7    Sup.    Ct.    841;     United     States  2  See,  post,  §  253. 

Trust  Co.  V.  New  York,  etc.,  R.  Co.,  s  See,  post,  §  255. 

(552) 


MORTGAGES,  PLEDGES,  AND  LIENS.  553 

of  this  chapter  to  set  forth  the  principles  and  rules  that 
have  governed  courts  of  equity,  acting  under  the  later 
theory  of  a  mortgage,  in  all  of  these  phases  of  the  ques- 
tion. It  will  be  necessary  first,  however,  to  set  forth 
briefly  the  law  as  applied  under  the  Common  Law  view  of 
a  mortgage.  This  presentation  will  be  brief  because  the 
matter  is  now  largely  of  a  historical  interest  only ;  it  is 
necessary  because,  in  some  respects,  the  practices  under 
the  former  view  have  had  important  effects  upon  the 
development  and  growth  of  the  law  under  the  later  view. 
The  rules  that  govern  with  reference  to  property  owned 
by  corporations,^  public  utilities,^  and  mining  companies^ 
are  discussed  in  separate  chapters.  Questions  that  relate 
exclusively  to  procedure  are  also  set  forth  in  a  separate 
chapter.^ 

§  239.    Receivers  Under  Common  Law  View. 

As  intimated  above,  courts  operating  under  the  Com- 
mon Law  originally  held  that  a  mortgage  following  its 
form,  was  literally  a  conveyance  of  the  title.  It  contained 
a  defeasance  back ;  the  mortgagor  could  recover  the  title 
by  performing  a  certain  condition ;  but,  until  the  condition 
was  performed,  the  mortgagee  owned  the  property.  He 
was  therefore  legally  entitled  to  the  possession  with  all  of 
its  incidents,  including  the  right'  to  the  rents  and  profits.^ 
If  wrongfully  kept  out  of  the  possession  he  could  recover 
it  by  an  action  in  ejectment  at  law.  In  these  circumstances 
an  action  to  foreclose  a  mortgage  was  really  an  action  to 
foreclose,  or  shut  off,  the  right  of  the  mortgagor  to 
redeem.  While  courts  of  equity,  in  which  such  actions 
were  maintained,  found  many  occasions  to  come  to  the 

4  See    chapter   devoted    to    Cor-  7  See     chapter     regarding     Pro- 
porations.  cedure  in  General. 

5  See  chapter  devoted  to  Public  i  Oilman    v.    Illinois    and    Miss. 
Utilities.  Tel.   Co.,   91  U.   S.   603,   23    L.   Ed. 

6  See  chapter  devoted  to  Mines.  405;    Callanan   v.   Shaw,   19   Iowa 

183. 


554  LAW   OF    RECEIVERS. 

relief  of  mortgagors  on  equitable  grounds,  and,  perhaps, 
even  deny  the  "strict  foreclosure"  sought  by  the  mort- 
gagee, the  action,  nevertheless,  maintained  its  general 
character  and  purpose. 

We  have  seen  in  earlier  chapters  dealing  with  the 
general  principles  that  govern  courts  of  equity  in  the  use 
of  their  power  to  create  receiverships,  that,  in  this  phase 
of  their  activities,  as  in  all  other  matters  coming  within 
their  exclusive  jurisdiction,  such  courts  are  governed  by 
the  rule  that  equitable  relief  will  not  be  granted  to  a  party 
who  has  a  plain,  speedy,  and  adequate  remedy  at  law, 
reaching  the  same  purpose.^  Since  the  Common  Law 
mortgagee,  if  not  actually  in  possession  and  if  wrong- 
fully denied  possession,  could  use  his  legal  remedy  of 
ejectment  to  put  himself  in  a  position  where  he  could 
himself  do  all  that  an  equitable  receiver  could  do  in  his 
behalf,  we  would  expect  courts  of  equity  to  refrain  from 
assisting  him,  in  an  action  for  foreclosure,  with  a  receiver- 
ship. And  such  was  the  rule — courts  of  equity  would  not 
create  receiverships  to  aid  foreclosure  suits  of  mortgagees 
who  failed  or  were  unwilling  to  use  their  legal  remedy.^ 
A  burdensome  duty  of  accounting  was  placed  upon  mort- 
gagees in  possession  and  they  were  therefore  reluctant  to 
urge  their  rights  in  this  regard;  but  the  courts,  seldom, 
if  ever,  departed  from  the  strict  rule.*  If  there  was  any 
peculiar  circumstance  that  prevented  a  mortgagee  from 
exercising  his  legal  right  to  possession,  then  the  rule 
failed,  because  the  reason  for  it  failed,  and  a  receiver 
might  be  appointed;^  and  it  has  been  held  that,  under 
certain  circumstances,  a  receiver  might  be  appointed  in  an 
equitable  proceeding  brought  in  aid  of  a  mortgagee's 
action  to  enforce  possession.^ 

2  See  section  8.  5  Ackland  v.  Gravenir,  31  Beav. 

3  Berney   v.    Sewell,   Jac.    &   W.      482. 

647;  Sturch  v.  Young,  5  Beav.  557.  6  McLean  v.  Presley's  Admr.,  56 

4  Sturch  V.  Young,  5  Beav.  557.      Ala.    211;    Brasted    y.    Sutton,    30 

N.  J.  Eq.  462. 


MORTGAGES,  PLEDGES,  AND  LIENS.  5^^ 

Under  this  view  of  a  mortgagee's  rights,  then,  there 
were  only  two  actions  in  which,  usually,  a  receivership 
might  be  successfully  sought:  (1)  A  foreclosure  action 
brought  by  a  junior  mortgagee,  and  (2)  an  action  for 
redemption  brought  by  a  mortgagor  against  a  mortgagee 
in  possession. 

A  junior  mortgagee,  being  barred  from  urging,  at  law, 
his  right  to  possession  by  the  superior  right  thereto  of  a 
prior  encumbrancer,  could  not,  when  foreclosing  in  equity, 
be  denied  a  receivership  for  the  same  reason  for  which 
the  first  mortgagee  was  denied  this  aid.  As  against  a 
mortgagor  in  possession,  a  junior  mortgagee  was  held, 
practically,  to  be  entitled  to  a  receivership  as  a  matter  of 
course  and  he  did  not  have  to  show  that  his  security  was 
inadequate.'^  As  against  a  prior  mortgagee  in  possession, 
however,  he  could  not  obtain  a  receiver,  unless  he  could 
show  fraud,  or  waste,  or  some  other  similar  equitable 
ground ;  and  if,  on  his  application,  as  against  the  mort- 
gagor, a  receiver  was  appointed,  the  latter 's  possession 
was  without  prejudice  to  the  rights  of  a  prior  encum- 
brancer whenever  they  might  be  asserted.^ 

In  an  action  for  redemption,  brought  by  a  mortgagor 
against  a  mortgagee  in  possession,  the  former  could  not 
have  a  receiver  without  showing  fraud  or  waste.  If  the 
mortgagee  declared  that  he  had  not  been  fully  paid,  a 
receiver  would  not  be  appointed,  because  the  court  would 
not  attempt  to  settle  the  account  on  the  hearing  of  the 
application  for  a  receiver.^ 

The  above  rules  were  those  that  developed  in  the  prac- 
tice of  courts  of  equity  acting  under  what  was  assumed  to 
be  their  inherent  powers.  In  England,  where  the  Common 

TAckland  v.  Gravenir,  31  Beav.  482;   Aikins  v.  Blain,  13  Grant.  Ch. 

(Ont.)  646. 

8  Fairfield  v.  Irvine,  2  Russ.  149;    Davis  v.  Duke  of  Marlborough,  2 

Swanst.  137. 

sCodrington  v.  Parker,  16  Ves.  Jr.  469;  Berney  v.  Sewell,  2  Jac.  & 

W.  629. 


556  LAW    OF   RECEIVERS. 

Law  meaning  and  effect  of  a  mortgage  still  largely  pre- 
vails, the  practice  has  in  later  years  been  largely  affected 
by  statute. ^° 

Under  the  Common  Law  view,  a  mortgagee  who  was  so 
situated  that  he  could  not  legally  take  possession  of  the 
mortgaged  property  and  in  whose  favor  a  receiver  in 
foreclosure  might,  therefore,  be  appointed,  as  above  indi- 
cated, was  said  to  hold  an  ' '  equitable  mortgage. ' '  Since 
his  position  in  this  regard  was  very  similar  to  what  has 
been  held  to  be  the  position  of  a  mortgagee  under  what 
we  have  called  the  later,  or  prevalent  view  of  a  mortgage, 
namely,  that  the  instrument  is  intended  merely  as  security 
and  grants,  not  the  title,  but  a  lien  only — we  will  here- 
after speak  of  a  mortgage,  considered  under  this  view,  as 
an  equitable  mortgage.  It  is  to  be  remembered,  however, 
that  this  expression  is  now  commonly  used  in  an  entirely 
different  sense,  namely,  to  designate  an  instrument, 
which,  though  not  in  the  form  of  a  mortgage,  is  intended 
to  be  and  is  treated  as  a  mortgage.    A  grant,  bargain,  and 

10  23  and  24  Vict.  Ch.  145,  §§  11-  consent,  express  or  implied,  of  the 

32     (1860).       Judicature     Act     of  mortgagor,   recover   possession  of 

1873.       Conveyancing     and     Law  the  mortgaged  premises  in  an  ac- 

of  Property  Act  of  1881.  tion    at    law.      A    defense    in    the 

See    Halsbury's    Laws    of    Eng-  nature   of   a   bill    for   redemption 

land.     Mortgage,     §§  131     et     seq.  enables   the  mortgagor  to  compel 

An   interesting   intimation   of   the  a    ti-ansfer    of    the    cause    to    the 

development    of    the    practice    of  equity   side  of  the  docket,   where 

courts  in  this  matter  is  given  in  the   mortgagee   can   demand   only 

the  opinion  of  Judge  Lindsay  in  such   relief  as   a  court   of  equity 

the  case  of  Douglass  v.  Cline,  75  will     afford.       Hence,     mortgages 

Ky.    (12   Bush)    608.     He  says,  in  are   now  treated  in  this   state  as 

part:    "But    since    the    change    in  mere    securities;     and,    although, 

our  rules  of  civil  procedure,  which  strictly    speaking,    the    mortgagee 

allows    equitable    defenses    to    be  is  invested  with  the  legal  title,  he 

interposed  in  actions  at  law,  it  has  holds   it  only   in   pledge,    and   the 

been  almost  universally  conceded  mortgagor  is  considered,   both   at 

that    the    mortgagee    in    a    strict  law  and  in  equity,  the  real  owner 

mortgage    can    not,    without    the  of  the  property." 


MORTGAGES,  PLEDGES,  AND  LIENS.  557 

sale  deed  intended  to  be  only  security  for  an  obligation  is 
an  instance  of  such  an  equitable  mortgage.^^ 

6.    BeceiversJiips  on  Behalf  of  First  Mortgagees  in  Foreclosure 
of  Equitable  Mortgages. 

§  240.    General  Principles  Applicable. 

We  come  now  to  the  discussion  of  the  rules  and  prin- 
ciples that  have  guided  courts  of  equity  in  considering  the 
question  of  receiverships  in  litigation  affecting  real  prop- 
erty covered  by  an  equitable  mortgage.  As  above  indi- 
cated the  primary  use,  in  this  connection,  of  this  auxiliary 
equitable  remedy  has  been  in  aid  of  the  first  mortgagee, 
as  against  the  mortgagor,  in  actions  to  foreclose  the 
mortgage  and  that  is  the  first  branch  of  the  subject  which 
we  will  discuss. 

In  the  opening  chapters  we  set  forth  the  general 
grounds  and  circumstances  in  which  a  receiver  is  ap- 
pointed and  the  general  principles  applicable.^  The 
general  grounds,  circumstances,  and  principles  there  set 
forth  are  applicable  in  all  kinds  of  litigation.  Hence  they 
are  applicable  in  the  present  matter  and  all  that  we  have 
to  do  now  is  to  translate  these  general  rules  into  terms 
that  fit  the  special  circumstances  and  conditions  connected 
with  foreclosure  suits. 

Some  of  these  rules  are  merely  incidental  to  the  main 
questions  involved  and  are  applicable  without  any  such 
translation. 

Thus,  where  the  court  is  of  the  opinion  that  the  plaintiff 
is  entitled  to  have  a  receiver  appointed  to  take  charge  of 
the  property  or  fund  in  litigation  but  nevertheless  feels 
that  the  plaintiff  could  be  made  secure  in  respect  to  the 
outcome  of  the  litigation  in  the  event  of  his  recovery  by 
the  furnishing  of  a  bond  by  the  defendant  to  secure  any 

11  Flagg     V.     Mann,     2     Sumn.  i  See  chapter  II. 

(U.   S.  C.  C.)    486,  Fed.   Cas.   No. 
4847. 


558  LAW    OF   RECEIVERS. 

such  recovery,  it  is  within  the  discretion  of  the  court  to 
make  an  order  refusing  to  appoint  a  receiver  upon  con- 
dition that  defendant  furnish  such  a  bond.^  So,  in  fore- 
closure suits,  it  has  often  been  held  that,  with  reference 
to  the  assistance  that  a  receivership  w^ould  render  a  plain- 
tiff, the  defendant  might,  by  furnishing  a  properly  con- 
ditioned bond,  forestall  the  appointment  of  a  receiver.^ 
Another  general  principle  of  the  law  of  receivership  is 
that  it  is  essential  that  there  shall  be  at  the  time  of  the 
appointment  a  suit  pending  in  which  relief  other  than  the 
mere  appointment  of  the  receiver  is  sought.^  In  order  to 
authorize  the  appointment  of  a  receiver  it  is  an  indis- 
pensable rule  that  the  party  petitioning  for  such  an 
appointment  must  show  to  the  court  that  there  is  a  reason- 
able probability  that  he  wdll  ultimately  prevail  in  the 
litigation.^  These  rules  naturally  apply  to  foreclosure 
suits  and  in  that  connection  may  be  stated  in  practically 
the  same  terms.^    A  statement  inclusive  of  the  last  two 

2  See  section  15.  firmation     Is     binding     and     con- 

3  Durant   v.    Crowell,    97   N.    C.  elusive.     Anderson   v.    Riddle,    10 
367,    2    S.    E.    541;     Cortelyeu    v.  Wyo.  277,  68  Pac.  829. 
Hathaway,    11    N.    J.    Eq.    39,    64  Where  there  is  a  conflict  of  alle- 
Am.  Dec.  478.  gations  as  to  a  default  in  the  pay- 
Where   there   were   outstanding  ment  of  the  obligation,  the  merits 

executions  against  the  land  and  of  this  question  can  not  be  deter- 
the  mortgagor  offered  to  pay  the  mined  on  a  hearing  of  a  motion 
claims  on  which  such  executions  for  a  receiver.  Beecher  v.  Mar- 
were  founded  it  was  error  to  ap-  quette  &  P.  Rolling  Mill  Co.,  40 
point  a  receiver:      Etna   Steel   &  Mich.  307. 

Iron  Co.  V.  Hamilton,  137  Ga.  232,  A  landlord  agreed  to  make  ad- 

73  S.  E.  8.  vances  to  a  tenant  and  received  a 

4  See   section   14.  deed  of  trust  as  security  therefor. 

5  See  section  12.  The  landlord   failed  to  make   the 

6  Appointment  of  a  receiver  be-  advances  as  contracted  for  and 
fore  commencement  of  the  fore-  the  tenant  remained  in  possession, 
closure  suit  is  invalid;  neverthe-  In  an  action  to  foreclose  the  deed 
less,  as  against  parties  appearing  of  trust  the  landlord  claimed  that 
on  a  hearing  for  the  confirmation  the  deed  covered  advances  that 
of  the  acts  of  the  receiver,  and  had  actually  been  made  the  preced- 
not  objecting  to  the  validity  of  his  ingyear.  A  receivership  was  denied 
appointment,     an     order     of    con-  on  the  ground  that  the  conduct  of 


MORTGAGES,    PLEDGES,    AND    LIENS. 


559 


])ropositions  is  tlie  following:  The  plaintiff  must  show 
that  he  has  a  clear  right  to  the  property  itself  or  that  he 
has  some  lien  upon  it,  or  that  the  property  constitutes 
some  special  fund  to  which  he  has  a  right  to  resort  for  the 
satisfaction  of  his  claim.'^ 

Where  it  does  not  appear  that  any  advantage  will  be 
gained  by  the  appointment  of  a  receiver,^  or  where  it  is 
difficult  to  see  how  the  order  appointing  a  receiver  could 
result  in  benefit  to  any  one  except  the  receiver,^  a  receiver 
will  not  be  appointed;  and,  if  a  receiver  is  appointed  in 
such  circumstances,  the  making  the  appointment  will  be 
reversed  by  the  appellate  court.^* 


the  parties  appeared  to  amount  to 
a  rescission  of  the  deed.  Burton 
V.  Pepper,  116  Miss.  139,  76  So. 
762. 

In  the  face  of  a  strong  showing 
for  the  necessity  of  taking  steps 
for  the  preservation  of  the  prop- 
erty involved,  crops  on  leasehold 
land,  a  receiver  was  appointed  to 
hold  the  property  pending  a  de- 
cision as  to  the  real  effect  of  the 
mortgage.  Graham  v.  Consoli- 
dated Naval  Stores  Co.,  57  Fla. 
418,  48  So.  743. 

Where  the  court  had  never  ac- 
quired jurisdiction  of  the  action, 
the  appointment  of  a  receiver  was 
absolutely  void  and  subject  to 
collateral  attack.  Thurber  v. 
Miller,  11  S.  D.  124,  75  N.  W.  900. 

An  appeal  from  a  decision  in 
another  suit,  in  which  decision  it 
had  been  held  that  the  property 
belonged  to  the  United  States 
was  pending;  it  was  held  that  a 
receiver  should  not  be  appointed. 
Eastern  Trust  &  Banking  Co.  v. 
American  Ice  Co.,  14  App.  D.  C. 
304. 

Conflicting     claims     of     several 


mortgages  to  the  rent  can  not  be 
adjudicated  on  the  hearing  of  a 
motion  to  appoint  a  receiver.  Put- 
nam V.  Henderson,  Hull  &  Co.,  49 
App.  Div.  361,  63  N.  Y.  Supp.  250. 

Impeachment  of  the  mortgage 
may  be  ground  for  denying  the 
motion  to  appoint  a  receiver. 
Leahy  v.  Arthur,  1  Hogan  92. 

A  denial  by  the  mortgagee  that 
he  held  assets  In  his  hands  suffi- 
cient to  cancel  the  debt  was  held 
sufficient  ground  for  removing  the 
objection  to  the  appointment  of  a 
receiver.  Kerchner  v.  Fairley,  80 
N.  C.  24. 

Reasonable  probability  that  the 
plaintiff  asking  for  a  receiver  will 
ultimately  succeed  in  obtaining 
the  general  relief  sought  for  by 
his  suit  must  appear.  Warren  v. 
Pitts  et  al.,  114  Ala.  65,  21  So.  494. 

7  See  section  6. 

8  See  section  13, 

9  Manhattan  Life  Ins.  Co.  v. 
Hammerstein  Opera  Co.  et  al.,  180 
App.  Div.  69,  167  N.  Y.  Supp.  245. 

10  Eastern  Trust  &  Banking  Co. 
V.  American  Ice  Co.,  14  App.  D.  C. 
304. 


560  LAW    OF   RECEIVERS. 

§  241.    Preservation  of  the  Property  as  Security  as  an  Essential 
Ground. 

The  matters  just  mentioned  are  really  only  incidental 
to  the  main  question  at  issue  when  the  propriety  of  ap- 
pointing a  receiver  is  being  considered.  Others  of  like 
import  vsdll  be  noticed  later.  Coming  now  to  the  vital 
point  we  find  the  general  rule  stated  as  follows:  The 
plaintiff  must  show  that  the  possession  of  the  property 
by  the  defendant  was  obtained  by  fraud,  or  that  the  prop- 
erty itself,  or  the  income  arising  from  it,  is  in  danger  of 
loss  from  the  neglect,  waste,  misconduct,  or  insolvency 
of  the  defendant.^  Sometimes,  especially  under  statutes, 
the  rule  is  stated  to  be  that  it  must  appear  that  the  prop- 
erty is  ''in  danger  of  being  lost,  removed,  or  materially 
injured." 

An  equitable  mortgage  is  merely  security  for  a  debt. 
It  grants  a  lien  upon  the  property  mortgaged  but  the 
extent  of  the  lien  is  measured  by  the  amount  of  the  debt. 
The  mortgagee  can  not  complain  about  what  may  be 
done  with  the  property  so  long  as  it  is  not  impaired  in 
such  a  way  as  to  make  it  hazardous  security  for  his  claim. 
"The  right  of  a  mortgagee  to  have  a  receiver  take  charge 
of  the  mortgaged  property  during  the  pending  of  the 
action  to  foreclose  is  founded  upon  the  proposition  that 
it  is  necessary  to  preserve  or  protect  the  interest  of  tlie 
mortgagee.  His  only  interest  is  the  lien  of  his  mortgage, 
and  its  extent  is  measured  by  the  amount  of  the  debt  for 
which  the  lien  is  security.  The"  \:lebt  is  the  substantial 
thing.  Unless  the  security  for  his  ultimate  payment  is 
in  some  way  endangered  or  impaired,  he  can  not  be 
prejudiced.  "2 

1  See  section  6.  See,  also:  Meyer  v.  Thomas,  131 

2  The   above    quotation    is    from  Ala.  Ill,  30  So.  89;  Davis  v.  Alton 
Title  Ins.  &  Trust  Co.  v.  California  J.  &  P.  Ry.  Co.,  180  111.  App.  1. 
Development  Co.,  164  Cal.  58,  127 

Pac.   502. 


MORTGAGES,  PLEDGES,  AND  LIENS. 


561 


§242.    Indispensable  Grounds  or  Conditions  for  the  Appoint- 
ment of  a  Receiver. 

In  view  of  this  situation  of  the  mortgagee,  we  find  that 
the  above  mentioned  general  rule  for  the  appointment  of 
receivers  is  held  to  mean  that  there  are  two  indispensable 
grounds,  or  conditions,  the  existence  of  which  a  mort- 
gagee must  show  before  he  can  have  a  receiver  appointed 
in  foreclosure.  These  grounds  are:  (1)  That  the  mort- 
gaged property  will  not,  on  a  foreclosure  sale,  sell  for  an 
amount  sufficient  to  pay  his  claim,  with  accrued  interest 
and  costs  of  suit;  and  (2)  that  there  is  no  person  who 
can  be  effectively  held  liable  for  any  deficiency  judgment 
that  it  might  be  necessary  to  render.^  The  existence  of 
these  conditions  must  be  properly  proved.^ 

At  least  a  very  strong  probability  of  the  inadequacy  of 
the  security  must  be  properly  proved.=^    The  inadequacy 


1  Cone  V.  Combs,  18  Fed.  576,  5 
McCrary  651;  Strain  v.  Palmer, 
159  Fed.  628,  86  C.  C.  A.  618;  Al- 
britton  v.  Lott-Blacksher  Com- 
mission Co.,  (Ala.)  52  So.  653; 
Skidmore  v.  Stewart,  (Ala.)  75 
So.  1;  Williams  v.  Robinson,  16 
Conn.  517;  Planter's  Oil  Mill  v. 
Carter,  140  Ga.  808,  79  S.  E.  1120; 
First  National  Bank  v.  Gage,  79 
111.  207;  Glennon  v.  Wilcox,  159 
111.  App.  42;  Callanan  v.  Shaw,  19 
Iowa  183;  Brown  v.  Chase,  Wall. 
(Mich.)  Ch.  43;  Whitehead  v. 
Wooten,  43  Miss.  523;  Wolf  v. 
Ward,  104  Mo.  127,  16  S.  W.  161; 
Veerhoff  v.  Miller,  30  App.  Div. 
355,  51  N.  Y.  Supp.  1048;  Astor  v. 
Turner,  2  Barb.  (N.  Y.)  444;  Sea 
Ins.  Co.  V.  Stebbins,  8  Paige 
(N.  Y.)  565;  Quincy  v.  Cheeseman, 
4  Sandf.  Ch.  (N.  Y.)  405;  Graybill 
V.  Heylman,  139  App.  Div.  898,  123 
N.  Y.  Supp.  622;  Ogden  v.  Chaf- 
fant,  32  W.  Va.  559,  9  S.  B.  879. 
I  Rec— 36 


2  The  appointment  may  be  based 
upon  the  complaint  alone,  if  its 
allegations  are  sufficient  and  it  is 
verified.  Sherman  v.  Wichner, 
(S.  D.)   152  N.  W.  700. 

The  appointment  may  be  based 
upon  a  verified  petition  used  as 
the  basis  for  a  motion  to  appoint 
even  though  the  complaint  is  not 
verified.  Cowell  v.  Gnatzig,  178 
111.  App.  482. 

3  Lindsay  v.  American  Mtge.  Co., 
97  Ala.  411,  —  So.  — ;  Moritz  v. 
Miller,  87  Ala.  331,  —  So.  — ; 
Planters'  Oil  Mill  v.  Carter,  140 
Ga.  808,  79  S.  E.  1120;  Ruprecht  v. 
Henrici,  113  111.  App.  398;  Calla- 
nan V.  Shaw,  19  Iowa  183;  Wil- 
liams V.  Williams's  Assignee,  7  Ky. 
Law  Rep.  448;  Blondheim  v. 
Moore,  11  Md.  365;  Rabinowitz  v. 
Power,  131  App.  Div.  892,  115  N.  Y. 
Supp.  266;  Warner  v.  Gouverneur's 
Exrs.,  1  Barb.  (N.  Y.)  36;  Shot- 
well  v.  Smith,  3  Edw.  (N.  Y.)  Ch. 


562 


LAW    OF    RECEIVERS. 


must  relate  to  the  petitioning  mortgagee's  indebtedness 
without  any  reference  to  subsequent  encumbrances.  An 
allegation  that  the  property  is  not  worth  the  amount  of 
all  aliens  against  it  is  not  sufficient.'*  The  burden  of  proof 
is  on  the  petitioner  and  the  presumption  is  that  the  secur- 
ity is  adequate.^  The  inadequacy  must  be  a  present  con- 
dition, existing  at  least  at  the  time  of  the  hearing  and 
not  a  threatened  one,  merely  possible  or  even  likely  to 
come  into  being.®  The  proof  must  be  competent  and,  if 
by  affidavit  on  motion,  must  be  in  proper  form."^  If  a 
strong  case  is  made  by  a  showing  of  equitable  causes  for 


588;  Degener  v.  Stiles,  53  Hun. 
637,  6  N.  Y.  Supp.  474;  Quincy  v. 
Cheeseman,  4  Sandf.  (N.  Y.)  Ch. 
405;  Rogers  v.  Southern  Pine 
Lumber  Co.,  21  Tex.  Civil  App.  48, 
51  S.  W.  26;  Pullan  v.  Cincinnati 
&  C.  A.  L.  R.  Co.,  4  Biss.  35,  Fed. 
Cas.  No.  11461. 

4  Warner  v.  Gouverneur's  Ex'rs, 
1  Barb.  (N.  Y.)  36. 

5  Brown  v.  Chase,  Walk.  Ch. 
(Mich.)   43. 

6  Jackson  v.  Hooper,  (Ala.)  18  So, 
254;  Vila  v.  Grand  Island,  etc., 
Storage  Co.,  Neb.,  110  Am.  St.  Rep. 
400;  Laune  v.  Hauser,  58  Neb.  663, 
79  N.  W.  555. 

7  Cone  V.  Combs,  18  Fed.  576,  5 
McCrary  651;  Burlingame  v.  Parce, 
12  Hun  (N.  Y.)  144;  New  York 
Building  Loan,  etc.,  Co.  v.  Begly, 
75  App.  Div.  308,  78  N.  Y.  Supp. 
169,  71  N.  Y.  Ann.  Cas.  473. 

The  rental  value  may  be  taken 
as  evidence  of  the  value  of  the 
property  as  security.  Shotwell  v. 
Smith,  3  Edw.  Ch.  (N.  Y.)   588. 

An  allegation  that  the  value  is 
inadequate,  in  the  absence  of  some 
fact*  indicating  the  value  or  of  a 
statement  of  the  value,  is  a  mere 
conclusion     and     is     insufficient. 


Locke  V.  Klunker,  123  Cal,  231,  55 
Pac.  993;  Title  Insurance  &  Trust 
Co.  V.  California  Development  Co., 
164  Cal.  58,  127  Pac.  502;  Bank  of 
Woodland  v.  Stephens,  144  Cal. 
659,  79  Pac.  379;  Sherman  v. 
Wichner,  S.  D.,  152  N.  W.  700. 

An  affidavit  of  plaintiff's  attor- 
ney to  the  effect  that  the  attorney 
had  been  informed  by  plaintiff 
that  there  was  extreme  doubt  as 
to  the  adequacy  of  the  security  Is 
insufficient.  Sickels  v.  Canary,  8 
App.  Div.  308,  40  N.  Y.  Supp.  948, 
75  N.  Y.  St.  Rep.  34. 

An  affidavit  of  the  plaintiff  that 
he  knew  the  value  and  that  the 
property  was  meager  security  was 
held  insufficient,  though  it  con- 
tained additional  averments  to  the 
effect  that  a  recent  street  assess- 
ment of  $225  was  unpaid,  that 
there  was  litigation  over  the  prop- 
erty and  that  the  rents  were  be- 
ing paid  to  some  other  person 
than  defendant  by  tenants  who 
were  in  possession.  Murphy  v. 
Hoyt,  93  111.  App.  313. 

An  averment  that  the  property 
is  insufficient  to  pay  the  debt,  not 
denied,  was  held  sufficient.  2  Neb. 
(unofficial)  523,  89  N.  W.  388. 


MORTGAGES,  PLEDGES,  AND  LIENS.  563 

a  receivership  in  addition  to  the  two  indispensable 
grounds,  the  court  may  give  somewhat  less  attention  to 
the  question  of  the  inadequacy  of  the  security  and  the 
rule  relating  to  the  proof  thereof  may  be  relaxed.^ 

In  regard  to  the  second  indispensable  ground,  it  is 
sometimes  stated  that  the  rule  requires  a  showing  tliat 
the  mortgagor  or  the  person  liable  for  a  deficiency  judg- 
ment is  insolvent.  It  is  apparent,  however,  that  this 
statement  of  the  rule  is  made  simply  in  view  of  the  special 
circumstances  of  the  case,  it  happening  that  there  is  a 
person  liable  for  a  deficiency  judgment  and  that  such  a 
judgment  might  be  enforced  if  he  had  the  means  to  meet 
it.  On  the  other  hand,  the  mortgage  might  stipulate  that 
the  mortgagee  should  look  entirely  to  the  security  for  pay- 
ment of  his  debt  and  that  a  deficiency  judgment  should 
not  be  rendered  against  the  mortgagor  nor  any  one  else. 
In  such  a  case  a  showing  of  the  existence  of  the  second 
indispensable  ground  is  not  required.'^  Again  it  might 
happen  that  the  person  liable  for  a  deficiency  judgment  is 
out  of  the  jurisdiction  of  the  court  so  that  a  personal 
money  judgment  could  not  be  rendered  against  him.  A 
showing  of  this  fact  would  establish  the  existence  of  this 
second  condition  for  the  appointment.^^  But  where  there 
is  a  person  present  and  liable  for  a  deficiency  judgment 

8  Oldham    v.    First    Nat.    Bank,  v.   Kellogg,   73   N.   J.   Eq.   524,   68 

84  N.  C.  304;   Cortleyeu  v.  Hatha-  Atl.  80. 

way,  11  N.  J.  Eq.  39,  64  Am.  Dec.  10  Gale   v.   Carter,   154   111.   App. 

478;    Winker   v.    Magdeburg,    100  478;    Collins   v.    Gross,    51    Wash. 

Wis.  421,  76  N.  W.  332.  516,  99  Pac.  573. 

In  the  face  of  conflicting  testi-  In  this  latter  case,  evidence 
mony  as  to  the  value  of  the  se-  tending  to  show  that  the  defen- 
curity  the  general  state  of  the  dant  had  moved  out  of  the  juris- 
real  estate  market  may  be  taken  diction  was  given  but  was  per- 
into  account.  Cohn  v.  Bartlett,  haps  not  very  conclusive.  How- 
182  App.  Div.  245,  169  N.  Y.  Supp.  ever  in  other  respects  the  case  was 
604.  a  strong  one.  In  view  of  the  bear- 
See  also  Broad,  etc.,  Bank  v.  Lar-  ing  of  a  possible  liability  for  a 
sen,  88  N.  J.  Eq.  245,  102  Atl.  265.  deficiency  judgment  upon  the 
!>  Mahon  v.  Crothers,  28  N.  J.  question  of  receiverships  in  fore- 
Eq.  567;  Land  Title  and  Trust  Co.  closure    actions    and    the    bearing 


564  LAW   OF    RECEIVERS. 

then  the  rule  is  satisfied  only  by  a  showing  of  his  insolv- 
ency by  sufficient  and  proper  proof. ^^  It  need  not,  how- 
ever, be  proved  directly,  but  may  be  shown  circumstan- 
tially, the  case,  in  other  respects,  being  a  strong  one.^- 
The  fact  that  the  payment  of  the  debt  is  guaranteed  by  a 
responsible  endorser  or  otherwise  does  not  bar  the  mort- 
gagee's  right  to  a  receiver.^^ 

§  243.    Necessity  for  Showing  Conditions,  or  Grounds,  Addi- 
tional to  the  Indispensable  Grounds. 

The  question  arises  as  to  whether  or  not,  in  a  fore- 
closure action,  in  order  to  obtain  the  appointment  of  a 
receiver,  it  is  necessary  for  the  plaintiff  to  show  reasons 
for  requesting  this  equitable  relief  in  addition  to  the 
inadequacy  of  the  security  and  the  difficulty  of  realizing 
on  a  deficiency  judgment.  The  general  rule,  as  first  stated 
above, ^  expressly  requires  that  the  circumstance  that  fur- 
nishes the  ground  for  the  appointment  shall  have  been 

of  the  defendant's  insolvency,  or  Assn.  v.  Carey,  114  Fed.  28S,  52 
irresponsibility,  in  this  connection,      C.  C.  A.  174. 

the    circumstances    of    this    case  A  failure  to  show  insolvency  de- 

show  that  there  may  be  a  possi-  feated  the  appointment  on  a  fore- 
bility  that  the  "property"  will  be      closure    of    a    trust    deed,    even 

though   the   defendant   denied  the 


"removed"  (see  second  statement 
of  the  general  rule,  supra,  §  341), 
even  if  it  is  real  property. 


existence     of     the     trust.       Ham- 
burgh Mfg.  Co.  V.  Edsall,  7  N.  J. 
Eq.   298. 
11  Myers  v.  Estell,  48  Misc.  372;  12  Broad,  etc.,  Nat.  Bank  v.  Lar- 

Sea  Ins.  Co.  v.   Stebbins,  8   Paige      sen,  88  N.  J.  Eq.  245,  102  Atl.  265; 

(N.  Y.)  565;  Morris  v.  Branchaud,      Schreiber  v.  Carey,  48  Wis    208    4 

52  Wis.  187,  8  N.  W.  883.  n.  W.  124. 

Where  a  receiver  was  appointed  The    value    of    the     mortgaged 

without   a   showing  of  insolvency      property  is   not  to  be   considered 

and  without  taking  that  question      in      determining      this      question. 

into  account  as  a  ground  for  the      Durant  v.   Crowell,   97   N.   C.    367, 

appointment  and  a  deficiency  sale      2    S.   E.   541. 

occurred,  a  balance  of  rents  in  the  13  Buck  v.  Stuben,  63  Neb.  273, 

hands  of  the  receiver  was  distrib-      88   N.   W.    483;    Cohn  v.    Bartlett, 

uted    to    the    mortgagor    and    not      182  App.  Div.  245,  169  N.  Y.  Supp. 

toward  payment  of  the  deficiency      604. 

judgment.    Southern  Bldg.  &  Loan  1  See,  supra,  §  341. 


MORTGAGES;    PLEDGES,    AND    LIENS. 


365 


caused  by  some  delinquency,  or  failure  of  duty,  on  the 
part  of  the  defendant.    And  even  as  set  forth  in  the  second 
statement  there  is  an  implication  that  such  must  be  the 
situation.^    As  to  the  inadequacy  of  the  security,  it  is  evi- 
dent that  such  a  condition  might  arise  through  no  fault  of  ^ 
the  defendant.^    When  the  mortgage  is  executed  the  valu-  K 
ation  of  the  security  is  made  by  the  respective  parties."^ 
It  has  been   said  that  when   the  mortgagee   takes   his 
security  with  full  knowledge  of  its  value  and  if  he  takes 
an  inadequate  security  it  is  his  own  fault.^    Even  if  the 
defendant  is  insolvent,  and  though  this  situation  may  be 
ascribed  to  his  own  conduct,  it  does  not  necessarily  follow 
that  his  continued  possession  will  result  in  loss  to  the 
mortgagee.    He  may  still  be  doing  his  full  duty  toward 
his  creditor.^ 

Additional  equitable  grounds  would  be  such  conduct  on 
the  part  of  the  defendant  as  would  cause  or  would  have 
a  tendency  to  cause  the  loss,  removal,  or  injury  of  the 
property  and  they  might  well  be  summed  up  under  the 
general  head  of  waste.  Such  waste  might  lie  in  general 
carelessness  and  mismanagement  in  handling  the  prop- 
erty ;  failure  to  keep  up  repairs ;  failure  to  restore  burned 
improvements,  especially  if  the  defendant  had  received 
insurance;  permitting  taxes,  interest  on  prior  encum- 
brances, or  even  interest  on  the  debt  sued  on  to  accumu- 
late, removal  of  products  and  appropriating  the  income  to 
personal  uses  to  the  detriment  of  the  mortgagee;  similar 

2  A  general  allegation  that  the  154;   Barkley  v.  Reay,  2  Hall  308, 

defendant   would,    if    left    in    pos-  67  Eng.  Rep.    (Reprint)    127.. 

session   pendente    lite,   injure   the  ^  Norfor  v.  Busby,  19  Wash.  450, 

property,  is  insufficient.    Arnold  v.  53  Pac.  715. 

Meyer  (Tex.  Civ.  App.),  198  S.  W.  5  Conover    v.    Grover,    31    N.    J. 

gQ2  Eq.   539;    Cortleyeu   v.   Hathaway, 

s'lf   the    inadequacy    of   the    se-  11  N.  J.  Eq.  39,  64  Am.  Dec.  478. 

curity  is  due  to  a  general  depreci-  6  Warren  v.  Pitts  et  al.,  114  Ala. 

ation    in   land   values    it   may   not  65,   21   So.   494;    Twitty  v.   Logan, 

warrant  the  appointment.    Horner  80  N.  C.  69;   Rollins  v.  Henry,  77 

V.   Dey,   61   N.  J.  Eq.   554,   49   Atl.  N.  C.  467. 


566 


LAW   OP   RECEIVERS. 


misappropriation  of  the  rents ;  or,  generally,  any  fraud 
toward  the  mortgagee/  Certain  acts,  having  the  appear- 
ance of  waste,  may,  however,  be  held  not  to  constitute 
equitable  waste.^  To  constitute  equitable  w^aste  the  acts 
complained  of  must  be  of  such  a  character  as  to  cause  or 
threaten  such  deterioration  in  the  value  of  the  property 
as  to  affect  its  worth  as  security  for  the  debt.^  In  some 
cases  it  has  expressly  been  held  that  some  showing  of 
waste  is  necessary  to  warrant  the  appointment  of  a 
receiver. ^^  In  many  cases,  though  the  decisions  may  not 
have  been  expressly  based  on  that  ground,  waste  was 
shown.^^ 


7  James  Everard's  Breweries  v. 
Wohlstadter,  177  App.  Div.  862, 
164  N.  Y.  Supp.  899. 

s  Failure  to  insure  the  property 
where  the  mortgage  does  not  place 
that  duty  on  the  mortgagor  is  not 
equitable  waste.  Ferguson  v.  Dick- 
inson (Tex.  Civ.),  138  S.  W.  221; 
so,  where  the  mortgage  gives  the 
mortgagee  the  right  to  mortgage 
the  property  and  add  the  costs  to 
the  debt,  Planters'  Oil  Mill  v. 
Carter,  140  Ga.  808,  79  S.  E.  1120; 
or  where  the  rates  are  prohibitive. 
Eureka  Mining,  etc.,  Co.  v.  Lewis- 
ton,  etc.,  Co.,  12  Ida.  472,  86 
Pac.  49. 

9  Union  Mutual  L.  Ins.  Co.  v. 
Union  Mills  Plaster  Co.,  37  Fed. 
286,  3  L.  R.  A.  90;  Title  Ins.  & 
Trust  Co.  V.  California  Develop- 
ment Co.,  164  Cal.  58,  127  Pac. 
502;  Lawton  Mill,  etc.,  Co.  v. 
Farmers,  etc.,  Bank  (Okla.),  164 
Pac.  670. 

10  Warren  v.  Pitts  et  al,  114 
Ala.  65;  21  So.  494;  Dubois  v. 
Bowles,  30  Colo.  44,  69  Pac.  1067; 
Adair  v.  Wright,  16  Iowa  385; 
Paine  v.  McElroy,  73  Iowa  81,  34 
N.  W.  615;   Squire  V.  Hewlett,  141 


Mass.  597,  6  N.  E.  779;  National 
Fire  Ins.  Co.  of  Hartford  v.  Broad- 
bent,  77  Minn.  175,  79  N.  W.  676; 
Burton  v.  Pepper,  116  Miss.  139, 
76  So.  762;  Brown  v.  Erb-Harper- 
Rignay  Co.,  48  Mont.  17,  133  Pac. 
691;  Cortleyeu  v.  Hathaway,  11 
N,  J.  Eq.  39,  64  Am.  Dec.  478; 
Cheever  v.  Rutland  &  B.  R.  Co., 
39  Vt.  653;  Phoenix  Mut.  L.  Ins. 
Co.  V.  Grant,  3  Mac  Arthur  (10 
D.  C.)  220. 

11  Grant  v.  Phoenix  Mut.  L.  Ins. 
Co.,  121  U.  S.  105,  30  L.  Ed.  905, 
7  Sup.  Ct.  841;  First  National 
Bank  of  San  Francisco  et  al.  v. 
Detroit  Trust  Co.  et  al.,  248  Fed. 
16;  American  Nat.  Bank  v.  North- 
western Mut.  Life  Ins.  Co.,  89  Fed. 
610,  32  C.  C.  A,  275;  Elmira  Me- 
chanics' Soc.  of  New  York  v. 
Stanchfield,  160  Fed.  811,  87 
C,  C.  A.  585;  Jackson  v.  Hooper, 
107  Ala.  634,  18  So.  254;  Davis  v. 
Alton,  etc.,  Ry.  Co.,  180  111.  App.  1; 
Ortengren  v.  Rice,  104  111.  App. 
428;  Gale  v.  Carter,  154  111.  App. 
478;  Harris  v.  United  States  Sav- 
ings, etc.,  Co.,  146  Ind.  265,  45  N.  E. 
328;  Stetson  v.  Northern,  etc.,  Co., 
101  Iowa  435,  70  N.  W.  595;   New- 


MORTGAGES,  PLEDGES,  AND  LIENS.  ^67 

It  has  been  said:  '/riie  object  of  a  court  of  equity  in 
appointing  a  receiveT^of  mortgaged  property  pending 
foreclosure  is  either  to  preserve  the  corpus  of  the  estate 
from  deterioration  or  to  sequester  the  rents  and  profits  to 
make  good  an  anticipated  deficiency.  "^9  Where  the  pur- 
pose of  the  receivership  is  the  first  one  stated  in  the  above 
quotation,  the  undoubted  rule  is  that  the  applicant  must 
show  equitable  grounds  for  the  appointment,  in  addition 
to  the  two  indispensable  grounds,  to  wit,  inadequacy  of 
the  security,  and  insolvency  of  the  defendant.  We  have 
two  interesting  instances  of  this  understanding  of  the 
rule  in  cases  just  cited. ^^    But  when  we  come  to  the  ques- 


port,  etc.,  Bridge  Co.  v.  Douglass, 
12    Bush    (Ky.)    673;    Woolley    v. 
Holt,  14  Bush  (Ky.)  788;  Mayfield 
V.  Wright,  107  Ky.  530,  54   S.  W. 
864;  Bailey  v,  Bailey,  10  Ky.  Law 
Rep.  793,  10  S.  W.  660;  Collins  v. 
Richart,  14  Bush  (Ky.)   621;  Don- 
nelly  V.   Butts,    137    Minn.    1,   162 
N.  W.  674;  Farmers'  Nat.  Bank  v. 
Backus,  64  Minn.  43,  66  N.  W.  5; 
Marshall,  etc..  Bank  v.  Cody  et  al, 
76  Minn.  112,  78  N.  W.  978;  Lowell 
V.  Doe  et  al.,  44  Minn.  144,  46  N.  W. 
297;   Mahon  v.  Crothers,  28  N.  J. 
Eq.    567;    Brasted    v.    Sutton,    30 
N.  J.  Eq.  462;  Chetwood  v.  Coffin, 
30    N.    J.    Eq.    450;    Cortleyeu   v. 
Hathaway,  11  N.  J.  Eq.  39,  64  Am. 
Dec.  478;   James  Everard's  Brew- 
eries V.  Wohlstadter,  177  App.  Div. 
862,  164  N.  Y.  Supp.  899;   Post  v. 
Dorr,  4  Edw.  (N.  Y.)  Ch.  412;  Hol- 
lenbeck  et  al.  v.  Donnell,  94  N.  Y. 
342;  Hyman  v,  Kelly,  1  Nev.  179; 
Meridian  Oil  Co.  v.  Randolph,  26 
Okla.  634,  110  Pac.  722;  Roberts  v. 
Parker,  14  S.  D.  323,  85  N.  W.  591; 
Collins  V.  Gross,  51  Wash.  516,  99 
Pac.    573;    Dunlap    v.    Hedges,    35 
W.  Va.  287,  13  S.  E.  656. 
12  27  Cyc.  1622— Mortgages. 


13  First  National  Bank  of  San 
Francisco  et  al.  v.  Detroit  Trust 
Co.  et  al.,  248  Fed.  16. 

In  the  above  case  the  mortgagor 
was   a  lumber  company  and   part 
of  the  mortgaged  property  was  a 
large   tract  of  timber   land.     The 
company     was     heavily     involved 
and  unable  to  operate.    It  was  un- 
able   even   to    finance    the    neces- 
sary safeguarding  of  its  property 
against  fire.     It  was   shown  that 
logging    operations    on    the    prop- 
erty   could    be    conducted    to    ad- 
vantage   and    that    the    company 
could    not    finance    the    work.      It 
was     shown     that     logs     already 
down    and    lying    on    the    ground 
would   rot   if   not   cared    for   and 
that  the  company  could  not  finance 
this  detail  of  its  business.     A  re- 
ceiver was  appointed  and  author- 
ized   to    enter    into    an    extensive 
logging    contract.     This    contract 
was  upon  the  same  terms  and  con- 
ditions  upon  which  it  was   stipu- 
lated,  in   the   first  mortgage,    the 
company  might  make  such  a  con- 
tract.    It  was   held   that   a  third 
mortgagee  could  not  complain  be- 
cause  it  had   taken   its    mortgage 


568  LAW   OF   RECEIVERS. 

tion  of  sequestering  the  rents  and  profits  of  the  mortgaged 
property  through  the  appointment  of  a  receiver  there  is 
a  difference  of  opinion  among  the  authorities  and  the 
statement  that  the  main  object  is  to  preserve  the  corpus 
of  the  estate  from  deterioration  or  sequester  the  rents  and 
profits  in  anticipation  of  a  deficiency  judgment  is  not  alto- 
gether accurate.  Of  course  a  receiver  placed  in  general 
charge  of  mortgaged  property  will  have  the  duty  of  col- 
lecting the  rents  and  profits,  if  there  are  any.  But  it  is  to 
be  also  noticed  that  there  is  a  difference  between  an  order 
directing  a  receiver  to  collect  the  rents  and  profits,  or 
appointing  one  simply  to  make  such  collections,  and  an 
order  determining  what  shall  be  done  with  the  money  col- 
lected.^^ As  to  the  questions,  what  is  the  necessary 
showing  to  warrant  the  appointment  of  a  receiver  of  rents 
and  profits,  and  what  is  the  proper  distribution  of  the 
money  collected  by  such  a  receiver,  some  courts  have 
expressly  stated  that  there  is  a  conflict  among  the 
decisions.  The  existence  of  such  a  conflict  is  evidenced 
also  by  a  dissenting  opinion  in  an  interesting  case  from 
Kentucky.^^  In  this  case  the  mortgagor  was  an  insolvent 
railroad  company.     A  receiver  had  been  appointed  to 

with  a  knowledge  of  the  terms  of  court  would  not  have  justified  the 

the  first  mortgage  and  it  was  in  appointment  in  the  absence   of  a 

no    worse    position    than    if    the  showing  of  equitable  waste, 

contract   had   been   made   by   the  ^^    Meridian    Oil    Company    v. 

company     under     that     mortgage.  Randolph,    26    Okl.    634.    110    Pac. 

It  was  urged  that  an  earlier  de-      ^f '  *^^  ^^^^  ^'^^  ^  ^^^^^  ^^^  ^^d 

.^.      ,    ,  •     ^    ^v,  t"®    mortgagor,    the    oil   company, 

cision    mitigated    against    the    ap-      ,     ,  ,  ,      .  f     ■■  > 

had  been  producing  and  disposing 
pointment  of  the  receiver  but  the      „<.     ■,  „  -^^i,      x       •       . ,      • 
^  of  oil  without  using  the  income  to 

court   held   that,    in   the   case   re-  p^y  the  debt,  contrary  to  a  stipu- 

ferred    to,    "the    appointment   had  lation  in  the  mortgage.     It  is  evi- 

not  been  made  by  virtue  of  any  of  dent    that    the    order    appointing 

the  established  general  principles  the  receiver  was  based  upon  the 

of  equity,  which  when  alleged  to  showing  of  inequitable  waste, 

exist,  would  authorize  a  court  of  u  Garretson   Inv.   Co.  v.  Arndt, 

equity  to  appoint  a  receiver."     It  144  Cal.  64,  77  Pac.  770. 

is  apparent  from  the  nature  of  the  is  Douglass   v.    Cline   et  al.,    12 

argument  of  the  opinion  that  the  Bush   (Ky.)   608. 


MORTGAGES,  PLEDGES,  AND  LIENS. 


569 


operate  tlie  road.     There  were  outstanding  claims  for 
wages  of  mechanics  and  laborers  for  services  rendered 
before  the  appointment.    The  majority  of  the  court  ruled 
that  these  claims  should  be  paid  out  of  money  in  the  hands 
of  the  receiver  in  preference  to  the  claim  of  the  mortgage. 
In  the  majority  opinion  it  is  said:   ''They  [mortgagees] 
have  a  perfect  right  in  equity  to  have  the  property  pro- 
tected while  they  are  prosecuting  their  actions  to  enforce 
their  mortgages  and  against  the  general  unsecured  cred- 
itors  of  the  mortgagors   they  may  possibly  have   the 
equitable  right  to  have  the  fund  raised  by  the  receiver 
held  for  their  security.    But  this  last,  not  being  a  legal 
or  contract  right,  the  chancellor  is  not  bound  to  enforce 
it  in  any  and  all  contingencies.    He  can  in  proper  cases 
attach  to  its  enjoyment  reasonable  conditions  and  may  do 
so  either  by  the  order  appointing  the  receiver  or  by  an 
order  made  subsequent  to  the  appointment."    A  dissent- 
ing opinion  was  filed  by  Judge  Cofer  in  which  he  ob- 
served:   "I  have  been  unable  to  find  a  single  case,  and 
do  not  believe  one  can  be  found,  except  in  the  State  of 
New   Jersey,   where   the   equitable   doctrine   respecting 
receivers  in  aid  of  junior  mortgagees  never  obtained,  in 
which  an  equitable  mortgagee  has  been  refused  a  receiver 
when  he  was  able  to  show  that  the  mortgaged  property 
was  probably  an  insufficient  security  and  that  the  mort- 
gagor was  insolvent ;"  and,  ''the  sole  object  of  appointing 
a  receiver  is  to  intercept  the  rents  and  profits  and  apply 
them  on  the  debt." 

In  all  cases  it  is  held  that  the  only  security  granted 
by  the  mortgage  is  the  corpus  of  the  property.  As  to 
the  rents  and  profits  there  are  three  lines  of  cases: 
(1)  cases  in  which  it  is  held  that  the  mortgagee  can 
not  secure,  through  a  receiver,  even  an  equitable  lien 
upon  the  rents  and  profits,  which,  as  incidents  of  the 
ownership  and  right  of  possession,  are  held  to  belong 
to  the  mortgagor,  or  his  grantee,  until  the  ownership  is 


570 


LAW   OF    RECEIVERS. 


changed  as  a  result  of  the  foreclosure;  (2)  cases  in  whicli 
it  is  held  that,  by  showing  equitable  waste,  the  mortgagee, 
through  a  receiver,  may  acquire  an  equitable  lien  upon 
the  rents  and  profits,  but  only  for  the  purpose  of  restoring 
the  waste  that  had  been  committed  by  the  mortgagor,  who 
had  been  collecting  the  rents,  or  preserving  the  property 
pending  the  suit;  the  balance,  if  any,  remaining  in  the 
hands  of  the  receiver  to  belong  to  the  mortgagor,  or  his 
grantee,  and  not  to  apply  toward  a  deficiency;  (3)  cases 
holding  that,  without  showing  equitable  waste,  the  mort- 
gagee could,  through  a  receiver,  acquire  an  equitable  lien 
on  the  rents  and  profits  and  have  them  applied  toward 
his  debt.^^ 


16  It  is  to  be  observed  that  in 
most  of  the  cases  the  courts  were 
operating  under  a  statute  to  the 
effect  that  "a  mortgage  on  real 
property  shall  not  be  deemed  a 
conveyance,  whatever  its  terms,  so 
as  to  enable  the  owner  of  the 
mortgage  to  recover  possession  of 
the  real  property  without  fore- 
closure and  sale"  (Mills'  Ann. 
Code  Colo.  261).  It  is  universally 
held,  however,  that  such  a  statute 
simply  means  that  the  Common 
Law  view  of  a  mortgage  is  abol- 
ished and  a  mortgage  is  to  be 
treated  simply  as  an  equitable 
mortgage;  and  all  the  courts  pro- 
fess to  be  deciding  in  accordance 
with  what  they  deemed  to  be  the 
rights  of  an  equitable  mortgage 
as  developed  in  the  practice  of 
courts  of  equity.  It  is  to  be  ob- 
served also  that  Federal  courts 
probably  considered  themselves  to 
be  bound  by  what  they  considered 
to  be  the  interpretation  of  state 
statutes  made  by  state  courts. 

Instances  of  the  first  line  of 
cases  are  the  following:  Guy  v. 
Ide,   6   Cal.   99,   65   Am.    Dec.   490; 


Wagar  v.  Stone,  36  Mich.  364; 
"The  legislature,  in  depriving  him 
of  the  means  of  enforcing  posses- 
sion, intended  thereby  also  to  cut 
off  and  deprive  him  of  all  rights 
which  he  could  have  acquired  in 
case  he  obtained  possession  before 
acquiring  an  absolute  title";  and, 
"We  do  not  overlook  the  fact  that 
a  contrary  doctrine  has  been  held 
elsewhere  under  a  similar  statute." 

Union  Mut.  L.  Ins.  Co.  v.  Union 
Mills  Plaster  Co.,  37  Fed.  286,  3 
L.  R.  A.  90 — following  interpreta- 
tion of  Mich,  statute  by  Mich, 
courts. 

Couper  V.  Shirley,  75  Fed.  168, 
21  C.  C.  A.  288 — following  state  in- 
terpretation of  state  statute,  and 
later  distinguished  where  applica- 
tion for  receiver  was  made  on 
grounds  of  equitable  waste.  (See 
note  12,  supra.  First  National 
Bank  of  San  Francisco  et  al.  v. 
Detroit  Trust  Co.  et  al,  248  Fed. 
16.) 

Norfor  v.  Busby,  19  Wash.  450, 
53  Pac.  715 — calls  attention  to  con- 
flict of  opinion  on  the  question. 

Instances  of  the  second  line  of 


MORTGAGES, '  PLEDGES,  AND  LIENS. 


571 


§  244.    Effect  of  Statutory  Provisions  on  the  Subject. 

There  are  in  most,  if  not  all,  of  the  states  statutes  relat- 
ing to  the  matter  both  of  appointing  receivers  generally 


cases  are  the  following:  Ameri- 
can Nat.  Bank.  v.  Northwestern 
Mutual,  etc.,  Co.,  89  Fed.  610,  32 
C.  C.  A.  275. 

Elmira.  Mechanics'  Soc.  v. 
Stanchfleld,  160  Fed.  811,  87 
C.  C.  A.  585— both  of  the  above 
following  state  interpretation  of 
state  statute. 

Marshall  &  Ilsley  Bank  v.  Cody, 
76  Minn.  112,  78  N.  W.  978; 
Farmers'  Nat.  Bank  v.  Backus,  64 
Minn.  43,  66  N.  W.  5;  Donnelly  v. 
Butts,  137  Minn.  1,  162  N.  W.  674; 
Lowell  V.  Doe  et  al.,  44  Minn. 
144,  46  N.  W.  297— appeal  from  an 
order  appointing  a  receiver;  ques- 
tion as  to  whether  showing  of 
equitable  waste  was  necessary,  not 
decided  because  such  showing 
was  made;  question  of  distribution 
of  rents  not  decided  because  not 
yet  raised.  Philadelphia  Mtge.  & 
Trust  Co.  V.  Oyler,  61  Neb.  702,  85 
N.  W.  899 ;  Gerber  v.  Heath  et  al., 
92  Wash.  519,  159  Pac.  691.  Action 
by  second  mortgagee;  grantee  of 
mortgagor,  who  had  not  assumed 
the  mortgage  in  possession;  show- 
ing of  delinquent  taxes  and  un- 
paid interest;  receiver  appointed 
by  consent;  thereafter  first  mort- 
gagee intervened;  first  mortgagee 
purchased  on  sale  for  enough  to 
cover  his  claim  and  taxes;  order 
granting  funds  in  hands  of  re- 
ceiver to  second  mortgagee  re- 
versed on  ground  that  they  be- 
longed to  grantee  of  mortgagor. 

Instances  of  the  third  line  of 
cases  are  the  following:  Warner 
V.  Gouverneur's  Executors,  1  Barb. 
(N.  Y.)  36.    The  decision  is  based 


upon  what  the  court  considered  to 
have  become  the  established  rule 
in  the  courts  of  equity  of  New 
York  State,  although  it  was  unable 
to  see  that  the  rule  was  logical, 
considering  that  it  had  been  based 
upon  a  supposed  analogy  between 
the  rights  of  an  equitable  mort- 
gagee and  those  of  a  mortgagee 
holding  a  Common  Law  mortgage. 
Hollenbeck  et  al.  v.  Donnell,  94 
N.  Y.  342:  Rule  is  not  based  upon 
the  mortgagee's  right  to  posses- 
sion, as  under  a  Common  Law 
mortgage,  but  upon  an  analogy  be- 
tween the  rights  of  an  equitable 
mortgagee  and  those  of  a  vendee 
of  real  property  in  an  action  for 
specific  performance.  The  mort- 
gagee had  a  right  to  the  rents 
and  profits  on  default  and  a  court 
of  equity,  considering  that  to  be 
done  which  ought  to  be  done 
could  appoint  a  receiver  and'make 
his  right  to  the  rents  date  back 
to  the  commencement  of  the  ac- 
tion. It  was  remarked,  in  the 
opinion,  that  the  case  was  a  strong 
one  on  account  of  the  showing  of 
equitable  waste.  Lofsky  v. 
Maujer,  3  Sandf.  Ch.  (N.  Y.)  69. 
Whole  object  of  the  receivership 
is  to  divert  unpaid  rents  from  the 
mortgagor  to  the  mortgagee,  the 
latter,  as  against  the  former,  hav- 
ing a  legal  right  to  them  after  the 
mortgage  debt  falls  due.  Post  v. 
Dorr,  4  Edw.  Ch.  (N.  Y.)  412. 
Vice  Chancellor  McCann  doubted 
the  validity  of  the  rule  but  inas- 
much as  the  assignee  in  bank- 
ruptcy of  the  mortgagor  was  a 
party  at  the  time  of  the  appoint- 


572  LAW   OF    RECEIVERS. 

and  of  appointing  receivers  in  foreclosure  suits  in  par- 
ticular. It  would  be  impracticable  in  tliis  w^ork,  intended 
for  general  use  in  the  different  states,  to  attempt  to  dis- 
cuss in  detail  the  various  statutory  provisions  as  to 
receivers.^  Some  of  these  provisions,  together  with  their 
effect  upon  the  question  as  to  the  showing  necessary  to 
warrant  the  appointment  of  a  receiver  in  a  foreclosure 
action,  are  disclosed  in  the  decisions  and  to  that  extent 
we  will  here  discuss  the  matter. 

A  statute  commonly  found  is  to  the  effect  that  a  mort- 
gage on  real  property  shall  not  be  deemed  a  conveyance, 
whatever  its  terms,  so  as  to  enable  the  owner  of  the  mort- 
gage to  recover  possession  of  the  real  property  without 
foreclosure  and  sale.  This  statute  has  generally  been 
held  to  be  merely  declaratory  of  the  fact  that,  in  the 
jurisdiction  in  which  the  statute  controls,  the  Common 
Law  view  of  a  mortgage  has  been  abolished  and  that  the 
rights  of  a  mortgage  are  those  only  of  an  equitable 
mortgagee.^ 

A  statute,  whether  referring  to  receivers  generally  or 
to  foreclosure  cases  in  particular,  to  the  effect  that  a 
receiver  may  be  appointed  where  it  appears  that  there  is 
danger  that  the  property  may  be  lost,  removed,  or  mate- 
rially injured,  has  been  held  to  be  merely  declaratory  of 
the  general  rule.^ 

ment    of    the    receiver    and    had  Phoenix  L.  Ins.  Co.,  121  U.  S.  105, 

made    no    objection    the    assignee  30    L.    Ed.    905,    7    Sup.    Ct.    841; 

was  bound  by  the  order  appointing  Kountze  v.  Omaha  Hotel  Co.,  107 

and  could  not  complain  of  a  dis-  U.  S.  378,  27  L.  Ed.  609,  2  Sup.  Ct. 

tribution  of  the  rents  to  the  mort-  911. 

gagee.     Hyman   v.    Kelly,    1    Nev.  i  See   §  21. 

179;  Myers  v.  Estell,  48  Miss.  372.  2  See  §  243,  note  15  thereunder. 

Perhaps  there  is  a  fourth  line  of  supra.     See,    also:    Fifth    National 

cases  holding  that,  on  a  showing  Bank  v.  Pierce,  117  Mich.  376,  75 

of  equitable  waste,  a  receiver  may  N.  W.   1058;    Collins  v.  Gross,   51 

be     appointed     to     preserve     the  Wash.  516,  99  Pac.  573. 

corpus  of  the  property  and  "hold  3  Douglass    v.     Cline,     12    Bush 

the  rents  and  profits  for  the  satis-  (Ky.)   608.     Where  such  has  been 

faction  of  the  debt."  See  Grant  v.  the  holding  we  have  felt  at  liberty 


MORTGAGES,  PLEDGES,  AND  LIENS.  573 

A  receiver  may  be  appointed,  either  in  the  absence  of  a 
special  statute,  or  in  the  presence  of  one,  such  statute 
being  held  not  to  be  exclusive,  if  there  is  a  statute  author- 
izing the  appointment  of  a  receiver  *4n  all  cases  where 
receivers  have  heretofore  been  appointed  by  the  usages 
of  the  court  of  equity."^ 

A  statute,  frequently  found,  is  to  the  effect  that  a 
receiver  may  be  appointed  where  it  appears  that  the  con- 
ditions of  the  mortgage  have  not  been  performed  and 
that  the  property  is  probably  inadequate  security.  Such 
a  statute  has  been  held  to  dispense  with  the  necessity  for 
showing  the  insolvency  of  the  mortgagor  and  equitable 
waste  in  order  to  warrant  the  appointment  of  a  receiver 
on  foreclosure  and  also  to  give  the  mortgagee  an  equit- 
able lien  upon  the  rents  and  profits  after  default  even 
though  he  might  not  otherwise  be  entitled  to  tliem.^  Such 
a  statute,  however,  is  not  mandatory  upon  the  court  as 
to  the  appointment.^ 

As  might  be  expected,  interesting  instances  of  statutory 
construction  appear  in  the  decisions  covering  this  matter.'^ 

to  use  the  decisions  in  support  of  1177;  Waldron  v.  First  Nat.  Bank, 

propositions  laid  down  in  preced-  60  Neb.  245,  82  N.  W.  856;  Morris 

ing  sections  though  they  were  de-  v.  Linton,  62   Neb.   731,  87  N.  W. 

voted    to    discussion   of  the   rules  958;    Roberts  v,   Parker,   14   S.   D. 

laid  down  by  courts  of  equity  op-  323,   85   N,   W.    591;    Sherman   v. 

erating      under      their      inherent  Wichner,  35  S.  D.  436,  152  N.  W. 

powers.      Ferguson    v.    Dickinson  700. 

(Tex.  Civ.  App.),  138  S.  W.  221.  6  Douglass    v.    Cline,    12    Bush 

4  Hollenbeck  v.  Donnell,  94  N.  Y.  (Ky.)  608.  A  dissenting  opinion 
342;  De  Barrera  v.  Frost,  33  Tex.  in  this  case  holds  that  the  word 
Civ.  App.  580,  77  S.  W.  637.  "may"      in     the     statute      means 

5  Montgomery  v.  Merrill,  65  "must,"  or  "shall."  See  §  243, 
Cal.  432,  4  Pac,  414;  La  Societe  supra.  Woolley  v.  Holt,  77  Ky. 
Francaise,    etc.,    v.    Selheimer,    57  (14  Bush)   788. 

Cal.  623;  Leader  Pub.  Co.  et  al.  v.  v  Morris  v.  Linton,  62  Neb.  731, 

Grant   Trust   &    Savings    Co.,    182  87  N.  W.  958;   Roberts  v.  Parker, 

Ind.  651,  108  N.  E.  121;   Schultz  v.  14   S.   D.   323,    85   N.    W.    591.     In 

Stiner  et  al.,  97  Kan.  555,  155  Pac.  Collins    v.    Gross,    51    Wash.    516. 

1073;   Havana  State  Bank  v.  Dike-  99  Pac.  573,  it  was  held   that,  al- 

man  et  al.,  98  Kan.  222,  157  Pac.  though,  as  had  been  held  in  Norfor 


574  LAW  OF  RECEIVERS. 

§  245.   Eflfect  of  Stipulations  in  the  Mortgage. 

It  is  a  common  practice  to  insert  in  mortgages  stipula- 
tions designed  to  affect,  either  directly  or  indirectly,  the 
right  of  the  mortgagee  to  have  a  receiver  on  foreclosure. 
These  stipulations  are  so  varied  in  form  and  language 
that  it  is  impossible  to  give  any  general  description  of 
them  or  to  lay  down,  under  the  decisions,  any  general  rule 
as  to  their  effect.  All  that  can  be  done  is  to  give  a  run- 
ning comment  on  some  of  the  rulings  that  appear  in  the 
reports,  so  that,  in  any  particular  case,  the  practitioner, 
having  in  view  a  careful  analysis  of  the  wording  of  the 
stipulation,  may  find,  not  a  precedent,  but  an  impression 
as  to  the  point  of  view  from  which  a  court  would  exam- 
ine it.^  Declarative  statements  in  the  text  are  not  intended 
to  be  statements  of  a  general  rule  but  only  of  the  purport 
of  the  decisions  in  the  cases  cited. 

y  A  stipulation  to  the  effect  that,  upon  default,  the  mort- 
gagee may  enter  and  take  possession  of  the  mortgaged 
property,  gives  him  an  action  at  law  to  recover  possession, 
as  under  a  Common  Law  mortgage,  and  he  can  not  have  a 
receiver  on  foreclosure.V 

A  stipulation  that  the  mortgagor  shall  remain  in  pos- 
session until  foreclosure  bars  the  right  to  a  receiver  of 
rents  and  profits  pendente  lite.^ 

V.  Busby,   19  Wash.   450,   53   Pac.  be  appointed   on  a  showing  that 

715   (see  §  243,  supra)   an  earlier  the  property  was  In  danger  of  be- 

statute     had     been     repealed     as  jug  lost,  removed,  or  injured, 
to    that    portion    of    it    that    per-         ^^^^^    ^^    Marcus,    118    N.    Y. 


Supp.   1056.     See,   also,   Douglass 
V.  Cline,  12  Bush  (Ky.)  608. 


mitted   the  appointment  of  a  re 

ceiver  on  the  grounds  that  there 

had  been  default  and  the  security 

was  inadequate  by  a  later  statute      X  2  Eastern  Trust  &  Banking  Co. 

declaratory    of    the    fact    that    a      ^-    American    Ice    Co.,     14    App. 

mortgage    was    to    be   considered      ^-  ^-^   ^^^• 

simply  an  equitable  mortgage  (see         3  Chadbourn     v.     Henderson,    2 

above,  in  this  section),  it  had  not      Baxter    (Tenn.)     460.      See,    also, 

been   so  repealed  as  to  that   por-      Josey  v.   Smith    (S.   C),  95   S.  E. 

fon  which  permitted  a  receiver  to      133. 


MORTGAGES,    PLEDGES,    AND    LIENS. 


575 


A  stipulation  in  a  mortgage  that  on  default,  a  receiver 
or  a  receiver  of  rents  and  profits  may  be  appointed  may- 
be contrary  to  the  public  policy  of  the  state  as  shown  by 
its  statute,  and  therefore  void.^ 

Neither  a  direct  pledge  of  the  rents  and  profits,  nor  a 
stipulation  for  a  receiver  of  rents  and  profits  on  default, 
is  binding  upon  a  court  so  as  to  compel  the  appointment  of 
a  receiver  under  it  alone. ^  Such  a  stipulation  may  how- 
ever add  force  to  a  showing  made  on  other  grounds.*^    It 


4  Couper  V.  Shirley,  75  Fed.  168, 
21  C.  C.  A.  288;  Thomson  v. 
Shirley,  69  Fed.  484;  Baker  v. 
Varney,  129  Cal.  564,  79  Am.  St. 
Rep.  140,  62  Pac.  100.  Such  a 
stipulation  is  void  because  it  seeks 
to  give  jurisdiction  where  none  is 
given  by  law  where  there  is  a 
state  statute  stating  the  circum- 
stances under  which  a  court  shall 
have  power  to  appoint  a  receiver. 
See  Hazeltine  v.  Granger,  44  Mich. 
503,  7  N.  W.  74. 

Elgin  City  Banking  Co.  v.  Han- 
cock, 183  111.  App.  23,  24;  Schwarz 
v.  Alexander,  178  App.  Div,  641, 
165  N.  Y.  Supp.  491. 

5  Garretson  Inv.  Co.  v.  Arndt, 
144  Cal.  64,  77  Pac.  770;  Bank  of 
Woodland  v.  Stephens,  144  Cal. 
659,  79  Pac.  379. 

Such  a  provision  does  not  dis- 
pense with  the  necessity  for  veri- 
fication of  the  moving  papers. 
Daley  v.  Nelson,  119  111.  App.  627. 

Stipulation  will  not  be  enforced 
when  it  appears  that  the  security 
is  ample,  ^tna  Life  Ins.  Co.  v. 
Broeker,  166  Ind.  576,  77  N.  E. 
1092. 

Application  can  not  be  made 
upon  the  stipulation  alone  but  only 
on  a  proper  showing  independent 
of  the  stipulation.  Union  Trust  Co. 


v.  Charlotte,  etc.,  Co.,  152  Mich. 
568,  116  N.  W.  379;  Jarmulowsky 
v.  Rosenbloom,  125  App.  Div.  542, 
109  N.  Y.  Supp.  968;  Jarvis  v.  Mc- 
Quaide,  24  Misc.  Rep.  17,  53  N.  Y. 
Supp.  97. 

Stipulation  not  enforced  when  it 
is  shown  that  there  is  probably 
ample  security  and  responsible 
persons  liable  on  deficiency.  Eid- 
litz  V.  Lancaster,  40  App.  Div.  446, 
59  N.  Y.  Supp.  54.  See,  also. 
United  States  Life  Ins.  Co.  v. 
Ettinger,  32  Misc.  Rep.  378,  66 
N.  Y.  Supp.  1. 

Appointment"  is  within  the  dis- 
cretion of  the  court  even  in  pres- 
ence of  the  stipulation.  New  York 
Bldg.,  etc.,  Co.  v.  Begly,  75  App. 
Div.  308,  78  N.  Y.  Supp.  169; 
Brick  v.  Hornbeck,  19  Misc.  Rep. 
218,  43  N.  Y.  Supp.  301. 

6  Bagley  v.  Illinois  Trust  &  Sav- 
ings Bank,  199  111.  76,  64  N.  E. 
1085;  Townsend  v.  Wilson,  155  111. 
App.  303;  Leader  Pub.  Co.  v.  Grant 
Trust,  etc.,  Co.,  182  Ind.  651,  108 
N.  E.  121;  Stetson  v.  Northern 
Inv.  Co.,  101  Iowa  435,  70  N.  W. 
595;  Baier  v.  Kelley,  55  Misc.  Rep. 
368,  106  N.  Y.  Supp.  552;  Fletcher 
v.  Krupp,-  35  App.  Div.  586,  55 
N.  Y.  Supp.  146;  Browning  v.  Sire, 
56  App.  Div.  399,  67  N.  Y.  Supp, 
798. 


576  LAW   OP   RECEIVERS. 

may  even  dispense  with  a  showing  of  some  of  the  grounds 
usually  considered  necessary  to  the  making  of  the 
appointment.^ 

§  246.    Discretion  of  the  Court. 

It  is  not  important  to  explain  or  try  to  resolve  the 
apparent  conflicts  of  opinion  that  we  have  noticed  in  the 
foregoing  sections.  There  force  is  materially  lessened 
when  we  consider  the  rule  relating  to  the  discretion  to  be 
exercised  by  courts  of  equity  in  applying  this  remedy  in 
foreclosure  suits.  The  rules  concerning  the  discretion  by 
which  the  power  and  conduct  of  equity  courts  in  the  cre- 
ation of  receiverships  generally  have  been  hedged  about 
have  been  fully  set  forth  in  earlier  portions  of  this  text.^ 
Nothing  is  necessary  here  but  to  say  that  what  is  there 
said  in  regard  to  the  matter  applies  with  equal  force  to 
the  use  of  this  remedy  in  litigation  concerning  mortgaged 
property,  not  only  in  foreclosure  suits  brought  by  first 
mortgagees,  but  in  any  sort  of  litigation  affecting  mort- 
gaged property,  as  in  any  other  kind  of  litigation.-  As 
was  said  in  a  Kentucky  case,^  "It  [the  statute]  does  not 
deprive  them  [courts  of  equity]  of  their  ancient  and  indis- 
putable right  to  consider  the  circumstances  of  the  par- 
ticular case  in  hand  and  upon  such  consideration  to  grant 

T  American  Bridge  Co.  v.  Heidel-  Sage   v.   Mendelson,   89   App.   Div. 

bach,  94  U.  S.  798,  24  L.  Ed.  144;  137,  85  N.  Y.  Supp.  1008;   Pizer  v. 

Ortengren   v.    Rice,    104    111.    App.  Herzig,    121    App.    Div.    609,    106 

428;  Pringle  V.  James,  109  111.  App.  N.    Y.    Supp.    370;    Whitehead    v. 

100  (Insolvency) ;  West  v.  Adams,  Wooten,  43  Miss.  523. 

106    111.    App.    114     (Insolvency) ;  i  See,  supra,  §  10. 

Lechner    v.    Green,    104    111.    App.  2  First  Nat.  Bank  of  San  Fran- 

442;    Ball   v.    Marske,   202   111.    31,  Cisco  et  al.  v.  Detroit  Trust  Co.  et 

66  N.   E.  845;    McLester  v.   Rose,  al.,  248  Fed.  16;  Ridgely  v.  Abbott 

104  111.  App.  433;  Trussing  v.  Lan-  Quicksilver    Mining    Co.,    16    Cal. 

caster,  234  111.  462,  84  N.  E.  1062;  App.  773,  117  Pac.  1036;  New  York 

Handman  v.  Volk,  30  Ky.  Law  Rep.  Bldg.,  etc.,  Co.  v.  Begly,  75  App. 

818,   99   S.   W.   660    (Inadequacy);  Div.   308,   78   N.   Y.    Supp.   169,   11 

Land  Title  &  Trust  Co.  v.  Kellogg,  N.  Y.  Ann.  Cas.  473. 

73  N.  J.  Eq.  524,  68  Atl.  80;  Butler  3  Douglass     v.    Cline,    12    Bush 

V.    Frazer,    57    N.    Y.    Supp.    900;  (Ky.)  608. 


MORTGAGES,    PLEDGES,    AND    LIExXS.  577 

or  refuse  this  extraordinary  relief  as  it  may  or  may  not 
be  miconseientious  for  the  mortgagee  to  ask  it." 

§  247.    Property  Affected  by  the  Receivership. 

The  general  rule  of  course  is  that  the  receivership  can 
extend  only  to  the  property  covered  by  the  mortgage.^ 
But  it  might  happen  that  the  mortgaged  property  is  so 
situated  with  reference  to  other  property  that  the  receiver 
can  not  effectively  take  possession  of  the  former  without 
also  controlling  the  latter.  In  such  a  case  the  receiver's 
possession  is  extended  over  the  entirety  and  the  court 
makes  proper  provision  for  protecting  the  rights  of  the 
owners  of  the  property  not  covered  by  the  mortgage.- 

In  the  application  of  the  general  principle  important 
questions  of  detail  interpretation  necessarily  arise. 

Operating  receivers  may  be  appointed,  especially  if 
stipulated  for  in  the  mortgage,  to  carry  on  the  business 
of  the  mortgagor  conducted  on  the  mortgaged  property; 
and  the  proceeds  of  the  receiver's  operations  may  be 
considered  as  covered  by  the  mortgage.^  . 

iNoyes    v.    Rich,    52    Me.    115;  etc.,  Co.,   117  Cal.   237,   49   Pac.   1. 

Central    Trust    Co.    v.    Worcester  3  First    National    Bank    of    San 

Cycle    Mfg.    Co.,    114     Fed.     659;  Francisco   et  al.  v.   Detroit  Trust 

Staples    V.    May,    87    Cal.    178,    25  Co.,  248  Fed.  16  and  cases  cited; 

p^g    3]^g_  Lowell    V.    Doe,    44    Minn.    144,    46 

Wormser     v.     Merchants'     Nat.  N.  W.  297;    Truman  v.  Redgrave, 

Bank,  49  Ark.  117,  4  S.  W.  198.  L.  R.,  18  Ch.  Div.  547. 

2  Hotel  property,  containing  fur-  Claims  for  unpaid  current  ex- 
niture  not  covered  by  the  mortgage  penses  incurred  prior  to  the  fore- 
and  not  owned  by  the  mortgagor.  closure  may  be  paid  from  funds 
The  receiver  was  ordered  to  pay  arising  from  the  receiver's  opera- 
rent  for  the  furniture.  Sherman  tions,  especially  if  the  claims  re- 
V.  Wichner,  35  S.  D.  436,  152  N.  W.  mained  unpaid  because  interest  on 
700,  701.     '  the  mortgage  and  the  cost  of  im- 

Money    coming    into    the    hands  provements  for  the  benefit  of  the 

of  an  operating  receiver  and  not  mortgagee    had    been   paid.      See, 

covered     by     the    mortgage     was  also,  Merrell  v.  Pemberton,  62  Ga. 

ordered  to  be  paid  to  a  judgment  29.     A  business  will  not  be  begun 

creditor.     California   Title  Ins.    &  if    steps    thereto    had     not    been 

T.   Co.   V.   Consolidated  Piedmont,  taken   prior   to    foreclosure.      See, 
IRec. — 37 


578  LAW    OF    RECEIVERS. 

AVe  have  seen  tliat  there  is  a  difference  of  opinion 
among  authorities  as  to  whether  or  not  the  rents  and 
profits  from  mortgaged  property  may  be  counted  as  cov- 
ered by  the  mortgage  so  as  to  be  placed  under  the  control 
of  a  receiver.^  But  even  where  the  rents  are  covered  by 
the  mortgage,  either  because  the  mortgage  pledges  the 
rents,  or  because  the  mortgage  stipulates  that  the  mort- 
gagee may  have'  the  rents  after  default,  or  because  the 
doctrine  of  the  jurisdiction  is  that  the  rents  equitably 
belong  to  the  mortgagee  after  default,  the  mortgagee  can 
secure  the  rents,  the  mortgagor  being  in  possession,  only 
through  the  medium  of  a  receiver,  and  then  he  can  secure 
only  such  rents  as  accrue  and  remain  unpaid  after  the 
receiver  takes  possession,  having  been  appointed  in 
proper  proceedings  and  on  proper  showing.^  If  no  con- 
flicting equities  intervene,  the  mortgagee's  right  to  the 
rents  may  date  back  to  the  commencement  of  the  action 
without  reference  to  the  time  of  the  appointme«it  of  the 
receiver.^  The  receiver's  rights  to  the  rents  may  be 
defeated  by  a  valid  assignment  of  them  made  prior  to 
his  taking  proper  steps  to  secure  them.'^  The  defendant 
mortgagor  is  not  prejudiced  by  the  fact  that  the  receiver- 

also,    Lincoln    Trust    Co.    v.    Mis-  v.  Carey,  114  Fed.  288,  52  C.  C.  A. 

souri  Water,  Light  &  Traction  Co.,  1^4;    Hook  v.   Bosworth,   64   Fed. 

151  Mo  App.  322,  131  S.  W.  889.  443,    12    C.    C.    A.    208;    Argall    v. 

,  ^,„         ^        .     ir  Pitts  etal.,  78  N.  Y.  239;  Lofsky  V. 

4  See,  supra,  §243,  and  note  15  o  o      ^p  r^-^    ,^m  v  \  cq  -yc 

.  „  Maujer,  3  Sandf.  Ch.  (N,  Y.)  69,76; 

thereunder.    See,  also,  MoncriefE  v.      ^^^^^^  ^.^^  ^^^    ^^    ^    Belknap, 

Hare,    38    Colo.    221,    7    L.    R.    A.  ^^  ^^^    ^_   ^     ^j^    Y.)    345;    Jer- 

(N.  S.)    1001,  87  Pac.  1082;    Title  ^^^^  ^_  Hendricks,  100  N.  Y.  279, 

Ins.  &  Trust  Co.  v.  California  De-  3  n.  E.  193;  Rosenthal  v.  Slutnik, 

velopment    Co.,    164    Cal.    58,    127  175  App.  Div.  970,  162  N.  Y.  Supp. 

Pac.   502;    Ortengren  v.  Rice,   104  143. 

111.  App.  428;   Continental  Ins.  Co.  6  Havana    State    Bank    v.    Dike- 

V.   Reeve,   149   App.   Div.   835,   134  man,  98  Kan.  222,  157  Pac.  1177; 

N.  Y.  Supp.  78;  Ray  v.  Henderson,  Douglass  v,  Cline,  12  Bush   (Ky.) 

110  111.  App.  542;   affirmed  210  111.  608. 

305,  71  N.  E.  579.  7  Bank   of   Woodland   v.    Heron, 

5  Southern  Bldg.  &  Loan  Assoc.  120  Cal.  614,  52  Pac.  1006. 


MORTGAGES,    PLEDGES,    AND    LIENS.  579 

ship  is  made  to  include  property  for  which  rent  has  been 
paid  in  advance.^ 

af  the  mortgage  does  not  expressly  cover  rents,  issues, 
and  profits,  the  receivership  does  not  extend  to  crops 
harvested  from  the  mortgaged  property  before  fore- 
closure^ As  against  the  mortgagor,  under  a  mortgage 
covering  the  rents  and  profits,  the  receivership  covers  a 
crop  growing  on  the  land  at  the  time  of  the  appoint- 
ment ;^"  but,  as  against  a  tenant  without  actual  knowledge 
of  the  stipulation,  the  receivership  extended  only  to  so 
much  of  the  crop  as  covered  the  rent,  where  the  mort- 
gage did  not,  as  to  an  accompanying  affidavit  and  as 
to  recordation,  conform  to  the  statute  covering  croj) 
mortgages. ^^ 

Except  as  special  statutes  covering  the  matter  may 
otherwise  provide,  a  debtor's  homestead  may  be  mort- 
gaged, and,  if  mortgaged,  will  be  governed  by  the  same 
rules  in  regard  to  a  receivership  on  foreclosure  as  govern 
in  the  case  of  any  other  property;  though,  in  reference 
to  the  homestead,  courts,  because  of  the  unusual  hard- 
ship caused  by  a  receivership  over  property  so  situated, 
exact  a  much  stronger  showing  of  the  necessity  for  the 
receivership  than  in  the  case  of  other  property.^^ 

8  Thompson   v.   Hemenway,   218  12  Cone  v.  Combs,  18  Fed.  576, 

111.   46,   109   Am.   St.    Rep.   239,   75  5  McCrary  651;  Callanan  v.  Shaw, 

N.  E.  791;  Thorp  v.  Mlndeman,  123  19  jowa  183;   Lowell  v.  Doe  et  al. 

Wis.   149,   107   Am.   St.    Rep.    1003.  44  j^j^„    ^44    4g  ^    ^    297;    Mar- 

68    L.   R.   A.  146,   101   N.  W.   417.  ,  .n       f        d        1  r^    ^         nr    ,.• 

v.„T      .  T^,      ,         ,00  ^  ,    on-.        s^^^^l  6tc.  Bank  v,  Cody,  75  Minn. 

>'9  Locke  V.  Klunker,  123  Cal.  231, 

55  Pac    993  '         ^-       *  ^^^'    C^^'^™"  Loan 

10  Montgomery  v.  Merrill,  65  ''^''-  ^^^°^-  ^-  S"^^<^^'  ^^  ^eb.  469. 
Cal.  432,  4  Pac.  414.  '^^  A"^-  ®*-  ^^P-  1^8,  78  N.  W.  938; 

11  Scott  V.  Hotchkiss,  115  Cal.  Nash  v.  Meggett,  89  Wis.  486,  61 
89,  47  Pac.  45.  See  White  v.  Griggs,  N.  W.  283;  Wisconsin  Nat.  Loan 
54  Iowa  650,  7  N.  W.  125;  Myton  etc.  Assn.  v.  Pride,  136  Wis.  102, 
V.  Davenport,  51  Iowa  583.  2  N.  W.  116  N.  W.  637. 

402. 


580  LAW   OF    RECEIVERS. 

§  248.    Persons  Other  Than  Mortgagor,  Affected  by  Receiver- 
ship. 

A  foreclosure  suit,  instituted  for  the  purpose  of  col- 
lecting the  mortgaged  debt,  is  of  course  directed  pri- 
marily against  the  mortgagor  and  any  other  person  who 
may  be  liable  for  the  debt.  A  variety  of  circumstances 
arise,  however,  because  of  which  other  persons,  who  are 
not  concerned  in  any  way  with  the  debt,  are  interested  in 
or  affected  by  the  receivership.  The  rights  of  junior 
mortgagees  and  other  creditors  of  the  mortgagor,  who 
may  or  may  not  have  liens  upon  the  mortgaged  property, 
will  be  discussed  in  later  sections  of  this  chapter.  We  are 
here  concerned  only  with  persons  not  so  situated  with 
reference  to  the  property.^  Such  persons  are,  generally, 
either  in  possession  of  the  property  either  by  themselves 
or  their  tenants,  or  have  a  claim  upon  the  rents  by  assign- 
ment or  otherwise. 

A  person  in  possession  of  real  property  can  not  be 
disturbed  in  his  possession  unless  he  is  made  a  party  to 
the  action  or  proceeding.  If  the  person  in  possession  of 
mortgaged  property  is  a  tenant  of  the  mortgagor  he  can 
not  be  disturbed  in  his  possession  by  a  receivership  cre- 
ated on  foreclosure  unless  he  is  made  a  party  and  then 
he  may  simply  be  ordered  to  attorn  to  the  receiver  unless 
it  is  made  to  appear  that  his  continued  possession  is  liable 
to  be  detrimental  to  the  property  as  security  for  the  debtD 

1  A  mortgagor  who  has  sold  the  Fed.  865.  See,  also,  Woodward  v. 
property  has  not  an  interest  in  Winehill,  14  Wash.  .'^94.  44  Pec. 
the  question  of  a  receivership  that      860;    Harbottle  v.  Central  Coal  & 

.„        ,.,,     r.-       ^           •  *  .1,^   o„  Coke  Co.  (Ark.),  203  S.  W.  1044. 

will  entitle  him  to  resist  the  ap-  -'' 

„.  ,,  ^.       .  -r,.       T  -  Burton    v.    Pepper,    116    Miss, 

pointment.     Wall  Street  Fire  Ins.  ^^^^  ^^  ^^   ^g^;  Huston  v.  Canfield, 

Co.  V.  Loud,  20  How.  Pr.    (N.  Y.)  ^^   ^.^^    3^5^   ^^   ^^    ^^    ^33.    g^^ 

95.    After  the  appointment  of  a  re-  ^^^      (j^      ^^     Stebbins,     8     Paige 

ceiver,    the   plaintiff   may    dismiss  ^-^    y.)   565;   Shotwell  v.  Smith,  3 

parties    not    indispensable    or    not  Edw's.  Ch.  (N.  Y.)  588,  589;  Amer- 

interested  in  the  matter  of  the  re-  ican  Mtg.  Co.  v.  Sire,  103  App.  Div. 

ceivership.      Grove    v.    Grove,    93  396,  92  N.  Y.  Supp.  1082. 


MORTGAGES,  PLEDGES,  AND  LIENS.  581 

Where  a  mortgagee  is  not  entitled  to  the  rents  until  after 
the  appointment  of  a  receiver,^  a  tenant  who  has  paid 
rent  in  advance  can  not  be  dispossessed.^  A  person  who, 
having  knowledge  of  the  mortgage  and  of  the  inability 
of  the  mortgagee  to  pay,  takes  possession  of  the  property 
may  be  compelled  to  pay  rent  to  the  receiver.^  The  fact 
that  the  receiver  could  have  an  action  at  law  against  the 
tenant  for  the  rents  is  not  a.  suificient  reason  for  denying 
the  appointment.*^  A  mortgage  which  in  express  terms 
pledges  crops  growing  on  the  premises  as  part  of  the 
security  will  entitle  the  receiver  to  so  much  of  the  crops 
as  covers  the  rent,  but  not  to  any  more  if  it  is  not  exe- 
cuted with  the  formalities  required  by  statutes  governing- 
crop  mortgages.'^  After  a  receiver  has  been  appointed 
the  mortgagor  has  no  authority  to  accept  a  surrender, 
nor  to  vary  the  terms  of  a  lease,  nor  to  make  a  new  one.^ 

If  the  person  in  possession  is  one  who  acquired  pos- 
session before  the  tiling  of  the  notice  of  his  pendens  and 
is  claiming  adversely  to  the  mortgagor  he  must  be  made 
a  party  before  a  receiver  can  be  appointed  and  he  can 
not  be  dispossessed  unless  it  is  shown  that  he  could  not 
be  made  to  respond  to  a  claim  for  the  rents  if  it  should 
be  decided  that  the  receiver  was  entitled  to  them.^ 

Until  the  mortgagee  has  secured  a  claim  to  the  rents 
and  profits  and  crops,  either  by  contract  right  under  the 
mortgage  or  by  equitable  right  through  a  receivership, 
the  mortgagor  is  at  liberty  to  assign  or  sell  these  prop- 

3  Rhinelander   v.    Richards,    184  of  New  York  v.  London,  159  App. 
App.  Div.  67,  171  N.  Y.  Supp.  436.  Div.  484,  144  N.  Y.  Supp.  561. 

4  Lawrence  v.   Conlon,   26   Misc.  6  De  Barrera  v.   Frost,   33    Tex. 
Rep.  44,  56  N.  Y.  Supp.  345;   Moll  Civil  App.  580,  77  S.  W.  637. 

V.  McKeon,  35  Misc.  Rep.  551,  71  "  Scott  v.  Hotchkiss,  115  Cal.  89, 

N.  Y.  Supp.  1127;  Derby  v.  Brandt,  47  Pac.  45. 

99  App.   Div.  257,  90  N.  Y.   Supp.  8  Nealis     v.     Bussing,     9     Daly 

980;   Fletcher  v.  McKeon,  71  App.  (N.  Y.)  305. 

Div.  278,  75  N.  Y.  Supp.  817.  9  Warren   v.    Pitts,    114   Ala.    65, 

5  Mutual  Life  Ins.  Co.  v.  Spicer,  21  So.  494;  Webber  v.  Ahearn,  155 
12  Hun  (N.  Y.)   117;   Public  Bank  App.  Div.  892,  140  N.  Y.  Supp.  12. 


582  LAW   OF   RECEIVERS. 

erties  to  a  tliird  party.  Such  assignments  and  sales  are 
governed  by  the  same  rules  of  law  and  equity  as  govern 
similar  transactions  generally.  They  may  be  made,  how- 
ever, under  such  circumstances  concerning,  on  the  part 
of  the  assignee  or  vendee,  knowledge  of  the  mortgage,  or 
of  a  default,  or  of  a  suit  pending,  that  they  will  not  defeat 
the  claim  of  the  receiver  to  them.^*'  A  mere  judgment 
creditor  of  the  mortgagor  is  not  entitled  to  complain  of 
an  order  directing  the  receiver  of  rents  and  profits  on 
foreclosure  to  apply  the  rents  toward  payment  of  taxes. ^^ 

§  249.    Time  for  Applying  and  Duration  of  Receivership. 

An  application  for  the  appointment  of  a  receiver  may 
be  made  at  any  time  before  the  sale  on  foreclosure  or  final 
decree  of  confirmation.  If  a  receiver  is  appointed  his 
power,  unless  sooner  terminated,^  will  continue  until  such 
sale  or  decree;  and,  so  far  as  his  right  to  the  rents  and 
profits  is  concerned,  it  may,  with  due  regard  to  any  inter- 
vening equities  and  regardless  of  the  time  of  the 
application  or  appointment,  be  made  to  date  from  the 
commencement  of  the  action.^ 

Usually  the  mortgagee 's  interest  in  and  lien  upon  the 
property  ceases  upon  the  sale  and  confirmation  decree 
and  a  receiver  appointed  on  behalf  of  the  mortgagee  pend- 
ing foreclosure  should  at  that  time  be  discharged.^   Ordi- 

10  strain  v.  Palmer,  159  Fed.  628,  determined  in  a  collateral  action, 

86  C.  C.  A.  618;  Elmira  Mechanics'  in  which  all  the  parties  interested 

Soc.  of  New  York  v.  Stanchfield,  are  not  before  the  court.    Esch  v. 

160  Fed.  811,  87  C.  C.  A.  585;  An-  White,  82  Minn.  462,  85  N.  W.  238, 

derson  v.  Riddle,  10  Wyo.  277,  68  rehearing  denied  85  N.  W.  718. 

Pac.  829.  11  Elliott  v.  Magnus,  74  111.  App. 

Where,     on     foreclosure     of     a  436. 

mortgage,    a    receiver    has    been  i  Balfour-Guthrie     Inv.     Co.     v. 

appointed   to   take   charge   of   the  Geiger,  20  Wash.  579,  56  Pac.  370. 

property,   and  there  has   been  no  2  Schultz  v.  Stiner  et  al.,  97  Kan, 

accounting     or     settlement     with  555,  155  Pac.  1073;    Havana  State 

such  receiver,  whether  the  mort-  Bank  v.  Dikeman,  98  Kan.  222,  157 

gagor  or  other  person  is  entitled  Pac.  1177. 

to  the  rents  and  profits  can  not  be  3  Howard   v.   Tourbier,   98   Kaa. 


MORTGAGES,  PLEDGES,  AND  LIENS. 


583 


narily  a  receiver  on  behalf  of  the  mortgagee  as  such  will 
not  be  appointed  pending  the  period  of  redemption  where 
under  the  statute  the  debtor  is  entitled  to  the  possession 
during  that  period.'^  There  can  be  no  purpose  for  a 
receivership  on  behalf  of  the  mortgagee  as  such  during 
such  period  except  to  collect  the  rents  and  profits  and 
apply  them  toward  any  deficiency  judgment  that  may 
have  been  entered  in  his  favor ;  but  if  such  a  judgment 
has  been  entered  and  the  mortgagee  has  a  right,  con- 
tractual or  statutory,  to  the  rents  and  profits,  he  may,  on 
a  proper  showing,  have  a  receiver  appointed  to  preserve 
his  rights.^  Such  a  receiver  will  not  be  appointed  if  the 
property  is  in  possession  of  a  tenant  who  has  paid  rent 


624,  160  Pac.  1144;  Elgin  City 
Banking  Co.  v.  Hancock,  183  111. 
App.  23. 

Where    the    full    claim    of    the 
mortgagee  was   realized   on   fore- 
closure, and  the  property  was  bid 
in    by    the    mortgagee    under    an 
agreement  between  the  latter  and 
the  mortgagor,  by  which  the  mort- 
gagor, unless  the  property  should 
be  redeemed,  was  to  pay  the  in- 
terest and  costs,  and  remain  liable 
for    the    principal    with    interest, 
does  not  entitle  the  mortgagor,  as 
against  the  owner  of  the  equity  of 
redemption,  who  is  not  a  party  to 
the  agreement,  to  the  continuance 
of  the  receiver,  in  order  to  raise 
money   out   of   the    rents    to   pay 
plaintiff,  who  would  not  have  bid 
so  much  had  it  not  been  for  the 
mortgagor's  agreement.  Judgment 
(1898)    78  111.  App.  223,  affirmed; 
Bogardus  v.  Moses,  181  111.  554,  54 
N.  E.  984. 

Where  the  full  claim  of  the 
mortgagee  was  realized  from  a 
foreclosure  sale,  the  receiver  need 
not    be    continued    to    pay    a    tax 


which  the  owner  of  the  equity  of 
redemption  was  not  legally  bound 
to  pay  until  the  period  for  redemp- 
tion expired,  though  he  could  have 
paid  it  before.  Judgment  (1898) 
78  111.  App.  223;  affirmed,  Bogardus 
v.  Moses,  181  III.  554,  54  N.  B.  984. 

4  West  v.  Conant,  100  Cal.  231, 
34  Pac.  705;  Sheeks  v.  Klotz,  84 
Ind.  471;  White  v.  Griggs,  54  Iowa 
650,  7  N.  W.  125. 

5  Davis  v.  Newcomb,  72  Ind.  413; 
Ruprecht  v.  Muhlke,  225  111.  188, 
80  N.  E.  106;  Fountain  v.  Walther, 
66  111.  App.  529;  Ball  v.  Marske, 
100  111.  App.  389;  affirmed,  202  111. 
31,  66  N.  E.  845;  Hubbell  v.  Ave- 
nue Inv.  Co.,  97  Iowa  135,  66  N.  W. 
85. 

A  transferee  of  the  equity  of 
redemption  who  expressly  agreed 
to  pay  all  incumbrances  can  not 
object  to  the  appointment  of  a  re- 
ceiver to  collect  rents  during  the 
redemption  period,  although  no 
deficiency  decree  was  rendered 
against  the  transferee,  when  he 
and  the  mortgagor  are  insolvent. 
Cowell  v.  Gnatzig,  178  111.  App. 
482. 


584  LAW    OF   RECEIVERS. 

in  advance  for  the  entire  period.^  Such  a  receiver  is 
entitled  only  to  the  rents  that  accrue  after  his  appoint- 
ment."^ Where,  by  statute,  the  rents  and  profits  pending 
redemption  belong  to  the  owner  of  the  equity  of  redemp- 
tion, any  surplus  of  rents  remaining  in  the  hands  of  a 
receiver  will  be  distributed  to  such  ow^ner  notwithstanding 
a  stipulation  in  the  mortgage  to  the  contrary.^  A  receiver 
pending  redemption  is  sometimes  appointed  in  aid  of  a 
purchaser  on  foreclosure;  but,  if  the  right  to  such  a 
receiver  is  based  upon  a  statute,  he  will  be  appointed  only 
on  a  showing  and  for  a  purpose  in  compliance  with  the 
statute/^  A  purchaser  on  foreclosure,  who  is  entitled  to 
possession  and  is  compelled  to  sue  in  ejectment,  may, 
on  a  proper  showing,  have  a  receiver  appointed  in  aid  of 
his  suit.^® 

When  an  appeal  is  taken  from  an  order  confirming  a 
sale  on  foreclosure,  the  mortgagee  may,  on  a  proper 
showing,  have  a  receiver  appointed  pending  the  appeal. ^^ 

§  250.    Duties,  Powers,  and  Liabilities  of  the  Receiver. 

The  rules  that  apply  generally  to  receivers  with  refer- 
ence to  their  duties,  powers,  and  liabilities  apply  to 
receivers  appointed  in  foreclosure  actions  and  but  little 
change  in  the  terminology  of  the  general  rules  is  neces- 
sary to  make  their  application  clear  in  this  particular 
instance.^ 

The  receiver  derives  his  powder,  primarily,  from  the 
court,  and  his  official  action,  duties,  and  responsibilities 

6  Swan  V.  Mitchell,  82  Iowa  307,  lo  American  Freehold  Land 
47  N.  W.  1042.                                           Mortgage   Co.   v.   Turner,    95   Ala. 

7  Rider  v.  Bagley,  84  N.  Y.  461.  272,  11  So.  211. 

f'  Elgin  City  Banking  Co.  v.  Han-  n  Buck  v.  Stuben,  63  Neb.  273, 

cock,  183  111.  App.  23,  24;  Schaeppi  88  N.  W.  483;    Philadelphia  Mort- 

V.    Bartholomae,    217    111.    105,    75  gage  &  T.  Co.  v.  Goos,  47  Neb.  804, 

N.  E.  447,  1  L.  R.  A.  (N.  S.)  1079.  66  N.  W.  843;    Sanford  v.  Ander- 

t'Hill    V.    Taylor,    22    Cal.    191;  son,   69   Neb.   249,    95   N.   W.   632. 

Howard  v.  Tourbier,  98  Kan.  624,  See  Adair  v.  Wright,  16  Iowa  385. 

160  Pac.  1144.  1  See  §§  41  et  seq.,  supra. 


MORTGAGES,  PLEDGES,  AND  LIENS. 


585 


are  measured  by  the  scope  of  the  order  which,  after  his 
qualification,  constitutes  him  receiver,  and  such  supple- 
mentary orders  and  directions  as  he  may  subsequently 
from  time  to  time  receive  in  the  due  administration  of  the 
estate  or  matters  in  controversy.  His  discretionary 
powers  are  limited,  as  a  rule,  to  those  acts  which  are 
incident  to  the  scope  of  authority  given  to  him.  He  is  an 
officer  of  the  court  and  not  the  agent  of  any  party  to  the 
action.-  Such  orders  of  the  court  are  not  open  to  collat- 
eral attack  unless  they  are  absolutely  void.^  They  are 
binding  upon   the   parties   at  whose   instance   they  are 


-  See  §§41  and  59,  supra. 

Because  a  receiver  appointed  in 
mortgage  foreclosure  proceedings 
is  the  officer  of  the  court,  and  not 
the  agent  of  the  mortgagee,  the 
latter  is  not  liable  for  his  misap- 
plication of  funds  received.  Rob- 
inson V.  Arkansas  Loan  &  Trust 
Co.,  74  Ark.  292,  85  S.  W.  413. 

If  a  mortgage  creates  a  charge 
on  the  rents  of  the  premises 
pledged,  and  provides  that  a  re- 
ceiver, in  case  of  foreclosure  pro- 
ceedings, may  be  appointed  and 
out  of  rent  funds  in  his  hands  pay 
taxes,  he  has  a  right  to  do  so. 
Boyd  V.  Magill,  100  111.  App.  316. 

A  foreclosure  action  was  dis- 
missed on  a  stipulation  entered 
into  between  plaintiff  and  defen- 
dant, to  the  effect  that  the  action 
should  be  dismissed,  and  that  the 
receiver  theretofore  appointed 
should  continue  to  collect  the  rents 
and  pay  all  "accrued"  taxes.  Held, 
that  the  term  "accrued"  was  equiv- 
alent to  "to  become  due  and  pay- 
able," and  it  was  proper  for  the 
receiver  to  pay  the  taxes  on  the 
land  which  accrued  subsequent  to 
the  making  of  the  stipulation,  as 
well  as  those  which  had  accrued 
prior    thereto.     Moyer    v.    Badger 


Lumber  Co.,  10  Kan.  App.  142,  62 
Pac.  434. 

Where  a  receiver  made  repairs 
at  the  request  of  defendant,  with 
knowledge  that  the  rents  and  prof- 
its were  insufficient  to  pay  there- 
for, and  before  sufficient  funds 
had  been  collected  the  proceedings 
were  dismissed,  defendant  was  not 
liable  to  the  receiver  for  the  de- 
ficiency. Cohen  v.  Feuerstein,  80 
Misc.  Rep.  398,  141  N.  Y.  Supp. 
267. 

Since  the  receiver  is  an  officer 
of  the  trial  court,  the  compensa- 
tion of  a  receiver  as  costs  on  ap- 
peal, must  be  allowed  by  the  trial 
court  and  not  by  the  Supreme 
Court.  McKenzie  v.  Coslett,  28 
Nev.  220,  80  Pac.  1070. 

In  the  absence  of  proof  to  the 
contrary,  it  can  not  be  assumed 
that  an  order  appointing  a  re- 
ceiver in  foreclosure  conferred  on 
him  a  greater  authority  than  that 
usually  conferred  on  receivers  ap- 
pointed pendente  lite  to  preserve 
property  until  the  determination 
of  the  action.  Dow  v.  Nealis,  47 
Misc.  Rep.  153,  93  N.  Y.  Supp.  379. 

3  Thurber  v.  Miller,  11  S.  D.  124, 
75  N.  W.  900;  Davis  v.  Alton,  J.  & 
P.  Ry.  Co.,  180  111.  App.  1;   White 


)S6 


LAW    OF    RECEIVERS. 


obtained.*  Acquiescence  to  the  order  of  the  court  may- 
bar  the  right  to  object  to  it  or  to  have  it  vacated  or 
ignored.^  The  order  is  res  adjudicata  as  far  as  parties 
participating  or  having  the  right  or  duty  to  participate 
at  the  hearing  are  concerned  so  as  to  bar  their  right,  in 
subsequent  proceedings,  to  question  the  e\ddence  on  which 
it  was  made.^ 

The  orders  of  the  court  appointing  the  receiver  and 
stating  his  duties  and  powers  should  have  due  regard  to 
the  purpose  of  a  receiver  in  a  foreclosure  action,  namely, 
to  protect  the  right  of  the  mortgagee  to  obtain  i^ayment  of 
his  debt  from  the  property,  and  they  should  not  be  too 
general,^     To  secure  the  enforcement  of  his  rights  the 


V.  Suggs,  56  Ind.  App.  572,  104 
N.  E.  55;  White  v.  First  Nat.  Bank, 
56  Ind.  App.  708,  104  N.  B.  60; 
White  V.  Bradfute,  56  Ind.  App. 
708,  104  N.  E.  123. 

4  Where  the  appointment  of  a 
receiver  of  the  rents  and  profits 
pending  foreclosure  is  void,  such 
receiver  is  not  entitled  to  compen- 
sation or  expenses  from  the  estate, 
but  should  be  paid,  if  at  all,  by  the 
party  who  procured  his  appoint- 
ment. Couper  V.  Shirley,  75  Fed. 
168,  21  C.  C.  A.  288. 

A  contract  of  case  made  by  a 
receiver,  with  the  approval  of  the 
court,  is  binding  on  the  mortgagee, 
although  it  is  not  a  formal  party 
thereto.  Western  Union  Tel.  Co. 
V.  Boston  Safe-Deposit  &  Trust 
Co.,  112  Fed.  37,  50  C.  C.  A.  106; 
Boston  Safe  Deposit  &  Trust  Co. 
V.  Western  Union  Tel.  Co.,  112 
Fed.  37,  50  C.  C.  A.  106. 

Where  the  costs  and  expenses 
of  the  management  of  mortgaged 
property  by  a  receiver,  authorized 
by  the  court,  exceed  the  proceeds 
of  the  property  when  sold,  to- 
gether with  its  earning,  the  court 


has  power  to  render  judgment  for 
the  deficiency  against  the  com- 
plainant, at  whose  instance  the  re- 
ceiver was  appointed  and  contin- 
ued. Chapman  v.  Atlantic  Trust 
Co.,  119  Fed.  257,  56  C.  C.  A.  61. 

A  mortgagee  who  obtains  the 
appointment  of  a  receiver  pending 
litigation,  is  chargeable  from  the 
date  of  the  possession  of  the  re- 
ceiver, and  is  liable  to  account  ac- 
cordingly. Land  v.  May,  73  Ark. 
415,  84  S.  W.  489;  Teutonia  Bank 
&  Trust  Co.  V.  Security  Brewing 
Co.,  137  La.  1046,  69  So.  833. 

5  Lombard  v.  Wade,  37  Ore.  426, 
61  Pac.  856;  Conroy  v.  Polstein, 
150  App.  Div.  832,  135  N.  Y.  Supp. 
419. 

e  Storm  v.  Ermantrout,  89  Ind. 
214;  Land  Title  &  Trust  Co.  v, 
Kellogg,  73  N.  J.  Eq.  524,  68  Atl.  80. 

7  The  receiver  should  not  be 
given  power  to  improve  the  prop- 
erty for  the  benefit  of  the  holder 
of  the  certificate  of  sale.  Standish 
V.  Musgrove,  223  111.  500,  79  N.  E. 
161. 

An  order  giving  a  receiver  power 
tc  lease  for  a  term  not  exceeding 


MORTGAGES,  PLEDGES,  AND  LIENS. 


587 


receiver  should  seek  the  assistance  of  the  court  appoint- 
ing him  f  and  persons  having  claims  against  the  receiver 
should  enforce  them  either  in  the  receivership  proceed- 
ings or  in  independent  actions  against  him  commenced 
with  the  approval  of  the  court  in  which  the  proceedings 
are  pending.^ 

An  order  of  the  court,  even  though  erroneous,  may 
serve  to  protect  the  receiver,  at  least  so  far  as  his  acts 
and  expenditures  inure  to  the  benefit  of  the  property 
and  the  parties  interested  therein.^"  Before  taking  any 
step  in  connection  with  his  management  of  the  property, 
the  receiver,  for  his  own  protection,  should,  however,  seek 
an  order  of  the  court  directing  him  what  to  do,^^  but  even 
though  he  proceeds  on  his  own  judgment  and  exceeds 
the  strict  letter  of  the  order  appointing  him  the  court 
may  subsequently  ratify  his  acts.^^ 


a  year,  for  sucii  rentals  "as  he 
shall  deem  advisable  and  just," 
made  without  allowing  to  the  mort 
gagor  an  opportunity  to  be  heard, 
is  too  broad,  since  the  receiver 
should  not  be  given  power  to  lease 
at  will.  Gooden  v.  Vinke,  87  111. 
App.  562. 

Where  the  mortgage  covers 
property  used  for  business  pur- 
poses, the  court  may  authorize  the 
receiver  to  carry  on  the  business. 
Leader  Pub.  Co.  v.  Grant  Trust  & 
Savings  Co.,  182  Ind.  651,  108  N.  E. 
121. 

The  court  has  power  to  appoint 
a  receiver  whose  duty  it  is  to  rent 
the  property,  if  it  is  rentable;  and 
the  duty  to  rent  implies  authority 
to  reduce  rents  at  the  expiration 
of  existing  leases,  if  such  reduc- 
tion is  necessary  to  secure  tenants 
and  make  the  property  productive; 
but  it  is  improper  for  the  court  to 
reduce  the  rent  during  the  pen- 
dency of  an  existing  lease,  without 


any  showing  that  such  reduction 
will  be  for  the  benefit  of  the  mort- 
gagor or  the  mortgagee.  North- 
western Mut.  Life  Ins.  Co.  v.  Burr, 
60  Neb.  467,  476,  83  N.  W.  663,  664. 

A  receiver  should  be  authorized 
to  make  only  such  repairs  as  are 
strictly  necessary  to  preserve  the 
property.  Kronenthal  v.  Rosen- 
thal, 144  N.  Y.  Supp.  830;  Schaefer 
V.  Fanning,  170  N.  Y.  Supp.  849. 

■s  Van  Pelt  v.  Russell  (Ark.),  203 
S.  W.  267. 

9  More  et  al.  v.  Lane  et  al.  37 
N.  D.  563,  164  N.  W.  292. 

10  Ball  V.  Improved  Property 
Holding  Co.  of  New  York,  220  Fed. 
637,  136  C.  C.  A.  245;  Locke  v. 
Klunker,  123  Cal.  231,  55  Pac.  993; 
Ruprecht  v.  Muhlke,  225  111.  188,  80 
N.  E.  106;  Joslin  v.  Williams,  76 
Neb.  594,  107  N.  W.  837,  112  N.  W. 
343. 

11  See   §  55,   supra. 

12  Kronenthal  v.  Rosenthal,  144 
N.  Y.  Supp.  830. 


588  LAW   OP    RECEIVERS. 

When  be  uses  ordinary  care  and  prudence,  that  is,  the 
care  and  diligence  which  an  ordinarily  prudent  man  uses 
in  handling  his  own  estate,  he  has  fulfilled  the  measure  of 
his  official  duty  and  is  not  answerable  for  losses  which 
occur  to  the  property  and  assets  in  his  charge. ^^  Since 
bis  powers  are  limited  by  the  terms  of  the  order  appoint- 
ing him  his  liabilities  are  similarly  circumscribed  and  he 
can  not  be  held  responsible  for  defective  conditions  aris- 
ing through  want  of  repair  in  the  property  which  he  was 
not  authorized  to  remedy^^  nor  for  failure  to  perform  a 
service  not  within  the  scope  of  his  authorized  powers. ^^ 
A  receivership  can  not  displace  vested  liens  upon  the 
mortgaged  property  and  if  the  receiver,  even  though  act- 
ing under  an  order  of  court,  seizes  and  disposes  of  prop- 
erty not  covered  by  the  mortgage  or  on  which  there  is  a 
prior  lien,  he  may  be  held  liable  in  conversion.^*^ 

The  service  imposed  upon  a  receiver  is  a  personal  one 
and,  as  a  rule,  he  can  not  delegate  its  performance  to 
others ;  and,  if  he  does  so  wrongfully  or  without  warrant, 
his  agents  will  not  be  entitled  to  compensation  out  of  the 
estate. ^'^ 

Neither  the  receiver  nor  any  of  his  agents  may  be  per- 
mitted, as  such,  to  be  interested  in  the  property  of  the 
estate  or  to  make  any  profit  out  of  any  transaction  arising 
in  the  course  of  his  administration.^^ 

13  See  §  43,  supra.  156,  102  N.  E.  484;   More  et  al.  v. 

See,    also.    Continental   Ins.    Co.  Lane  et  al.,  37  N.  D.  563,  164  N.  W. 

V.   Reeve,   149   App.   Dlv.    835,   134  292. 

N.  Y.  Supp.  78,  and  Barton's  Exr.  it  Niagara  Life  Ins.  Co.  v.  Lin- 

V.  Ridgeway's  Admr.,  92  Va.   162,  coin  Mortgage  Co.,  175  App.   Div. 

]63,  23  S.  E.  226.  415,  161  N.  Y.  Supp.  853;  Schaefer 

1^  Lichtenstein   v.   Belknap,   100  v.  Fanning,  170  N.  Y.  Supp.  849. 

Misc.    Rep.    468,    165  N.    Y.    Supp.  is  See  §  49,  supra. 

936;   In  re  Fischer,  168  App.  Div.  Elgin  City  Banking  Co.  v.  Han- 

326,  153  N.  Y.  Supp.  1008.  cock,  183  111.  App.  23,  24;  Herrick 

15  Dow  V.  Nealis,  47  Misc.  Rep.  v.  Miller,  123  Ind.  304,  24  N.  E. 
153,  93  N.  Y.  Supp.  379.  111. 

16  Old  Colony  Trust  Co.  v.  Med-  An  attorney  at  law,  who  acted 
field  &  M.  St.  Ry.  Co.,  215  Mass.  as   attorney   for  the   receiver,   did 


MORTGAGES,  PLEDGES,  AND  LIENS.  589 

Q  251.    Appointment  Before  Maturity  of  the  Debt. 

generally  a  mortgagee  can  not  seek  the  appointment  of 
a  receiver  unless  the  entire  debt  is  due  and  he  is  entitled 
to  sue  in  foreclosure.     Of  course  this  right  might  arise 
through  a  stipulation  in  the  mortgage  to  the  effect  that 
upon  default  in  the  payment  of  interest  or  any  installment 
of  principal  or  on  default  with  reference  to  any  other 
condition  of  the  mortgage,  the  mortgagee  might  elect  to 
consider  the  entire  debt  due.    In  exceptional  cases,  how- 
ever, where  a  default  was  imminent  and  serious  detriment 
to  the  security  was  threatened  it  has  been  held  that  a 
receiver  might  be  appointed  even  though  the  debt  was  not 
due.^  '  It  happens  more  often,  perhaps,  than  on  default  in 
payment  of  interest  or  part  of  the  principal,  the  mort- 
gagee may  have  the  right  to  sue  in  foreclosure  and  ask 
for  a  receiver.    He  must,  in  any  event,  to  be  entitled  to  a 
receiver,  make  whatever  equitable  showing  is  required 
to  be  made  in  foreclosure  for  the  whole  debt ;  and  whether 
the  entire  property  or  only  a  portion  thereof  will  be 
placed  under  the  receivership  depends  upon  whether  the 
property  may  be  advantageously  divided  or  is  so  situated 
that  it  must  be  sold  as  a  whole,  and  whether  or  not  the 
mortgage  stipulates  that  the  rents  and  profits  shall  be 
part  of  the  security.^ 

not  violate  his  trust  by  purchasing  i  Mayfield    v.    Wright,    107    Ky. 

the  properties  on  foreclosure  of  a  530,  54  S.  W.  864;  Rose  v.  Bevan, 

mortgage  which  he  himself  owned.  lo  Md.  466,  69  Am.  Dec.  170;  Long 

Kock  V.  Burgess,  176  Iowa  493,  156  j^p^k  Co.  v.  Mallery,  12  N.  J.  Eq. 


N.  W.  174. 


431. 


A  sale  by  a  receiver  on  foreclos-  ^  ^^  ^    ^^.^^^  ^^  ^^^     ^^^ 

ure  of  a  trust  deed  is  not  invalid  „     ^,   ^„„     _    .  „, 

because  the  trustee  was  a  stock-  Bush)   608;   Quincy  v.  Cheeseman. 

holder  in  a  corporation  that  pur-  4  Sandf.   (N.  Y.)   Ch.  405;   Hollen- 

chased  the  property,  although  the  beck    v.    Donnell,    94    N.    Y.    342; 

trustee    himself    could    not    have  Bank  of  Ogdensburg  v.  Arnold,  5 

been    the    purchaser.     Powers    v.  Paige  (N.  Y.)   38;  Morris  v.  Braii- 

Maytag-Mason  etc.  Co.  (Iowa),  166  chaud,  52  Wis.  187,  8  N.  W.  883. 
N.  W.  723. 


590  LAW   OF   RECEIVERS. 

§  252.    Questions  Relating  to  the  Procedure. 

jWe  have  seen  that,  as  the  practice  of  appointing 
receivers,  either  generally  or  in  foreclosure  actions,  was 
developed  in  courts  of  equity  acting  under  their  inherent 
powers  and  without  the  aid  of  statutes,  it  was  always  rec- 
ognized that  there  was  a  wide  discretion  to  be  exercised 
by  the  chancellor  in  deciding  whether  or  not  to  make  the 
appointment  and  that,  even  in  the  face  of  a  strong  equi- 
table showing  justifying  the  appointment,  the  matter 
resolved  itself,  in  the  last  analysis,  to  the  question 
whether  or  not  the  mortgagee  could  conscientiousTy^sli 
for  the  relief.  In  this  view  of  the  matter  the  chancellor 
could  grant  the  petition  for  the  appointment  on  condition 
and  could  require  a  bond  either  from  the  receiver,  con- 
ditioned that  he  would  properly  perform  the  duties  of  his 
office,  or  from  the  petitioner  conditioned  that  he  would 
pay  all  damages  suffered  by  the  defendant  through  the 
receivership  if  it  should  finally  be  made  to  appear  that  he 
was  not  entitled  to  it.  This  matter  is  now  largely  gov- 
erned by  statute,  and  statutory  requirements  as  to  the 
giving  of  bonds  are  mandatory.^ 

Likewise  the  chancellor  might  or  might  not  require 
notice  of  the  application  for  the  appointment  of  a  receiver 
to  be  given  to  defendant  before  hearing  the  motion, 
according  as  his  discretion  dictated.  This  matter  is  also 
now  largely  regulated  by  statute  and  the  statutory 
requirements  concerning  notice  are  mandatory.^     Stipu- 

1  Stoff  V.  Erken,  172  Cal.  481,  156  pointment  of  a  receiver,  it  is  error 

Pac.  1033;   Van  Alan  v.   Superior  to   appoint   a  receiver   without  a 

Court,  (Cal.  App.)  174  Pac.  672.  bond   being  required   of  the  com- 

An  order  appointing  a  receiver  plainant,  if  the  order  of  appoint- 
without  bond  should  in  its  terms  ment  does  not  recite  that  in  the 
dispense  with  the  requirements  of  opinion  of  the  court  a  bond  ought 
the  statute.  Schoenecke  v.  Chi-  not  to  be  required.  Aevermann  v. 
cago  Title  &  Trust  Co.,  178  111.  Rizek,  160  111.  App.  648. 
App.  387.  -  Belknap   Sav.   Bank   v.   Lamar 

Even  though  the  trust  deed  be-  Land  &  Canal  Co.,  28  Colo.  326,  64 

ing  foreclosed  provided  for  the  ap-  Pac.  212. 


MORTGAGES,  PLEDGES,  AND  LIENS. 


591 


lations  relating  to  the  matter  of  notice  are  frequently 
found  in  mortgages ;  they  are  not  necessarily  binding  on 
the  court  but,  if  the  showing  for  a  receiver  is  based  on 
other  than  the  usual  equitable  grounds,  are  usually 
followed.^ 


Schoenecke  v.  Chicago  Title  & 
Trust  Co.,  178  111.  App.  387. 

A  clause  in  a  mortgage  granting 
the  mortgagee  the  right  on  default 
to  enter  the  premises,  take  the 
rents  and  profits,  and  apply  them 
on  account  does  not  pertain  to  a 
receiver;  and  a  further  clause 
merely  giving  the  right  to  a  re- 
ceiver does  not  obviate  the  neces- 
sity for  giving  notice  of  the  appli- 
cation. Straus  V.  Minkowski  et  al., 
181  App.  Div.  877,  169  N.  Y.  Supp. 
442;  Jarraulowsky  v.  Rosenbloom, 
125  App.  Div.  542,  109  N.  Y.  Supp. 
968. 

Citizens'  Savings  Bank  v. 
Wilder,  11  App.  Div.  63,  42  N.  Y. 
Supp.  481. 

Coleman  v.  Goodman,  37  Misc. 
Rep.  517,  75  N.  Y.  Supp.  973. 

Dazian  v.  Meyer,  66  App.  Div. 
575,  73  N.  Y.  Supp.  328. 

Conroy  v.  Polstein,  150  App.  Div. 
832,  135  N.  Y.  Supp.  419. 

Fletcher  v.  Krupp,  35  App.  Div. 
586,  55  N  Y.  Supp.  146. 

Where  the  mortgage  was  given 
by  two  tenants  in  common  owning 
the  property,  and  an  application  is 
made  for  the  appointment  of  a  re- 
ceiver of  the  premises,  it  is  not 
necessary  to  serve  notice  on  a  re- 
ceiver appointed  in  supplementary 
proceedings  of  the  property  of  one 
of  the  mortgagors,  such  receiver 
not  being  an  adverse  party  within 
the  statute  requiring  notice  to  be 
served     on     the     adverse     party. 


Grover  v.  McNeeley,  72  App.  Div. 
575,  76  N.  Y.  Supp.  559. 

Where  a  receiver  was  properly 
appointed  the  court  had  authority 
on  the  death  of  such  receiver  to 
appoint  a  successor  without  fur- 
ther notice.  Buchanan  v.  Berk- 
shire Life  Ins.  Co.,  96  Ind.  510. 

Where  the  receiver  did  not  do 
any  act  under  his  appointment, 
and  on  a  hearing  soon  after  the 
appointment  was  discharged,  and 
the  costs  pertaining  to  his  receiv- 
ership were  charged  to  plaintiff, 
the  appointment  of  the  receiver 
without  notice  to  defendants  was 
harmless.  Wilkie  v.  Reynolds,  34 
Ind.  App.  527,  72  N.  E.  179. 

3  Fletcher  v.  Krupp,  35  App.  Div. 
586,  55  N.  Y.  Supp.  146. 

Even  though  a  mortgage  pro- 
vides that  a  receiver  may  be  ap- 
pointed without  notice,  the  court 
in  its  discretion  may  require  no- 
tice to  be  given.  Hawkins  v.  Max- 
well, 156  App.  Div.  31,  140  N.  Y. 
Supp.  909. 

Though  the  parties  have  stipu- 
lated that  notice  should  be  given, 
the  court  may  appoint  a  receiver 
without  notice,  but  either  inability 
to  give  the  notice  or  prejudice  in- 
cidental to  the  delay  should  be 
shown.  Woerishoffer  v.  Peoples, 
120  App.  Div.  319,  105  N.  Y.  Supp. 
506. 

A  ptfovision  of  a  mortgage,  that 
eight  days'  notice  shall  be  given, 
does  not  apply  to  an  application 


592  LAW    OF    RECEIVERS. 

The  general  rules,  pointed  out  in  a  foregoing  section,'* 
that  govern  the  chancellor  in  his  choice  of  a  person  to  be 
appointed  receiver  apply  to  the  appointment  of  a  receiver 
on  foreclosure.^ 

We  have  seen  that  a  mortgagee,  seeking  the  appoint- 
ment of  a  receiver,  must  show  the  existence  of  certain 
facts  as  an  equitable  foundation  for  his  petition  before 
he  can  expect  it  to  be  granted.  Of  course  if  he  fails  to 
make  the  necessary  showing  a  receiver  will  not  be  ap- 
pointed. But  even  where  the  showing  might  otherwise  be 
deemed  sufficient  it  may  be  offset  by  a  showing  of  counter, 
or  opposing  equities  on  the  part  of  the  defendant  and  a 
receiver  be  denied.^ 

c.    Receiverships  on  Belial f  of  Junior  Mortgagees. 

§  253.    Right  of  a  Junior  Mortgagee  to  a  Receiver  as  Against 
the  Mortgagor. 

The  preceding  division  of  the  chapter  has  set  forth  the 
rules  and  principles  governing  the  use  of  a  receivership 
on  behalf  of  a  first  mortgagee  in  aid  of  an  action  to  fore- 
close his  mortgage.  We  now  take  up  the  question  of 
receivership  on  behalf  of  junior  mortgagees. 

for  a  receiver  on  the   ground   of  Where  a  second  mortgagee,  who 

the    inadequacy    of    the    security.  had    been    appointed    receiver    on 

(1899)    Putnam   v.   McAllister,    57  foreclosure    by   the   third   mortga- 

N.  Y.  Supp.  404;   modified   (1900),  gee,    commences    proceedings    on 

49  App.  Div.  361,   63  N.  Y.   Supp.  his  own  mortgage  and  applies  for 

250.  a  receiver,  a  new  receiver  will  be 

Jarvis    v.    McQuaide,    24    Misc.  appointed  in   both   actions,   if  ob- 

Rep.  17,  53  N.  Y.  Supp.  97,  6  N.  Y.  jections  are  made  to  the  propriety 

Ann.  Cas.  303.  of  the  second  mortgagee  acting  as 

Graybill   v.   Heylman,    139   App.  receiver,  notwithstanding  there  be 

Div.  898,  123  N.  Y.  Supp.  622.  no  question  as  to  his  good  faith. 

4  See,  supra,  §  62.  (1899)    Putnam    v.    McAllister,    57 

5  The  holders  of  a  tax  certificate  N.  Y.  Supp.  404;  modified  (1900), 
covering  premises  involved  in  a  49  App.  Div.  361,  63  N.  Y.  Supp. 
foreclosure  suit  was  appointed  in  250. 

Walker  v.  Fitzgerald,  69  Neb.  52,  6  In    Adair   v.   Wright,    16    Iowa 

95  N.  W.  32.  385,  the  Judge  rendering  the  opin- 


MORTGAGES,  PLEDGES,  AND  LIENS. 


593 


As  far  as  the  mortgagor  is  concerned,  a  junior  mort- 
gagee's right  to  have. a  receiver  appointed  in  aid  of  his 
foreclosure  are  governed  by  the  same  rules  and  principles 


ion  stated  that  in  his  opinion  the 
appointment  of  a  receiver  in  fore- 
closure proceedings  where  the  de- 
fendant was  in  the  volunteer  mili- 
tary service  of  the  government 
was  in  violation  of  the  spirit  and 
intendment  of  the  Act  of  the  Leg- 
islature exempting  property  of 
such  volunteers  from  sale  under 
deeds  of  trust,  mortgages  and 
judgments. 

A  defense  of  usury  sworn  to 
only  on  information  and  belief  will 
not  be  regarded  as  against  a  stipu- 
lation for  a  receiver  in  the  mort- 
gage itself.  Knickerbocker  Life 
Ins.  Co.  V.  Hill,  2  Hun  (N.  Y.)  680, 
5  Thomp.  &  C.  694;  McKellar  v. 
Rogers,  20  Jones  &  S.  (N.  Y.)  360. 
(See  same  case  on  appeal,  109 
N.  Y.  468,  17  N.  E.  350.) 

In  Hesse  v.  Ledesma,  7  Porto 
Rico  Fed.  521,  a  mortgage  fore- 
closure had  been  instituted  by  the 
first  mortgagee,  who  was  a  German 
non-resident.  The  World  War  had 
just  started.  Our  country  was  not 
yet  a  participant.  The  complain- 
ant, who  also  was  a  German  non- 
resident and  held  a  second  mort- 
gage upon  the  property,  sought  an 
injunction  against  the  foreclosure 
proceedings  and  the  appointment 
of  a  receiver  upon  the  ground  that 
the  money  markets  had  become  so 
strained  that  it  was  impossible  for 
him  to  meet  the  mortgage  situa- 
tion and  that  the  sugar  crop  upon 
the  mortgaged  property  would  be 
ready  for  harvesting  within  sixty 
days,  whereas  if  the  foreclosure 
took  place  all  creditors  other  than 
the  first  mortgagee  would  be  wiped 
I  Rec— 38 


out,    there    being   no  right  of  re- 
demption under  the  laws  of  Porto 
Rico     but     that     a     receivership 
would  preserve  the  property  for  all 
creditors.    The  holder  of  a  second 
mortgage  appeared   and   admitted 
the   allegations   in   the    bill.     The 
court,     speaking     through     Judge 
Hamilton,    in    passing    upon    the 
question,  said:     "One  reason  given 
for  denying  the  equity  of  the  bill 
is  that  it  is  a  bill  for  a  receiver- 
ship,   and    that   there   is    no    such 
ground  of  equity  jurisdiction.  This 
!g  true.     A  receivership  is  merely 
incidental  to  a  suit  to  enforce  an 
equity.     It  is  not  itself  an  equity. 
If  the  bill  is  to  be  construed  as  one 
in    which    the    court    must    take 
charge    of    property    in    order    to 
work  through  a  receiver,  so  that 
profits     may     be     derived     which 
would  pay  off  the  complainant  as 
well    as    defendant,    Westphaling, 
then  it  must  be  dismissed  for  want 
of  equity.     A  Court  of  Chancery 
can  not  go  into  business.     It  can 
not,   on   the    ground    of   hardship, 
take   possession   of  an   enterprise 
and   appoint  a  receiver  to  run  it 
for  the  benefit  of  those  in  interest, 
merely     because     the     managers 
have  been  unsuccessful  in  running 
it  themselves.     A  receivership  ex- 
ists   only    as    incident    to    a    suit 
under    some    recognized    head    of 
equity     jurisprudence.      Although 
the   bill  is  entitled  one  for  a  re- 
ceivership, however  this  does  not 
control.     No  matter  how  it  is  en- 
titled, if  it  presents  an  equitable 
case  in  its  recitals,  it  may  be  sus- 
tained.   In  much  the  same  manner 


594 


LAW   OF   RECEIVERS. 


as  are  applicable  to  the  rights  of  a  first  mortgagee  in  tliat 
regard.  In  regard  to  a  showing  <?£  the  inadequacy  of 
the  security,  however,  the  junior  mortgagee  has  to  show 


it  is  argued  that  the  bill,  even 
upon  its  own  statements,  presents 
merely  a  case  of  hardship,  and 
that  this  is  not  a  ground  for  equity 
jurisdiction.  The  complainant, 
however,  says  that  the  bill  is 
drawn  so  as  to  come  under  the 
equitable  remedy  for  accident. 
Accident  is  a  ground  of  equitable 
jurisdiction.  It  is  usually  grouped 
with  fraud  and  mistake  but  it  has 
its  own  particular  rules. 

"Originally  the  field  of  accident 
In  equitable  jurisprudence  was 
much  larger  than  at  present.  It  is 
one  of  the  oldest  heads  of  equity 
jurisdiction.  At  present  the  juris- 
diction is  based  upon  the  plain- 
tiff's conscientious  right  to  relief 
and  the  impossibility  of  obtaining 
an  adequate  remedy  at  law.  2 
Pom.  Eq.,  §§  824,  825.  It  is,  of 
course,  true  of  this  as  of  every 
other  head  of  equity  jurisdiction 
that  the  complainant  must  not 
himself  be  proximately  the  cause 
of  the  alleged  accident.  It  has 
been  repeatedly  held  that  equity 
will  not.  any  more  than  law,  relieve 
a  tenant  against  such  accidents  as 
the  destruction  of  the  leased  prop- 
erty where  he  has  not  covenanted 
that  his  liability  ceases  in  such 
event.  Whatever  might  have  been 
the  rule  before  the  doctrine  was 
fully  developed,  equity  does  not 
now  embrace  every  case  in  which 
an  unexpected  result  has  been  pro- 
duced by  accident,  or  even  every 
kind  of  misfortune,  despite  the 
dictum  of  Lord  Coke,  4  Inst.  84. 
As    a    party    could    in    such    case 


have  protected  himself  by  a  cove- 
nant in  the  contract,  he  should  not 
apply  to  the  court  to  do  for  him 
what  he  did  not  do  for  himself. 
The  result  is  due  to  his  own  negli- 
gence and  not  to  an  accident. 

"The  head  of  accident  generally 
comes  up  in  connection  with  for- 
feitures in  contracts  and  with  de- 
fective executions  of  powers.  No 
case  has  been  cited  analagous  to 
the  present,  where  the  complain- 
ant alleges  that  he  has  been  pre- 
vented from  exercising  his  right 
to  redeem  a  second  mortgage  by 
the  sudden  occurrence  of  war  be- 
tween Germany  and  England, 
which  has  practically  cut  off  all 
communication  between  him  and 
his  principals  in  Germany.  This 
bill  does  not  state  the  grounds  as 
fully  as  could  be  desired,  and  it 
may  be  that  further  amendment 
is  needed  in  the  way  of  furnishing 
proper  allegations,  but  in  effect 
the  complainant  says  that  he  has 
the  right  as  a  second  mortgagee 
to  redeem  from  the  first  mort- 
gage and  has  been  prevented  by 
the  present  unparalleled  situation 
from  obtaining  money  therefor, 
which  he  could  otherwise  have  ob- 
tained. It  may  very  well  be  that 
a  parallel  case  has  seldom  arisen, 
and  that  therefore  there  is  no  prec- 
edent to  be  cited.  It  is  not  per- 
ceived, however,  that  this  can 
make  any  difference.  The  declar- 
ation of  war  by  great  powers  is  a 
human  event  and  can  hardly  be 
called  an  act  of  God.  Neverthe- 
less, so  far  as  concerns  the  rights 
of  suitors,  it  is  something  coming 


MORTGAGES,  PLEDGES,  AND  LIENS. 


595 


only  that  the  security  is  inadequate  to  pay  his  debt  after 
it  has  paid  the  debts  secured  by  prior  mortgages.  It 
might  very  well  happen,  therefore,  that  a  junior  mort- 
gagee might  be  able  to  make  a  showing  of  inadequacy 
when  a  prior  mortgagee  could  not.  Moreover,  since 
waste,  to  be  equitable  waste  and  constitute  ground  for 
the  appointment  of  a  receiver  on  foreclosure,  must  be 
such  as  to  endanger  the  value  of  the  mortgaged  property 
as  security,  waste  need  not  be  so  extensive  to  endanger 
the  security  of  a  junior  mortgagee  as  to  have  a  similar 
effect  upon  the  rights  of  a  senior  encumbrancer.  Failure 
to  keep  up  the  interest  on  a  prior  mortgage  debt  may 
constitute  equitable  waste  as  against  a  junior  mortgagee.^ 


within  the  definition  of  an  acci- 
dent, as  'an  unexpected  event,  oc- 
curring external  to  the  party  af- 
fected by  it,  and  of  which  his  own 
agency  is  not  the  proximate 
cause,  whereby,  contrary  to  his 
own  intention  and  wish,  he  loses 
some  legal  right  or  becomes  sub- 
jected to  some  legal  liability,  and 
another  person  acquires  a  corre- 
sponding legal  right  which  it 
would  be  a  violation  of  good  con- 
science for  the  latter  person,  un- 
der the  circumstances  to  retain.' 
2  Pom.  Eq.  Jur.,  §  823.  It  is  per- 
fectly true  that  Westphaling  is 
not  responsible  for  the  situation, 
that  it  is  an  accident  to  him  as 
much  as  it  Is  to  the  complainants; 
nevertheless,  under  the  allega- 
tions of  the  bill,  the  condition, 
and  hence  the  rights,  of  the  re- 
spective parties,  have  been 
changed  by  the  occurrence.  It 
would  seem,  therefore,  that,  apart 
from  the  question  of  amendment 
of  form,  the  bill  has  equity." 

1  A  junior  mortgagee  is  entitled 
to  subject  the  rents  where  a  re- 
ceiver is  appointed  upon  his  appli- 


cation, whether  or  not  the  appoint- 
ment was  declared  to  be  for  his 
benefit,  though  the  action  was 
brought  by  the  senior  mortgagee, 
and  the  land  is  insufficient  to  sat- 
isfy his  debt.  Nesbit  v.  Wood,  22 
Ky.  Law  Rep.  127,  56  S.  W.  714. 

A  receiver  appointed  in  an  ac- 
tion to  foreclose  a  junior  mortgage 
can  not  apply  the  rents  and  profits 
collected  by  him  to  the  payment 
of  taxes  or  interest  on  a  senior 
mortgage  since  they  belong  to  the 
owner  of  the  equity  of  redemption. 
Stevens  v.  Hadfield,  196  111.  253, 
63  N.  E.  633. 

Where  neither  the  bill  nor 
cross-bill  in  an  action  of  fore- 
closure by  a  senior  mortgagee  ask 
for  a  receiver,  none  will  be  ap- 
pointed even  though  a  junior  mort- 
gage provides  for  the  appointment 
of  a  receiver.  Gillespie  v.  Greene 
County  Savings  &  Loan  Assn.,  95 
111.  App.  543. 

Buchanan  v.  Berkshire  L.  Ins. 
Co.,  96  Ind.  510. 

Receivers  pendente  lite  in  a  suit 
in  equity  by  the  holders  of  a  sec- 
ond deed  of  trust  are  properly  ap- 


596 


LAW    OF    RECEIVERS. 


§  254.    Rights  of  a  Junior  Mortgagee  to  a  Receiver  as  Against 
a  Senior  Mortgagee. 

As  far  as  a  senior  mortgagee  is  concerned,  the  right  of 
a  junior  mortgagee  to  a  receiver  is  circumscribed  by  the 
principle  that  a  court  of  equity,  in  appointing  a  receiver, 
can  not  interfere  with  prior  vested  interests,  and  there- 
fore a  receiver  on  behalf  of  a  junior  mortgagee  can  be 
appointed  only  subject  to  the  rights  of  prior  mortgagees.^ 


pointed  where  default  had  been 
made  in  the  payment  of  interest 
on  both  the  first  and  second  deeds 
of  trusts,  the  maker  being  insol- 
vent, the  property,  if  sold  at  a 
threatened  sale  under  the  first 
trust  deed,  would  bring  insufficient 
to  pay  the  debts  secured  by  both 
deeds,  and  the  persons  in  posses- 
sion and  claiming  to  be  the  equit- 
able owners  of  the  property  are 
seeking  to  force  a  sale  under  the 
first  trust  deed  so  as  to  destroy 
the  value  of  the  second  deed  of 
trust,  though  the  holders  of  the 
latter  had  offered,  if  the  rents  in 
their  hands  were  insufficient  to 
pay  the  accrued  interest  on  the 
first  deed  of  trust,  to  advance  the 
remainder  and  stop  the  sale,  but 
such  offer  had  been  refused.  Wood 
V.  Grayson,  16  App.  D.  C.  174. 

In  an  action  to  foreclose  a  sec- 
ond mortgage,  a  receiver  may  be 
appointed  where  it  appears  that 
it  is  doubtful  whether  the  prop- 
erty will  bring  more  than  enough 
to  pay  the  first  mortgage  and  the 
taxes.  Browning  v.  Stacey,  52 
App.  Div.  626,  65  N.  Y.  Supp.  203. 

Where  a  second  mortgage  con- 
tains a  provision  for  the  appoint- 
ment of  a  receiver  pending  fore- 
closure to  collect  the  rents  and 
profits  of  the  mortgaged  premises. 


and  the  party  in  possession  re- 
fuses to  pay  the  interest  and  taxes 
and  is  receiving  the  rents,  and 
there  is  doubt  whether  the  secur- 
ity is  adequate,  a  receiver  should 
be  appointed.  Thomas  v.  Davis, 
90  App.  Div.  1,  85  N.  Y.  Supp.  661. 

Where  a  second  mortgage  stipu 
lated  that  a  receiver  of  rents  and 
profits  might  be  appointed  with- 
out regard  to  the  value  of  the 
property  and  a  strong  showing  of 
equitable  waste  was  made  the  ap- 
pointment should  be  made  even 
though  the  testimony  on  the  ques- 
tion of  inadequacy  was  not  con- 
vincing. Browning  v.  Sire,  56  App. 
Div.  399,  67  N.  Y.  Supp.  798,  9 
N.  Y.  Ann.  Cas.  127. 

An  assignment  of  the  rents 
made  prior  to  the  commencement 
of  the  action  or  to  the  application 
for  a  receiver  gives  the  assignee 
a  right  to  the  rents  superior  to 
that  of  the  receiver.  Harris  v. 
Taylor,  22  App.  Div.  109,  47  N.  Y. 
Supp.  913;  Harris  v.  Lesster,  35 
App.  Div.  462,  54  N.  Y.  Supp.  864. 
See,  also,  Bradley  &  Currier  Co. 
V.  Hofmann,  70  App.  Div.  77,  74 
N.  Y.  Supp.  1076. 

Browning  v.  Sire,  33  Misc.  Rep. 
503,  68  N.  Y.  Supp.  875,  9  N.  Y. 
Ann.  Cas.  240. 

1  Cortleyeu  v.  Hathaway,  11  N.  J, 
Eq.  39,  64  Am.   Dec.  478. 


MORTGAGES,  PLEDGES,  AND  LIENS.  597 

It  might  happen  that  a  prior  mortgage  would  cover 
property  in  addition  to  that  covered  by  the  junior  mort- 
gage and  that  the  additional  property  would  be  sufficient 
security  for  the  prior  debt.  In  such  a  case  the  prior 
mortgagee  may  be  compelled  to  resort  to  the  additional 
property  and  the  junior  mortgagee  may  have  a  receiver 
appointed  over  the  property  covered  by  his  mortgage,- 

But  the  main  conflict  that  has  arisen  concerning  the 
respective  rights  of  mortgagees  of  varying  rank  has  been 
in  regard  to  priorities  with  reference  to  the  rents  and 
profits  of  the  mortgaged  property.  In  this  regard  the 
first  general  rule  is  that  if  a  mortgagee  is  so  situated 
that  he  can  acquire  a  lien  upon  the  rents  and  profits  only 
through  the  aid  of  a  receiver,  then  his  right  to  them 
commences  only  after  he  has  taken  steps  to  secure  the 
equitable  lien  upon  them  which  the  appointment  of  a 
receiver  gives  him.^  It  might  happen,  as  we  have  above 
indicated,  that  the  prior  mortgagee  is  so  situated  that  he 

2  Henshaw  v.  Wells,  9  Humph.  plantation,  including  the  crop,  and 
(28  Tenn.)  568.  the  value  of  the  crop  to  be  har- 

3  Douglass     V.    Cline,     12    Bush      ^^^^^^  ^^^hin  several  months  will 

be  sufficient  to  take  care  of  the 
first  mortgage,  under  the  doctrine 
of  marshalling  a  fund,  the  first 
mortgagee,    especially   in   circum- 

Wher^  the  lien  created  by  a  stances  of  a  financial  stringency 
trust  deed,  giving  the  grantee  a  occasioned  by  the  sudden  break- 
specific  lien  on  the  rents  of  the  ing  out  of  war,  would  be  enjoined 
premises,  can  only  be  enforced,  as  from  foreclosing  his  mortgage  at 
against  a  junior  mortgagee  law-  the  instance  of  the  second  mort- 
fully  in  possession,  through  a  re-  gagee  and  a  receiver  appointed 
ceiver,  the  grantee  improperly  se-  to  conserve  the  property  for  the 
cures  the  appointment  of  a  re-  benefit  of  all  creditors.  This  situ- 
ceiver,  he  can  not  lien  against  the  ation  was  thought  by  the  court  to 
mortgagee  through  the  receiver-  be  particularly  applicable  to  sugar 
ship.  Ruprecht  v.  Muhlke,  225  111.  plantations  where  it  is  customary 
188,  80  N.  E.  106.  to  deal  with  the  crop  in  a  manner 

In  a  well  considered   case  aris-  as   if  it  is  a  species   of  property 

ing  in  Porto  Rico  there  is  a  die-  separate    and    distinct    from    the 

turn  to  the  effect  that  where  there  land  upon  which  it  is  grown.  Hesse 

are  two  mortgages  upon  a  sugar  v.  Ledesma,  7  Porto  Rico  Fed.  521. 


(Ky.)  608;  Harris  v.  Lesster,  35 
App.  Div.  462,  54  N.  Y.  Supp.  864; 
Ranney  v.  Peyser,  83  N.  Y.  1,  9. 


598  LAW   OF   RECEIVERS. 

can  not  successfully  apply  for  a  receiver  at  the  time  when 
the  junior  mortgagee  is  entitled  to  have  one  appointed. 
In  such  a  case  there  could  be  no  conflict  and  the  junior 
mortgagee  would  be  entitled  to  the  rents  collected  by  a 
receiver.* 

Where,  however,  the  situation  is  such  that  several 
mortgagees  of  varying  rank  could  all  become  entitled  to 
the  appointment  of  a  receiver  of  rents  and  profits  on 
taking  proper  steps  to  procure  one  a  second  rule  becomes 
applicable.  This  rule  is  to  the  effect  that  although  the 
first  rule,  just  above  mentioned,  is  sometimes  construed 
to  mean  that  the  right  of  a  receiver  to  the  rents  and 
profits  will  date  from  the  commencement  of  the  action, 
nevertheless,  as  between  conflicting  mortgagee  claimants, 
priority,  as  a  reward  of  diligence,  will  be  given  to  the  one 
wdio  first  secures  an  equitable  lien  upon  them  through  the 
appointment  of  a  receiver.^ 

A  junior  mortgagee  may  have  a  receiver  appointed  in 
an  action  to  foreclose  commenced  by  himself  and  thus 
acquire  a  specific  lien  upon  the  rents  and  a  priority  over 
the  senior  mortgagee.*^  He  may  obtain  a  receiver  upon 
the  filing  of  a  cross-bill  and  proper  motion  in  an  action 
begun  by  his  senior  and  may  have  this  right  even  though 
his  debt  is  not  due.'^    While  the  junior  has  this  priority, 

4  Goddard  v.  Clarke,  81  Neb.  373,  signee,  7  Ky.  Law  Rep.  (abstract) 
116  N.  W.  41.  448;  Longdock  Mills  &  Elevator  v. 

c,          ,           ^                 ^             ,oe  Alpen,  82  N.  J.  Eq.  190,  88  Atl.  623; 

See,  also:     Kramp  v.  Kramp,  185  ,      ,.         „ 

„       .          .„,     -r.       ,          ^,        -o-  Madison  Trust  Co.  V.  Axt,  146  App. 

111.  App.   464;    Roach  v.  Glos,   181  ^.^     ^^1,    130    N.    Y.    Supp.    371; 

111.   440,    54   N.   E.   1022,   Farmers'  ^^^^^^^  ^    ^^^.^^^^    ^^j^^^^^    ^^3 

Nat.  Bank  v.  Backus,  67  Minn.  43,  ^        ^^^   ^^   ^^^  ^^  Y.  Supp.  1056; 

69  N.  W.   638;    New  Jersey   Title  ^.g^,)     Abrahams    v.    Berkowitz, 

Guarantee  &  Trust  Co.  v.  Cone  &  ^^g  ^        j^^   ^gg    ^3^  ^^    y.  Supp. 

Co.,   64  N.  J.  Eq.   45,   53  Atl.   97;  357,    affirming    order.     (1910)     70 

Conroy  v.  Polstein,  150  App.  Div.  ^.^^             3^9   ^27  N.  Y.  Supp.  224. 

832,  135  N.  Y.  Supp.  419.  ,  Buchanan  v.  Berkshire  L.  Ins. 

5  Post  V.  Dorr,  4  Edw.  Ch.  Co.,  96  Ind.  510;  New  Jersey  Title, 
(N.  Y.)   412.  etc.,  Co.  v.  Cone  &  Co.,  64  N.  J.  Eq. 

6  Williams     v.     Williams'     As-  45,  53  Atl.  97. 


MORTGAGES,  PLEDGES,  AND  LIENS. 


599 


money  collected  by  his  receiver  can  not  be  used  for  pur- 
poses that  will  inure  primarily  to  the  benefit  of  the 
senior.^  To  give  the  junior  such  priority  the  purposes  of 
the  order  must  be  properly  set  forth  in  the  order  of 
appointment  and  an  order  simply  stating  the  duties  of 
the  receiver  in  a  general  way  may  not  have  this  effect.*^ 
Even  though  the  order  appointing  the  junior  mortgagee's 
receiver  is  erroneous,  as,  for  instance,  because  it  was 
made  before  the  action  was  commenced,  it  may  become 
binding  upon  the  senior  mortgagee  by  his  participation, 
without  objection,  in  subsequent  proceedings  under  it.^" 
The  priority  thus  acquired  by  the  junior  continues  until 
by  proper  proceeding  the  senior  secures  the  appointment 
of  a  receiver  on  his  own  behalf.  A  displacement  of  the 
junior's  priority  may  be  accomplished  by  an  order 
extending  the  receivership  to  cover  the  rights  of  the 
senior,^^  or  by  the  appointment  of  a  different  receiver,^- 

8  Madison  Trust  Co.  v.  Axt,  146  Where  a  receiver  has  been  ap- 
App.  Div.  121,  130  N.  Y.  Supp.  371.  pointed     in     foreclosure     proceed- 

9  New  Jersey  Title  Guarantee  &  i^gs  by  t'^e  third  mortgagee,  and 
Trust  Co.  V.  Cone  &  Co.,  64  N.  J.  it  is  doubtful  whether  the  value 
Eq  45  53  Atl  97;  Last  v.  Winkel  ^i  the  lands  exceeds  the  amount 
et  al.,  86  N.  J.  Eq.  356,  97  Atl.  961.  of   the    first   mortgage,    a   second 

^,  .    ,       mortgagee,    on    commencing    fore- 
Where    a    receiver    of    a    third        ,  ,         .-^  ■        i,:„ 

closure,  may  have  the  receivership 
mortgagee  fails  to  pay  taxes  and  ,      ,    ,   ^       ,  u-  * 

^  "  ,.       X   J    .       .X,         extended  to  also  cover  his   mort- 

water    rates    as    directed    m    the 

order  appointing  him,  and  on  sale 

by  the  first  mortgagee  there  is  a  ''  (1899)   Putnam  v.  McAllister, 

deficiency  on  the  second  mortgage,  57  N.  Y.  Supp.  404;  modified  (1900) 

the  last  mentioned  is,  by  subroga-  49  App.  Div.  361,  63  N.  Y.   Supp. 

tion,  entitled  to  have  the  amount  "^0. 

paid  from  the  sale  money  for  A  senior  mortgagee  may  have 
taxes  and  water  rates  refunded  to  the  receivership  procured  by  the 
him  from  money  collected  by  the  second  mortgagee  extended  to  pro- 
receiver.  Frankenstein  v.  Ham-  tect  his  mortgage  also.  Anderson 
burger,  73  App.  Div.  352,  76  N.  Y.  v.  Matthews,  8  Wyo.  513,  58  Pac. 
Supp.  818.  898. 

10  Anderson  v.  Riddle,  10  Wyo.  12  Schneider  v.  Miller,  155  Wis. 

277,  68  Pac.  829.  239,  144  N.  W.  286. 


600  LAW   OF   RECEIVERS. 

even  without  an  order  revoking  or  modifying  the  order 
appointing  the  former  receiver.^^ 

An  action  commenced  by  a  first  mortgagee  merely  to 
foreclose  his  mortgage  after  a  second  mortgagee  had 
commenced  suit  and  obtained  the  appointment  of  a  re- 
ceiver is  not  necessarily  subject  to  dismissal  as  being 
independent  of  the  latter  and  therefore  tending  to  inter- 
fere with  the  jurisdiction  of  the  court  over  the  property 
through  the  receivership.^^  The  fact  that  a  junior  mort- 
gagee has  filed  his  claim  before  a  general  receiver  of  the 
mortgagor  may  not  estop  him  from  intervening  in  a  fore- 
closure suit  brought  by  a  first  mortgagee  and  thereby 
seeking  to  foreclose. ^^ 

d.    Receivership  Affecting  Mortgaged  Property,  But  Not  in  Aid 
of  Foreclosure  by  Mortgagee. 

§  255.    Receiverships  in  Foreclosure  Actions  for  the  Benefit  of 
Others  than  the  Mortgagee. 

The  preceding  divisions  of  the  chapter  have  set  forth 
the  rules  and  principles  established  by  courts  of  equity 
in  appointing  and  dealing  with  receivers  in  aid  of  fore- 
closure suits.  There  are,  however,  many  other  instances 
in  which  receiverships  are  created  over  property  covered 
in  whole  or  in  part  by  mortgages  and  these  receiverships 
affect  in  various  ways  the  rights  of  those  interested  in 
the  mortgaged  property. 

While  it  is  common  to  speak  loosely  of  a  receiver 
appointed  in  a  foreclosure  suit  at  the  instance  of  the 
mortgagee  as  a  receiver  for  his  benefit,  it  must  be  remem- 
bered that  a  receiver  is  not  the  agent  of  the  party  at 
whose  instance  he  is  appointed  nor  of  any  other  party 

13  Hennessey  v.  Sweeney,  57  N.  Y.  Siipp.  901,  28  Civ.  Proc.  Rep.  332. 

14  American  Surety  Co.  v.  Worcester  Cycle  Mfg.  Co.,  90  Fed.  773. 

15  Continental  Trust  Co.  v.  Patterson,  26  Colo.  App.  186,  142  Pac.  422. 


MORTGAGES,  PLEDGES,  AND  LIENS.  601 

to  the  action.     He  is  an  officer  of  the  court  appointing 
him;  he  does  not  take  possession  of  the  property  involved 
as  against  any  party  but  to  protect  and  preserve  it  for 
the  benefit  of  all  who  have  an  interest  in  it.^     It  may 
happen,  however,  that  the  mortgagee  is  not  in  a  position 
to  ask  for  a  receiver  or  does  not  desire  one.    In  such  cases 
a  receiver  may  be  appointed  at  the  instance  of  some  other 
party  to  the  action.    A  defendant  mortgagor  may  have  a 
receiver  appointed  on  a  showing  that  the  mortgagee  is 
wrongfuUv  or  fraudulently  injuring  his  interests.^    A  de- 
fendant who  is  liable  for  a  deficiency  judgment  may  have 
a  receiver  appointed.^    A  defendant  wife,  who  had  joined 
in  the  mortgage  and  had  a  separate  interest  in  the  prop- 
erty may  have  a  receiver  appointed.^    Creditors  may  in- 
tervene and  have  a  receiver  appointed,  without,  however, 
displacing  the  priority  of  the  mortgagee's  claim  over  the 
expenses  of  the  receivership.^    A  mortgagee,  who  has  had 
a  receiver  appointed,  may  lose  some  of  his  rights,  or 

1  Central  Trust  Co.  v.  Worcester  shall    be    first    paid    in    full.      Mc- 

Cycle  Mfg    Co..  90  Fed.  584.  Daniel  v.   Osborn    (Ind.   App.),  72 

.   ,   ^  N.  E.  601,  603. 
A  foreclosure  receiver  appointed  ^  ^.^^^^  ^    Hamilton  &  Rourke 

on  an  allegation  that  the  property  ^^     ^i  Wash.  362,  58  Pac.  219. 

is  insufficient  to  satisfy  the  debt,  where  the  mortgagee  is  amply 

is     neither     an     "assignee"     nor  responsible,  and  only  matter  to  be 

"receiver,"  within  section  7051  of  attended   to  is   collection   of   rent 

Burns's  Ann.   St.,  1901,   providing  under   a   lease,    application    for    a 

that    where    a    property    owner's  receiver    by    an    equitable    owner 

business  shall  be  put  in  the  hands  will    be   denied,    under    Code    Civ. 

of  any  assignee,  receiver,  or  trus-  Proc,    §  713,    subd.    1,    relating    to 

tee    the  debts   owing  to  laborers  receivers.      Manhattan    Life    Ins. 

or  '  employees     by     the     property  Co.  v.  Hammerstein  Opera  Co.,  180 

owner    shall    be    treated    as    pre-  App.  Div.  69,  167  N.  Y.  Supp.  245. 

ferred    debts;    nor   is   he    an    "as-  3  Philadelphia  Mortgage  &  Trust 

signee"   or  "receiver"   within   sec-  Co.  v.  Oyler,  61  Neb.  702,  85  N.  W. 

tion  7058,  providing  that  all  debts  899;    President,  etc..  of  Insurance 

due  any  person  for  manual  or  me-  Co.  of  North  America  v.  Oyler,  61 

chanical  labor  shall  be   preferred  Neb.  702,  85  N.  W.  899. 

claims   in    all    cases    where   prop-  4  Main  v.  Ginthert.  92  Ind.  180. 

erty  shall  pass  into  the  hands  of  ^  Craver  v.  Greer,  107  Tex.  356, 

an  "assignee"   or  "receiver,"   and  179  S.  W.  862. 


602 


LAW   OF    RECEIVERS. 


priorities,  by  agreements  or  stipulations  made  with  other 
creditors.*^  A  defendant  who  asks  for  a  receiver  must 
of  course  show  that  he  has  equitable  grounds  to  warrant 
the  appointment/ 

An  instance  of  a  receivership  somewhat  analogous  to 
those  just  above  mentioned  is  that  created  at  the  instance 
of  a  bondholder  w^ho  commences  an  action  to  foreclose  a 
deed  of  trust  given  to  secure  his  bond.  The  bondholder 
is  not  a  trustee  nor  a  mortgagee  but  he  may  have  tlie 
right  to  sue  in  foreclosure  and  have  a  receiver  appointed.^ 

§  256.    Receivership  as  Against  Mortgagee  in  Possession. 

Under  various  circumstances,  as  for  instance  in  aid  of 
proceedings  in  aid  of  execution,  courts  have  the  power  to 


6  W' here  attached  property 
claimed  by  a  receiver  appointed 
in  a  suit  to  foreclose  a  mortgage 
was  sold  under  a  stipulation  that 
one-half  the  gross  proceeds  should 
be  held  subject  to  the  rights  of 
the  attaching  creditors,  and  its 
being  adjudged  to  them,  the  term 
"gross  proceeds"  may  properly  be 
construed  to  mean  the  proceeds 
after  deducting  the  necessary  ex- 
penses of  sale;  but  such  creditors 
should  not  be  charged  with  ex- 
penses which  would  not  have  been 
incurred  but  for  the  claim  of  the 
receiver.  American  Surety  Co.  v. 
Worcester  Cycle  Mfg.  Co.,  114  Fed. 
G58. 

An  assignment  by  a  mortgagee 
in  pursuance  of  settlement  be- 
tween mortgagor  and  its  creditors 
of  his  deiiciency  judgment  with 
reservation  only  of  his  rights  as 
purchaser  of  the  mortgaged  prem- 
ises to  the  rents,  issues,  and  prof- 
its in  the  hands  of  the  receiver, 
deprived  him  of  his  right  thereto 
by  virtue  of  his  deficiency  judg- 
ment.    Elliott  v.  Hudson,  18  Cal. 


App.   642,  124  Pac.  103,  rehearing 
denied   (Sup.)   124  Pac.  108. 

7  Mylvirn  Corp.  v.  N.  Passman 
&  Son,  Inc.,  et  al.,  157  N.  Y. 
Supp.   372. 

8  Georgia  Coast  &  P.  R.  Co.  v, 
Lowenthal,  238  Fed.  795,  151 
C.  C.  A.  645;  Wallace  v.  Loomis, 
97  U.  S.  146,  24  L.  Ed.  895;  Title 
Ins.,  etc.,  Co.  v.  California  Devel- 
opment Co.,  171  Cal.  227,  152  Pac. 
564;  Etna  Steel  &  Iron  Co.  v.  Ham- 
ilton, (Ga.)  73  S.  E.  8. 

A  holder  of  mortgage  bonds, 
who  through  a  petition  of  interven- 
tion asks  to  be  made  a  party 
plaintiff,  and  to  adopt  the  allega- 
tions of  the  complaint,  in  a  fore- 
closure action  brought  by  another 
bondholder,  is  not  estopped  from 
questioning  the  validity  of  a  pre- 
vious appointment  of  a  receiver 
and  the  issuance  of  receiver's  cer- 
tificates, where  the  court  did  not 
grant  the  petition,  but  afterwards 
permitted  him  to  appear  as  de- 
fendant, and  to  file  a  cross  com- 
plaint attacking  the  order  ap- 
pointing the  receiver  and  author- 


MORTGAGES,  PLEDGES,  AND  LIENS. 


603 


appoint  receivers  over  the  property  of  debtors  at  the 
instance  of  their  creditors.  Under  the  general  rule  relat- 
ing to  receiverships,  such  appointments  are  made  without 
pi^judice  to  vested  existing  rights.  Such  appointments 
can  not  deprive  a  mortgagee  creditor  of  any  of  his  rights ; 
and  a  receiver  appointed  in  this  way  must  surrender  pos- 
session to  a  mortgagee  who  subsequently  makes  a  right- 
ful demand  therefor.^  If  the  mortgagee  is  rightfully  in 
possession  and  has  not  been  paid,  a  receiver  on  belialf  of 
a  creditor  can  not  be  appointed  unless  a  showing  is  made 
that  the  mortgagee  is  irresponsible  and  there  is  danger 
of  loss  of  the  rents  and  profits  or  that  the  mortgagee  is 
committing  waste,  or  is  guilty  of  fraud.- 

§257.    General  Receiverships   Over  the  Affairs   of  Insolvent 
Creditors. 

In  most  of  the  states  there  are  statutes,  of  the  same 
general  purport  but  varying  in  detail,  by  which  courts 
are  permitted  to  appoint  receivers  to  take  charge  of  the 

izing  the  issuance   of  the   certifi-  ment   as    against   a    receiver    ap- 

cates        Belknap     Sav.     Banlv     v.  pointed  on  behalf  of  a  creditor  in 

Lamar  Land  &  Canal  Co.,  28  Coio.  supplemental  proceedings.  Donlon 

326    64  Pac.  212.  &  M.  Mfg.  Co.  v.  Cannella,  89  Hun 

Where  the  facts  shown  do  not  21,  34  N.  Y.  Supp.  1065. 

justify   the   appointment  of   a  re-  •       2  Harding  v.  Garber,  20  Okla.  11, 

ceiver  on  behalf  of  mortgage  bond-  93  Pac.  539;    Furlong  v.  Edwards, 

holders   the   court  may   neverthe-  3     Md.     99;     Schultz    v.     Jerrard, 

less  retain    the   case  and   require  (N.  J.  Eq.)  3  Atl.  265,  2  Cent.  Rep. 

the  mortgagor  to  render  accounts  211;  Quinn  v.  Brittain,  3  Edw.  Ch. 

from  time  to  time  of  its  receipts  (N.  Y.)  314;  Brayton.  etc..  v.  Mon- 

and  disbursements  as  a  protection  arch  Lumber  Co.,  87  Ore.  365,  169 

to    the    bondholders.      Stewart   v.  Pac.    528,    170    Pac.    717;     United 

Chesapeake,  etc.,  Canal  Co.,  5  Fed.  States  v.  Masich,  44  Fed.  10. 

149    4  Hughes  47.  A  receiver  will  not  be  appointed 

iFirst   Nat.    Bank   v.    Cook,    12  on  behaif  of  the  wife  of  the  mort- 

Wyo    492    2  L.  R.  A.  (N.  S.)  1012,  gagor    in    a    suit    for    alimony    as 

76  Pac.  674,  78  Pac.  1083.  against  a  mortgagee  in  possession 

A  foreclosure  receiver  of  rents  in   the    absence    of   a   showing   of 

and  profits  is  entitled  to  rents  ac-  waste,  or  fraud,  or  other  inequit- 

cruing  after  the  commencement  of  able  conduct.     Cummings  v.  Cum- 

the  action  but  before  his  appoint-  mings.  75  Cal.  434,  17  Pac.  442. 


604 


LAW    OF    RECEIVERS. 


property  and  affairs  of  debtors  who  have  made  assign- 
ments for  the  benefit  of  their  creditors,  or,  at  the  instance 
of  creditors,  of  debtors  who  are  heavily  embarrassed  or 
insolvent.^  We  are  not  here  concerned  with  the  condi- 
tions, or  grounds,  on  which  such  receivership  may  be 
created;  our  interest  is  simply  in  the  rules  that  govern 
the  operations  of  such  receiverships  in  so  far  as  they 
affect  mortgaged  property.^ 

The  first  rule  applicable  is  a  rule  applicable  to  all 
receiverships,  namely,  that  the  appointment  of  a  receiver 
does  not  in  any  way  destroy  or  weaken  vested  existing 
interests.^     In  a  case  from  Maryland  this  rule  is  stated 


1  Liquidation  commissioners,  se- 
lected by  tlie  stockholders  of  a 
corporation,  who,  in  accordance 
with  the  conditions  of  their  ap- 
pointment, elect  to  proceed  under 
the  orders  of  a  court  rather  than 
independently  and  who  are  form- 
ally appointed  by  the  court  as  re- 
ceivers, are  in  law  receivers.  In 
re  J.  D.  Connell  Iron  Wks.  Co., 
138  La.  702,  70  So.  617. 

2  See  Floore  v.  Morgan,  (Tex. 
Civ.)  175  S.  W.  737  and  Colburn  v. 
Yantis,  176  Mo.  670,  75  S.  W.  653. 

3  Brackett  v.  Middlesex  Bank- 
ing Co.,  89  Conn.  645,  95  Atl.  12. 

Hewitt  v.  Walters,  21  Idaho  1, 
Ann.  Cas.  1913C,  35,  119  Pac.  705; 
Martin  v.  Adams  Brick  Co.,  180 
Ind.  181,  102  N.  E.  831. 

The  liens  of  mortgagees  can  not 
without  the  consent  of  the  mort- 
gagees be  supplanted  by  receiv- 
er's certificates  issued  upon  min- 
ing property  for  obligations  other 
than  those  arising  by  way  of  ex- 
penditures for  realization  and  for 
preserving  the  property  while  the 
business  is  in  the  course  of  ad- 
ministration under  a  general  re- 
ceivership.      International     Trust 


Co.  v.  Decker  Brothers,  152  Fed. 
78,  81  C.  C.  A.  302,  11  L.  R.  A. 
(N.  S.)   152. 

Where  property  subject  to  two 
mortgages  was  sold  in  a  receiver- 
ship proceeding  to  which  neither 
of  the  mortgagees  was  a  party, 
but  the  first  mortgagee  accepted 
a  dividend,  the  purchaser  took  the 
rights  both  of  the  mortgagor  and 
the  first  mortgagee  and  was  en- 
titled to  the  lien  of  the  first  mort- 
gage, notwithstanding  the  pur- 
chase price  was  less  than  the 
amount  of  such  mortgage,  upon  a 
foreclosure  sale  by  the  second 
mortgagee.  Martin  v.  Adams 
Brick  Co.,  180  Ind.  181,  102  N.  E. 
831. 

A  receiver  of  the  whole  prop- 
erty appointed  in  an  action  to 
foreclose  a  mortgage  given  by  two 
tenants  in  common  should  not  be 
required  to  give  up  or  account 
for  one-half  of  the  income  to  a 
receiver  appointed  in  supplemen- 
tary proceedings  of  the  property 
of  one  of  the  mortgagors.  Grover 
v.  McNeely,  72  App.  Div.  575,  76 
N.  Y.   Supp.  559. 

One   having   an   interest  in   the 


MORTGAGES,  PLEDGES,  AND  LIENS. 


605 


as  follows :^  ''The  bill  upon  which  the  receivers  were  ap- 
pointed asked  no  relief  against  the  appellant's  mortgage; 
the  order  appointing  receivers  did  not  affect  the  appel- 
lant's rights  under  the  mortgage;  their  appointment  did 
not  disturb  nor  divest  the  lien  of  the  mortgage;  the  re- 
ceivers held  the  property  subject  to  the  mortgage;  and 
without  the  written  consent  of  the  mortgagee  could  sell 
only  the  equity  of  redemption."  Under  this  rule  mort- 
gagees are  not  liable  for  the  receivership  expenses.^ 

Another  rule  applicable  to  the  matter  in  hand  is  one 
which  we  have  noticed  in  preceding  sections  of  this  chap- 
ter. A  mortgagee  who  is  entitled  to  obtain  an  equitable 
lien  upon  the  rents  and  profits  of  the  mortgaged  prop- 
erty through  the  appointment  of  a  receiver  obtains  his 
lien  only  from  the  time  of  the  appointment,  or,  at  best, 
from  the  time  of  the  commencement  of  his  action.    This 


real  estate,  and  who  had  paid  the 
interest  on  a  mortgage  to  prevent 
foreclosure,  was  entitled  to  be 
subrogated  to  the  rights  of  the 
mortgagee,  and  receive  payment 
from  a  receiver  appointed  to  col- 
lect rents  and  apply  them  toward 
mortgages.  Sampers  v.  Conolly, 
115  App.  Div.  364,  100  N.  Y.  Supp. 
806. 

Unless  bonds  by  their  terms 
mature,  the  fact  of  a  receivership 
does  not  make  them  mature.  A 
receivership  does  not  change  or 
increase  liabilities  but  keeps  them 
in  statu  quo  and  the  court  admin- 
isters the  property  to  the  best  in- 
terest of  all  concerned.  Welch  & 
Co.  V.  Central  San  Cristobal,  6 
Porto  Rico  Fed.  564. 

A  mortgagee  of  a  part  only  of  a 
corporation's  property  should  not 
on  sale  of  its  property  by  a  re- 
ceiver be  given  a  preference  in  the 


proceeds  of  all  its  property.  Gen- 
eral Electric  Co.  v.  Canyon  City 
Ice  &  Light  Co.,  (Tex.  Civ.)  136 
S.  W.  78. 

4  Pyles  V.  Manufacturers',  etc., 
Co.,  126  Md.  560,  95  Atl.  169,  170. 

See,  also,  In  re  J.  D.  Connell 
Iron  Works  Co.,  138  La.  702,  70 
So.  617.  The  reason  for  the  rule, 
as  founded  on  the  constitutional 
inhibition  against  the  impairment 
of  contracts  and  the  proposition 
that  when  contracting  parties 
stipulate  as  to  the  remedy,  the 
remedy  is  itself  part  of  the  con- 
tract and  within  the  purview  of  the 
constitutional  provision.  Is  well 
stated  in  Galey  v.  Guffey,  248  Pa. 
St.  523,  94  Atl.  238. 

5  ^tna  Life  Ins.  Co.  v.  Leonard, 
186  Fed.  148,  108  C.  C.  A.  260; 
Hooven-Owens-Rentschler  Co.  v.  T. 
Schriver  &  Co.,  (Tex.  Civ.)  184 
S.  W.  359. 


606 


LAW   OF   RECEIVERS. 


rule  is  applicable  as  between  a  foreclosure  receiver  and  a 
general  receiver.^ 

Wlien  mortgaged  property  is  in  the  hands  of  a  genera] 
receiver  the  mortgagee  may  not  proceed  against  the 
property  and  interfere  with  the  possession  of  the  receiver 
without  the  consent  of  the  court  in  which  the  proceedings 
are  pending.  The  receivership  court  will  prevent  the 
maintenance  of  actions  begun  while  the  proceeding  is 
pending."^    If  the  mortgagee  desires  to  proceed  he  must 


6  Freedman's  Sav.  &  T.  Co.  v. 
Shepherd,  127  U.  S.  494,  32  L.  Ed. 
163,  8  Sup.  Ct.  1250;  Mayfield  v. 
Wright,  107  Ky.  530,  54  S.  W.  864; 
Gilbert  v.  Buttler's  Adm'r,  7  Ky. 
Law  Rep.  (abstract)  837;  Lowell 
V.  Doe,  44  Minn.  144,  46  N.  W.  297; 
New  York  Security  &  Trust  Co. 
V.  Saratoga  Gas  &  Electric  Light 
Co.,  159  N.  Y.  137,  53  N.  E.  758, 
45  L.  R.  A.  132;  Holly  Realty  Co. 
V.  Wortmann,  121  N.  Y.  Supp.  572. 

Where  the  accounts  of  a  statu- 
tory receiver,  also  subsequently 
appointed  in  a  suit  to  foreclose  a 
second  mortgage,  have  not  been 
settled,  the  rights  of  judgment 
creditors  and  second  mortgagee 
can  not  be  determined  on  a  mo- 
tion for  an  order  directing  the  re- 
ceiver to  account  for  the  rents 
collected  by  him  and  to  pay  the 
same  over  to  the  first  mortgagee. 
Abrahams  v.  Berkowitz,  70  Misc. 
Rep.  319,  127  N.  Y.  Supp.  224. 

T  Forest  Lake  Cemetery  v. 
Baker,  113  Md.  529,  77  Atl.  853, 
858;  Slade  v.  Massachusetts  Coal 
&  Power  Co.,  188  Fed.  369. 

Where  mortgage  foreclosure 
sales  of  property  in  the  possession 
of  receivers,  made  without  first  ob- 
taining leave  to  sell,  are  subse- 
quently ratified,  they  are  just  as 
binding  as  if  prior  leave  had  been 


granted.  Forest  Lake  Cemetery  v. 
Baker,  113  Md.  529,  77  Atl.  853, 
858. 

It  is  error  for  the  court  to  give 
the  mortgagee  permission  to  fore- 
close where  the  receiver  is  in  pos- 
session and  claiming  that  the 
mortgage  is  fraudulent  without 
giving  notice  to  the  receiver.  In 
re  Braue,  72  Misc.  Rep.  58,  129 
N.  Y.  Supp.  111. 

Since  property  in  the  hands  of 
a  receiver  is  in  the  hands  of  the 
court,  bondholders  who  have  a 
right  to  demand  certain  collateral 
security  in  lieu  of  selling  the 
property  can  not  make  their  de- 
mand upon  the  mortgagor.  Welch 
&  Co.  V.  Central  San  Cristobal,  6 
Porto  Rico  Fed.  564. 

A  sale  by  a  trustee  under  a  deed 
of  trust  of  land  in  possession  of  a 
receiver  is  void  in  Texas.  Scott  v. 
Crawford,  16  Tex.  Civ.  477,  41 
S.  W.  697;  Ellis  v.  Vernon  Ice, 
etc.,  Co.,  86  Tex.  109,  23  S.  W. 
858.  See  In  re  Hasie,  206  Fed,  789 
(bankruptcy  case). 

Where  default  is  made  in  the 
payment  of  interest  and  the  ac- 
cumulation of  a  sinking  fund  on  a 
mortgage  given  by  a  corporation 
which  is  in  the  hands  of  a  receiver, 
the  trustee  named  in  the  mortgage 
may    declare    the    mortgage    debt 


MORTGAGES,  PLEDGES,  AND  LIENS.  607 

seek  permission  of  the  receivership  court.  Leave  to  in- 
stitute a  separate  foreclosure  action  will  rarely  be  given 
and  the  usual  method  is  to  require  the  mortgagee  to  seek 
his  relief  in  the  receivership  proceedings  themselves,  the 
receivership  being  extended  so  as  to  protect  the  rights  of 
the  mortgagee.^  In  one  case''  the  reason  for  the  rule  is 
stated  as  follows  :  ''We  have  not  been  able  to  find  a  single 
case  holding  that  a  trial  court  abused  its  discretion  in 
denying  a  petition  to  sue  a  receiver.  The  courts  are 
vested  with  much  latitude  and  only  in  rare  cases  is  such 
permission  granted.  The  reason  being  that  a  court  of 
equity  having  complete  jurisdiction  affords  ample  rem- 
edy, can  better  dispose  of  the  many  interests,  protect 
parties,  save  costs,  and  prevent  harassing  the  receiver 
and  unnecessary  destruction  of  what  might  become  an 
insolvent  estate."  Calling  attention  to  the  facts  of  the 
instant  case  and  to  the  probably  small  margin  between 
the  value  of  the  property  and  the  amount  of  the  secured 
claims,  the  court  further  says:  "If  the  court  had  per- 
mitted one  claimant,  and,  if  one,  then  all,  to  institute  a 
separate  suit  it  certainly  would  have  been  disastrous  to 
the  estate  and  would  have  entailed  loss  to  all,  except  some 
who  might  be  amply  protected,  thereby  defeating  the  very 
object  for  which  the  receiver  was  appointed."  Permis- 
sion to  institute  foreclosure  proceedings  is,  however, 
occasionally  granted.^"  Sometimes  a  separate  receiver  is 
appointed  for  such  of  the  property  of  the  estate  as  is 
covered  by  mortgages. ^^ 

Conflicts  between  general  and  foreclosure  receivers, 
usually  between  receivers  of  federal  and  state  courts, 

due  and  bring  a  foreclosure  suit.  more  Nat.  Bank,  48  Okla.  319,  150 

See  Guaranty  Trust  Co.  v.  Inter-  Pac.  105. 

national  Steam  Pump  Co.,  231  Fed.  lo  Pyles  v.  Manufacturers',  etc., 

594,  145  C.  C.  A.  480.  Co.,  126  Md.  560,  95  Atl.  169;  Galey 

8  American    Loan,    etc.,    Co.    v.  v.  Guffey,  248  Pa.  St.  523,  94  Atl. 

Central,  etc.,  R.  Co.,  86  Fed.  390;  238. 

Deposit  Bank,  etc.,  v.  Kirby,   175  n  Ball    v.    Improved    Property, 

Ky.  700,  194  S.  W.  929.  etc.,  Co.  et  al.,  220  Fed.   637,  136 

"'  Holmes,  etc.,  Mtg.  Co.  v.  Ard-  C.  C.  A.  245. 


608  LAW   OF    RECEIVERS. 

often  present  a  conflict  of  jurisdiction  between  two  courts 
of  concurrent  jurisdiction  and  we  must  in  such  circum- 
stances meet  the  rules  that  govern  such  a  situation.  We 
are  concerned,  of  course,  only  with  actions  of  such  a  char- 
acter that  in  order  that  the  court  may  grant  the  full  relief 
sought  in  the  action  it  may  become  necessary  for  the  court 
to  take  possession  of  the  property  either  to  manage  or 
sell  it  for  the  benefit  of  the  parties.  If  the  suits  are  of 
such  a  character  as  to  create  a  real  conflict  of  jurisdic- 
tion over  the  subject  matter  of  the  litigation  then  the 
court  that  first  acquires  jurisdiction  of  the  subject  matter 
w^ill  retain  jurisdiction  for  all  purposes ;  if,  however,  there 
is  no  conflict  of  jurisdiction  as  to  the  subject  matter  then 
the  court  which  first  acquires  actual  possession  of  the  res 
will  retain  jurisdiction.  In  Empire  Trust  Co.  v.  Brooks, ^^ 
it  is  said:  ''Conflict  of  jurisdiction  as  to  the  subject 
matter  of  the  litigation  does  not  mean  merely  that  the 
two  suits  relate  to  the  same  physical  property.  . 
It  means  that  the  issues  involved,  relief  praj^ed  for,  and 
parties  to  the  two  suits  are  so  substantially  alike  that  the 
lis  pendens  of  the  last  brought  is  included  in  the  first." 
In  deciding  that,  in  the  matter  before  it,  there  was  no 
conflict  of  jurisdiction  of  the  subject  matter  as  between 
the  state  and  federal  courts  involved,  the  court  said: 
*'The  subject  matter  of  the  suit  in  the  federal  court  ex- 
clusively related  to  the  foreclosure  of  the  appellant's 
mortgage.  In  the  suit  ...  in  the  state  court  the 
foreclosure  of  appellant's  mortgage  was  not  sought.  The 
appellant  as  trustee,  and  the  bondholders,  as  such,  were 
not  made  parties  to  it.     .     .     .     The  state  court  could  not 

12  Empire  Trust  Co.  v.  Brooks,  appear    in    a    foreclosure    action 

232    Fed.    661,    146    C.    C.   A.    567;  brought  before  another  court  and 

Knudsen  v.  First  Trust,  etc..  Bank,  proceed  without  making  objection 

245  Fed.  81,  83,  157  C.  C.  A.  377;  to  the  jurisdiction  of  the  latter,  it 

Milwaukee  &  St.  P.  R.  Co.  v.  Mil-  may  foreclose.     Continental  Trust 

waukee  &  M.  R.  Co.,  20  Wis.  165,  Co.    v.    Patterson,    26    Colo.    App. 

88  Am.  Dec.  735.     If  receivers  ap-  186,  142  Pac.  422. 
pointed   by   one   court   voluntarily 


MORTGAGES,  PLEDGES,  AND  LIENS.  609 

have  sold  the  mortgaged  property  free  of  liens  nor  could 
it  have  foreclosed  the  lien  of  appellant's  mortgage."  The 
purpose  of  the  action  in  the  state  court  was  the  appoint- 
ment of  a  receiver  of  a  corporation  as  insolvent  under  a 
statute  of  Texas  and,  by  an  amendment,  the  marshaling 
of  its  assets  and  its  liquidation  under  the  Texas  laws.^^ 

The  various  interested  parties  in  general  receivership 
proceedings  may  by  their  conduct  in  the  proceeding,  or 
by  stipulation,  lose  or  waive,  by  way  of  estoppel,  rights 
that  they  would  otherwise  have.  A  mortgagee  who  par- 
ticipates in  the  request  for  the  appointment  of  a  receiver 
loses  the  benefit  of  the  rule  that  postpones  the  claims  of 
a  mortgagee  to  the  expenses  of  the  receivership.^*  A 
mortgagee  who  permits  the  disbursal  under  court  order 


13  Graver  v.  Greer,  107  Tex.  356, 
179  S.  W.  862. 

14  A  mechanic's  lien,  subse- 
quent to  a  mortgage,  does  not  ob- 
tain priority  over  receiver's  cer- 
tificates, when  the  fund  is  insuffi- 
cient to  pay  the  mortgage,  because 
the  mortgagee  waived  priority  to 
the  certificates.  Pusey  &  Jones  v. 
Pennsylvania  Paper  Mills,  173  Fed. 
634. 

A  certain  agreement  among  in- 
terested parties  held  to  amount  to 
an  agreement  that  the  rents 
should  be  applied  toward  the 
mortgage.  Ball  v.  Improved  Prop- 
erty Holding  Co.,  220  Fed.  637,  136 
C.  C.  A.  245. 

If  a  mortgagee  impliedly  agrees 
that  laborers  and  material  men 
may  first  be  paid  out  of  a  trust 
fund  created  from  the  current  in- 
come, before  he  has  any  claim 
thereto,  and  if  one  performs  labor 
or  supplies  material  in  reliance 
upon  this  understanding,  he  has 
a  right  which  a  court  of  equity 
I  Rec. — 39 


may  assist  him  to  enforce,  as  well 
as  to  defend,  and  he  may,  if  he 
so  desires,  initiate  a  proceeding 
for  that  purpose.  Moore  v.  Dona- 
hoo,  217  Fed.  177,  133  C.  C.  A.  171. 

In  an  action  for  foreclosure 
brought  by  a  mortgagee  after  the 
dismissal  of  a  creditor's  action  in- 
stituted by  the  moi'tgagee  and  in 
which  a  receiver  was  appointed, 
the  mortgagee  is  not  entitled  to 
the  rents  collected  by  such  re- 
ceiver.   Scott  V.  Ware,  65  Ala.  174. 

Prjority  over  receivership  ex- 
penses is  not  lost  by  mortgagees 
simply  because  they  participated 
in  a  creditors'  meeting  at  which 
the  action  was  decided  on.  Graver 
v.  Greer,  107  Tex.  356,  179  S.  W. 
862. 

Priority  over  receivership  ex- 
penses is  not  lost  by  mortgagee's 
accepting  money  with  other  cred- 
itors from  mortgagor's  grantee 
under  an  arrangement  with  mort- 
gagor. Hooven-Owens-Rentschler 
Co.  V.  T.  Schriver  &  Co.,  (Tex, 
Civ.)  184  S.  W.  359. 


QIQ  LAW    OF    RECEIVERS. 

of  the  only  fund  to  which  his  lien  attaches  can  not  havo 
the  lien  attached  to  other  funds  covered  by  other  liens.^^^ 
AYhile  a  general  receiver  of  a  debtor  does  not  have  title 
to  the  property  placed  in  his  care  he  is  practically  sub- 
stituted for  the  owner  in  the  management  of  it.  The 
owner's  control  over  the  property  is  suspended  during 
the  receiversMp.^^  The  receiver  has  no  greater  rights  in 
the  mortgaged  property  than  the  owner  had ;  and,  on  the 
other  hand,  he  has  the  same  defenses  against  a  mortgage 
that  the  owner  might  have.^^  The  receiver  is  circum- 
scribed by  the  rule  that  he  must  act  impartially  for  the 
best  interest  of  all  creditors  and  he  can  not  take  a  course, 
as,  for  instance,  suing  to  have  a  mortgage  cancelled,  that 
will  inure  to  the  benefit  of  some  and  to  the  detriment  of 
others.^ ^  A  receiver  may,  on  payment,  execute  satisfac- 
tion and  discharge  of  mortgages  held  by  his  debtor,  even 
though  the  amount  secured  is  not  yet  due;^^  he  may 
sue  to  foreclose  mortgages  held  by  his  debtor  ;2<>  he 
may  be  authorized  to  intervene  in  a  foreclosure  action 
affecting  the  property  of  his  debtor  and  control  the  valid- 
ity of  the  mortgage.21  jj^  fact  the  receiver,  in  so  far  as 
mortgaged  property  under  his  control  is  concerned,  is  in 

15  Walker    v.    Linden    Lumber      222    Mass.    378,    110    N.    E.    1029; 
Co.,  170  N.  C.  460,  87  S.  E.  331.  Thomson    Estate    v.    Washington 


16  Jaggers  v.  Sparks  et  al.,  127 


Inv.  Co.,  84  Wash.  326,  146  Pac. 
617. 

Ark.   567,  193    S.   W.   67.     In  this  ^^  ^^erican  Trust,  etc.,  Bank  v. 

case  it  is  decided  that  a  judgment  McGettigan,  152  Ind.  582,  71  Am. 

rendered  in  an  action  brought  by  g^    pgp_  345^  52  n.  e.    793;  Wim- 

the  receiver  on  the  note  and  mort-  pfheimer  v.  Perrine,  67  N.  J.  Eq. 

gage  is  binding  upon  the  holder  597^  50  Atl.  356. 

and  therefore  a  protection  to  the  19  Heermans    v.     Clarkson,     64 

maker  against  any  subsequent  ac-  n,  y.  171. 

tion  by  the  holder.  20  Jaggers   v.   Sparks,   127   Ark. 

17  Hatch  V.  Johnson  Loan,  etc.,  567,  193  S.  W.  67. 

Co.,  79  Fed.  828;  American  Water-  21  Equitable   Trust  Co.   of  New 

works    &    Electric    Co.    v.    Towle,  York  v.  Great  Shoshone   &   Twin 

245   Fed.    706,    158    C.    C.    A.    108;  Falls  Water  Power  Co.,  245  Fed. 

Williams  v.  Old  Colony  Trust  Co.,  697,  158  C.  C.  A.  99. 


MORTGAGES,  PLEDGES,  AND  LIENS. 


611 


the  same  position  as  the  owner  would  be  except  for  the 
protection  and  restrictions  above  indicated.^^ 

Analogous  to  the  matters  just  above  considered  is  the 
question  of  the  effect  upon  the  rights  of  mortgagees  of 
the  institution  of  bankruptcy  proceedings  against  the 
mortgagor.  It  is  sufficient  here  to  say  that  practically 
the  same  rules  apply  to  a  receiver  or  a  trustee  in  bank- 
ruptcy, as  far  as  mortgaged  property  of  the  estate  is  con- 
cerned, as  apply  to  a  general  receiver  of  the  mortgage 
debtor.^^ 

In  various  other  relations,  where  the  mortgaged  prop- 
erty comes,  in  a  sense,  into  custodia  legis,  questions  sim- 
ilar to  those  that  arise  in  general  receivership  and  bank- 


22  The  receiver  may  be  author- 
ized to  borrow  money  to  buy  a 
mortgage.  Beaton  v.  Seaboard 
Portland  Cement  Co.,  211  Fed.  84, 
127  C.  C.  A.  508. 

A  provision  in  a  mortgage  to  a 
building  association  that  it  is  non- 
negotiable  and  uncollectible  by 
any  other  person  than  the  associ- 
ation does  not  militate  against 
an  assignment  made  by  a  receiver 
of  the  association  under  an  order 
of  court.  Spinney  v.  Miller,  114 
Iowa  210,  89  Am.  St.  Rep.  351,  86 
N.  W.  317. 

Where  partners  transferred 
property  to  another  so  as  to  en- 
able him  to  mortgage  it  for  the 
benefit  of  the  firm,  a  receiver  of 
the  partnership  can  not  in  equity 
be  permitted  to  cancel  the  transfer 
without  relieving  the  mortgagor 
of  all  liability.  Security  Trust  Co. 
V.  Dinsmore,  186  Mich.  273,  152 
N.  W.  964. 

A  mortgagee  may  sue  a  re- 
ceiver to  compel  a  reformation  of 
the  mortgage  so  as  to  have  the 
deccription    include    property    in- 


tended by  the  parties  to  be  in- 
cluded. Ryder  v.  Ryder,  19  R.  I. 
188,  32  Atl.  919. 

23  In  re  Elmore  Cotton  Mills, 
217  Fed.  808,  810;  In  re  Jersey 
Island  Packing  Co.,  138  Fed.  625, 
71  C.  C.  A.  75,  2  L.  R.  A.  (N.  S.) 
560;  Sample  v.  Beasley,  158  Fed. 
607,  85  C.  C.  A.  429;  Matter  of 
Mayer,  156  Fed.  432;  Central 
Trust  Co.  v.  Worcester  Cycle  Mfg. 
Co.,  86  Fed.  35;  Mirabal  v.  Albu- 
querque, etc.,  Mills,  (N.  M.)  170 
Pac.  50;  Rhinelander  v.  Richards, 
184  App.  Div.  67,  171  N.  Y.  Supp. 
436;  In  re  Busch  Brewing  Co.,  41 
App.  Div.  204,  58  N.  Y.  Supp.  812. 
In  matter  of  Dooner  &  Smith, 
Bankrupt,  40  Am.  Bankruptcy  Rep. 
116,  it  was  held  that  where  mort- 
gaged property  sold  by  a  trustee 
brought  only  sufficient  to  pay  a 
first  and  a  second  mortgagee,  a 
third  mortgagee  was  entitled  to 
rents  collected  by  the  trustee  even 
though  he  had  taken  no  steps  to 
have  the  rents  sequestered  in  his 
behalf.  As  against  the  trustee  he 
was  held  to  be  the  virtual  owner 
after  bankruptcy. 


(312  LAW   OF    RECEIVERS. 

ruptcy  proceedings  arise  and  the  same  rules  are  generally 
held  to  apply.^'' 

§258.  Receiverships  Created  at  Instance  of  Others  Than 
Mortgagees. 

In  foreclosure  proceedings  it  may  happen  that  the  mort- 
gagee does  not  desire  or  is  not  in  a  position  to  ask  for  a 
receiver.  It  might  happen  that  a  mortgagee,  having  the 
senior  lien  on  the  property,  could  not  show  that  the  prop- 
erty was  inadequate  security  for  his  debt.  A  subsequent 
lienor  would  be  in  a  different  position  in  this  regard  since 
his  security  is  only  the  equity  remaining  in  the  property 
after  all  prior  liens  are  satisfied.  Parties  other  than  the 
complaining  mortgagee  may  have  receivers  appointed  on 
making  a  showing  to  the  effect  that  such  a  course  is 
necessary  for  the  adequate  protection  of  their  interests.^ 

There  are  various  sorts  of  litigation,  not  instituted  by 
mortgagees  and  not  in  foreclosure,  in  which,  at  the  in- 
stance of  parties  other  than  mortgagees,  receiverships 
may  be  created  under  such  circumstances  as  to  affect  or 
involve  mortgaged  property.  For  instance,  a  judgment 
creditor  of  the  mortgagor  may  have  the  right  to  levy 
upon  and  sell  the  property  under  execution,  and  if  the 
mortgagee  attempts  to  interfere  with  the  proceeding  the 
creditor  may  enjoin  him  from  so  doing  and  have  a  re- 
ceiver appointed.  The  levy  must  be  upon  the  property 
with  the  intention  of  selling  it  subject  to  the  mortgage ; 
and  it  must  be  shown  that  the  debtor  has  no  other  prop- 
erty out  of  which  the  creditor 's  claim  can  be  satisfied  and 
that  the  mortgaged  property  is  more  than  sufficient  to 

24  Property  of  decedents:   Tetz-  Property    of    an    incompetent: 

loff    V.    May,    172    Iowa    617,    154  Hodges  v.  McDiiff,  69  Mich.  76,  36 

N.  W.  905;  Mayfield  v.  Wright,  107  N.  W.  704. 

Ky.  530,  54  S.  W.  864;    St.  Louis  Property  of  a  minor:     Wilson  v. 

Nat.  Bank  v.  Field,  156  Mo.  306,  56  Wilson,     2    Keen.     249,     48     Eng. 

S.  W.  1095;  Cohn  et  al.  v.  Bartlett  Reprint.  624. 

et  al.,  182  App.  Dlv.  245,  169  N.  Y.  i  Graver  et  al.   v.   Greer  et  al., 

Supp.    604.  107  Tex.  356,  179  S.  W.  862;  First 


MORTGAGES,  PLEDGES,  AND  LIENS.  613 

pay  tlie  movigage  debt.  The  case  for  a  receiver  is 
strengthened  if  it  is  made  to  appear  that  the  mortgagee 
is  claiming  a  lien  npon  more  property  than  is  rightfully 
covered  by  his  mortgage.^ 

In  such  proceedings  as  various  sorts  of  creditors'  suits 
against  failing  or  insolvent  debtors,  proceedings  in  aid  of 
execution,  bankruptcy  proceedings,  and  the  like,  receivers 
may  be  appointed  and  in  such  cases  mortgaged  property 
of  the  debtor  will  be  involved  in  the  receivership.  It  is 
not  our  purpose  here  to  discuss  the  conditions  or  grounds 
under  which  these  receiverships  will  be  created  but  to 
point  out  the  various  respects  in  which  they  may  affect 
the  rights  and  interests  of  the  parties  to  the  mortgage. 

It  is  to  be  observed  in  the  first  place  that  a  receiver 
will  not  be  appointed  as  against  a  mortgagee  in  posses- 
sion unless  he  is  wrongfully  or  fraudulently  interfering 
with  the  rights  of  other  creditors.-^  It  is  not  necessary 
that  a  creditor's  receivership  be  made  to  cover  the  mort 
gaged  property  if  the  creditor's  interest  in  the  equity 
be  otherwise  properly  protected.* 

The  general  rule  that  a  receivership  does  not  create  nor 
destroy  vested  interests  in  property  and  that  a  receiver 
takes  the  property  subject  to  all  valid  existing  liens  upon 
it  applies  to  these  receiverships.  One  important  applica- 
tion of  this  rule,  in  so  far  as  mortgaged  property  is  con- 
cerned, is  to  the  effect  that  where  the  receivership  has 
not  been  created,  at  his  instance,  the  priority  of  the  mort- 
gagee's  interest  in  the  property  can  not,  unless  he  has 
in  some  way  created  an  estoppel  against  himself,  be  dis- 

State   Bank,   etc.,   et   al.   v.   Hub-  Atl.  265;  Brayton,  etc.  v.  Monarch, 

bard,    etc.,    Gin   Co.   et   al.    (Tex.  etc.,  Co.   et  al.,   87   Ore.   365,   169 

Civ.)',    178    S.    W.    1015;    Rice    v.  Pac.  528,  170  Pac.  717. 

Ahlman,  70  Wash.  6,  126  Pac.  64.  4  Burgwyn  Bros.  Tobacco  Co.  v. 

2  Rose  V.  Bevan,  10  Md.  466,  69  Bentley,  90  Ga.  508,  16  S.  E.  216; 
Am.  Dec.  170;  Vochell  v.  Hynson,  Leadbetter  v.  Leadbetter,  125 
26  Md.  83.  N.   Y.   290,   21   Am.  St.    Rep.   738, 

3  Schultz   V.   Jerrard    (N.  J.),   3  26  N.  E.  265. 


(J  14  LAW   OF   RECEIVERS. 

placed  by  the  expenses  of  the  receivership.'  The  doc- 
trine of  ''confusion  of  property"  will  not  apply  against 
the  priority  of  a  mortgagee  because  the  mortgaged  prop- 
erty was  sold  in  bulk  with  other  property  where  the 
confusion  was  due  to  the  conduct  of  a  receiver  for  which 
the  mortgagee  was  not  more  responsible  than  were  the 
other  interested  parties.^  A  mortgagee  may,  however, 
lose  his  claim  by  permitting  the  only  fund  on  which  he  has 
a  lien  to  be  distributed  by  the  receiver  without  objection  J 
If  the  mortgagee  has  rightfully  obtained  possession  of 
mortgage  chattels  before  the  commencement  of  the  re- 
ceivership proceedings,  an  action  in  replevin  will  not  lie 
against  him  at  the  instance  of  the  receiver.^ 

In  connection  with  the  question  of  the  displacement  of 
prior  vested  liens  by  the  creation  of  a  receivership  there 
frequently  arise  questions  concerning  the  interpretation 
and  application  of  statutes,  now  very  commonly  found 
throughout  the  United  States,  giving  to  laborers,  me- 
chanics, and  others,  employed  by  corporations,  a  prior 
lien  upon  the  property  upon  which  they  have  worked,  for 
their  wages  in  case  of  insolvency  or  the  appointment  of  a 

5  First  State  Bank,  etc.  v.  Hub-  if  necessary  from  the  proceeds  of 
bard,  etc.,  Co.  et  al.  (Tex.  Civ.),  the  corpus  of  the  company's 
178  S.  W.  1015;  Craver  et  al.  v.  property  and  since  the  mortgagee 
Greer  et  al.,  107  Tex.  356,  179  had  not  created  any  element  of 
S.  W.  862.  estoppel    against   himself,    it    was 

6  Walker  et  al.  v.  Linden  Lum-  held  that  he  was  entitled  to  be 
ber  Co.,  170  N.  C.  460,  87  S.  E.  paid  out  of  other  funds  and  if 
331.  necessary  out  of  the  proceeds  of 

A  receiver  appointed   over  the  the  corpus.     Security  Trust  Co.  v. 

property    of    a    lumber    company  Bank  of  Bemice,  239  Fed.  665,  152 

was    authorized    to    continue    the  C.  C.  A.  499. 

business.    Having  on  hand  money  ^  Hollenbeck  v.  Louden,  35  S.  D. 

obtained  from  the  sale  of  certain  320,  152  N.  W.  116. 

lumber,    he    was    ordered    to    pay  8  Security  Trust  Co,  v.  Bank  of 

the    wages    of    some    of    his    em-  Bernice,  239  Fed.  665,  152  C.  C.  A, 

ployees    out    of    this    money.      A  499;  Schmidtman  v.  Atlantic  Phos- 

certain  creditor  held  a  mortgage  phate,  etc.,  Co.,  230  Fed.  769,  145 

on  part  of  the  lumber.    Since  the  C.  C.  A.  79;   Central  Sav.  Bank  v. 

wages  would  have  had  to  be  paid  Newton,  59  Colo,  150,  147  Pac.  690. 


MORTGAGES,  PLEDGES,  AND  LIENS.  615 

receiver  over  the  affairs  of  the  corporation.  Such  statutes 
are  usually  held  to  apply  to  the  wages  of  laborers  and 
mechanics  employed  by  a  receiver  appointed  to  continue 
the  business  of  the  corporation  and  many  of  them  ex- 
pressly apply  to  the  general  expenses  of  the  receivership. 
It  is  universally  held  that  these  statutes  fasten  the  liens 
they  create  only  upon  the  property  of  the  corporation. 
If  a  corporation  acquires  property  subject  to  a  mortgage, 
or  if,  at  the  time  of  acquiring  property,  the  company 
gives  a  mortgage  upon  it  to  secure  part  of  the  purchase 
price,  then  the  property  of  the  corporation  is  only  its 
equity  of  redemption  in  the  property ;  these  liens  attach 
only  to  this  equity  and  can  not  displace  the  lien  of  the 
mortgages.  It  will  not  be  assumed  that  the  legislature 
intended  that  a  vested  contract  lien  should  be  subject  to 
be  displaced  by  subsequent  occurrences  unless  it  unmis- 
takably expressed  its  intention  to  that  effbot;  such  statutes 
will  be  construed  as  giving  to  the  objects  of  its  protection 
only  a  preference  over  other  unsecured  creditors  unless 
the  intention  of  the  legislature  to  give  them  a  lien  is  so 
expressly  declared  as  to  have  no  room  for  doubt.  Such 
statutes  can  not  affect  mortgage  liens  that  are  vested  at 
the  time  the  statutes  go  into  effect  but  the  existence  of 
such  a  statute  gives  notice  to  a  mortgagee  that  his  secu- 
rity is  subject  to  the  impairment  that  the  functioning  of 
the  statute  causes.® 

While  receiverships  created  at  the  instance  of  credi- 
tors of  a  mortgagor  do  not  divest  the  lien  of  a  mortgage 
they  nevertheless  in  certain  ways  affect  the  rights  of  the 
mortgagee  in  the  enforcement  of  his  lien.  The  receiver 
is  an  officer  of  the  court  and  his  possession  is  the  posses- 
sion of  the  court.  The  property  is  in  custodia  legis  and 
the  mortgagee  can  not  disturb  nor  interfere  with  this 
possession  without  first  obtaining  the  permission  of  the 

9  Humphrey  Bros,  et  al.  v.  Buell,  971;  Walker  et  al.  v.  Linden  Lum- 
etc,  Co.,  174   N.  C.  514,  93  S.  E.      ber  Co.,  170  N.  C.  460,  87  S.  E.  331. 


616 


LAW    OF    RECEIVERS. 


court.  Usually  the  mortgagee  is  required  to  present  his 
claim  in  the  receivership  proceeding  itself,^^  but  the  court 
may  permit  an  independent  suit  in  foreclosure  to  be  insti- 
tuted and,  if  necessary,  may  extend  the  receivership  to 
cover  the  foreclosure  action. ^^ 

On  the  other  hand  the  remedies  of  general  creditors 
against  a  mortgagee  are  affected  by  the  appointment  of 
a  creditor's  receiver.  It  is,  of  course,  a  general  rule  that 
a  mortgage  that  may  be  void  as  being  fraudulent  against 
creditors  or  as  not  complying  with  statutory  provisions 
as  to  form  and  recordation  is  nevertheless  good  as  be- 
tween the  mortgagor  and  mortgagee  and  can  not  be 
attacked  by  a  creditor  of  the  debtor  unless  he  first  secures 
some  lien  upon  the  mortgaged  property.^^  This  rule  does 


10  Security  Trust  Co.  v.  Bank 
of  Bernice,  239  Fed.  665,  152 
C.  C.  A.  499. 

11  Guaranty  Trust  Co.  v.  Inter- 
national, etc.,  Co.,  231  Fed.  594, 
145  C.  C.  A.  480;  In  re  Webster 
Loose  Leaf  Filing  Co.,  240  Fed. 
779;  Equitable  Trust  Co.  of  N.  Y. 
V.  Great  Shoshone,  etc.,  Co.  et  al., 
245  Fed.  697,  158  C.  C.  A.  99;  Ar- 
kansas Cypress,  etc.,  Co.  v.  Meto 
Valley  R.  Co.,  97  Ark.  534,  134 
S.  W.  1195;  Farmers'  Loan,  etc., 
Co.  V.  Hotel  Brunswick  Co.,  12 
App.  Div.  626,  42  N.  Y.  Supp.  350. 

A  chattel  mortgagee  who  is  en- 
titled to  possession  of  the  mort- 
gaged property  may  bring  an  ac- 
tion in  conversion  against  a  cred- 
itors' receiver  who  has  taken  it 
into  his  custody.  Albien  v.  Smith, 
24  S.  D.  203,  123  N.  W.  675; 
Hundley  Dry  Goods  Co.  v.  Albien, 
32  S.  D.  60,  142  N.  W.  49. 

When  a  creditor's  receiver  sells 
inortgaged  chattels  under  an 
order  of  court,  the  proper  course 
is   for  the   mortgagee  to   present 


his  claim  in  the  receivership  court 
and  ask  for  a  lien  upon  the  pro- 
ceeds; if  he  unnecessarily  sues 
the  receiver  in  foreclosure  the  re- 
ceiver will  be  allowed  the  ex- 
penses of  advertising  and  selling 
and  the  mortgagee  will  not  be  al- 
lowed attorney's  fees  stipulated 
for  in  the  mortgage  in  case  of  suit. 
Pickering  v.  Richardson,  57  Wash. 
117,  106  Pac.  614. 

It  is  within  the  discretion  of 
the  court  whether  or  not  to  enjoin 
a  suit  commenced  against  the  re- 
ceiver without  its  consent.  Schwa- 
bacher  Bros.  &  Co.  v.  Schade  & 
P.  Co.,  99  Wash.  271,  169  Pac.  783. 

A  chattel  mortgagee  may  sue  a 
receiver  to  have  the  mortgage  re- 
formed to  cover  all  the  property 
intended  to  be  included.  Ryder  v. 
Ryder,   19  R.  I.  188;    32   Atl.   919. 

12  Stephens  v.  Meriderr  Britan- 
nia Co.,  160  N.  Y.  178,  73  Am.  St. 
Rep.  678,  54  N.  E.  781;  Albien  v. 
Smith,  26  S.  D.  551,  128  N.  W.  714, 
affirming  judgment  on  rehearing 
24  S.  D.  203,  123  N.  W.  675. 


MORTGAGES,  PLEDGES,  AND  LIENS.  617 

not  apply  to  a  creditor's  receiver  nor  to  creditors  who 
have  had  their  claims  allowed  in  the  receivership  pro- 
ceeding. The  reason  for  the  exception  is  given  in  a  Wash- 
ington case^^  as  follows :  ' '  This  court  has  uniformly  held 
that  the  property  of  an  insolvent  corporation  in  the  hands 
of  a  receiver  is  a  trust  fund  for  the  payment  of  all  of  its 
creditors.  .  .  .  While  we  have  held  in  the  cases  first 
above  cited  that  the  word  'creditors'  in  the  chattel  mort- 
gage statute  refers  to  creditors  having  some  form  of 
lien  against  the  property,  those  were  cases  where  the 
rights  of  creditors  of  an  insolvent  corporation  after  a 
receiver  was  appointed  Avere  not  considered.  It  seems  too 
plain  for  discussion  that  after  a  receiver  has  been  ap- 
pointed and  the  property  of  an  insolvent  corporation 
taken  into  his  possession,  neither  the  debtor  nor  a  creditor 
after  that  time  by  any  act  of  his  may  create  a  new  lien 
upon  the  property.  While  the  receiver  takes  only  the  title 
of  the  debtor  at  the  time  of  appointment  and  holds  no 
greater  interest  than  the  debtor  had  yet  he  takes  the  prop- 
erty into  his  custody  as  an  officer  of  the  court  and  neither 
the  debtor  nor  his  creditors  after  that  time  can  create 
or  perfect  liens  which  have  not  been  perfected  prior  to 
the  time  of  the  receiver's  appointment  and  possession  of 
the  debtor's  property." 

Either  the  receiver  or  creditors  mth  approved  claims 
may  in  the  receivership  proceedings,  if  the  mortgage 
claim  is  presented  there,  or  by  intervention  or  as  defen- 
dant in  a  foreclosure  suit,  or  by  independent  action 
brought  in  equity  for  the  purpose,  contest  the  validity 
of  the  mortgage.^* 

13  Mutual  Inv.  Co.  v.  "Walton  of  N.  Y.  v.  International  etc.  Co., 
Mach.  Co.  et  al.,  91  Wash.  298,  157  231  Fed.  594,  145  C.  C.  A.  480;  Ber- 
Pac.  682.  liner  v.  Kuttner,  85  Misc.  Rep.  461, 

14  Equitable  Trust  Co.  of  N.  Y.  147  N.  Y.  Supp.  308;    Mutual  Inv. 
V.    Great    Shoshone    etc.    Co.,    245  Co.  v.  Walton  Mach.  Co.,  et  al.,  91 
Fed.   697,  158   C.  C.  A.  99;    In   re  Wash.  298,  157  Pac.  682. 
Webster    Loose    Leaf    Filing    Co.,  Where,  as  the  result  of  the  in- 
240  Fed.  779;   Guaranty  Trust  Co.  tervention  of  certain  creditors  in 


618  LAW   OF    RECEIVERS. 

S.   Receiverships  Affecting  Mortgaged  Chattels. 

a.    Common  Law  and  Equitable  View  of  Chattel  Mortgage  and 
Bight  of  a  Mortgagee  to  a  Receiver  on  Foreclosure. 

§  259.    Common  Law  View. 

The  common  law  view  of  a  mortgage  that  it  is,  in  law, 
what  it  is,  literally,  in  form,  a  conveyance  of  the  title  to 
the  property  by  the  mortgagor  to  the  mortgagee,  is  ap- 
plicable, not  only  to  mortgages  of  real  property,^  but  to 
chattel  mortgages  as  well.^  During  the  pendency  of  the 
mortgage  the  mortgagee  is  as  against  the  mortgagor,  the 
owner  of  the  property.  This  ownership  is,  however, 
qualified.  It  is,  of  course,  subject  to  be  defeated  by  the 
performance  of  the  conditions,  performance  of  which  the 
mortgage  stipulates  shall  entitle  the  mortgagor  to  resto- 
ration of  the  ownership.  But  there  are  other  qualifica- 
tions to  the  mortgagee's  title.  If  he  is  in  possession  he 
does  not  own  the  rents  and  profits,  such  as  the  increase 

a  foreclosure  suit,  the  portion  of  property  thereunder  did  the  corn- 
plaintiff's  mortgage  that  covered  pany  manifest  any  intention  of  in- 
certain  chattels  is  declared  void  tervening  and  not  until  those 
and  a  sum  of  money  thus  obtained  creditors  had  made  application  to 
for  the  benefit  of  creditors  it  is  the  court  for  the  payment  of  their 
not  an  abuse  of  discretion  for  the  claims  out  of  that  fund  did  the 
court  to  deny  an  application  for  appellant  company  appear  with 
permission  to  intervene,  made  its  verified  complaint  in  interven- 
after  the  suit  was  determined,  on  tion  claiming  such  an  amount  as 
the  part  of  another  creditor  who  would  practically  take  the  whole 
had  failed  to  apply  earlier.  The  of  the  fund  in  question.  We  think 
court  says:  "Instead  of  availing  that  the  most  favorable  view  that 
itself  of  that  right  and  opportun-  can  be  taken  of  the  application  is 
ity  (to  intervene)  it  allowed  the  that  it  was  addressed  to  the  sound 
contest  to  be  carried  on  by  and  at  discretion  of  the  court  below  and 
the  expense  of  those  of  the  gen-  are  of  the  opinion  that  such  dis- 
eral  creditors  of  the  insolvent  cretion  was  not  abused  by  the  de- 
that  have  been  named,  resulting  nial  of  the  application."  Equitable 
in  the  decree  that  has  been  re-  Trust  Co.  of  N.  Y.  v.  Great  Sho- 
ferred  to.  Not  until  after  the  suit  shone  etc.  Co.,  245  Fed.  697,  158 
in  which  it  could  have  intervened  C.  C.  A.  99. 
had  been  ended  by  the  final  de-  i  See,  supra,  §  239. 
cree  therein  and   the   sale  of  the  2  Wilson  v.  Brannan,  27  Cal.  258. 


MORTGAGES,    PLEDGES,    AND    LIENS.  G19 

of  cattle  or  the  Avool  on  sheep,  and  if  he  takes  these  he 
must  apply  them  toward  the  payment  of  the  debt  and 
account  for  them  to  the  mortgagor.  If  he  is  out  of  pos- 
session he  is  not  entitled  to  an  accounting  from  the  mort- 
gagor or  any  third  party  in  possession,  of  the  rents  and 
profits;  and,  even  though  he  subsequently  takes  posses- 
sion as  after  default  and  after  his  title  has  become  abso- 
lute, he  can  not  sue  in  his  own  right  for  rents  or  profits, 
such  as  charges  for  freight  on  a  mortgaged  ship,  accruing 
after  the  mortgage  but  before  possession.^  The  common 
law  mortgagee's  ownership  becomes  absolute,  however, 
upon  default  and  if  then  out  of  possession  he  can  recover 
the  property  in  an  action  at  law  in  replevin.  Because  he 
has  this  legal  remedy  he  is  generally  held  not  to  be 
entitled  to  a  receiver  if,  without  gaining  possession, 
he  conmiences  an  action  to  perfect  his  title  by  shutting 
off,  or  foreclosing,  the  mortgagor's  equity  of  redemption. 

§  260.    Equitable  View. 

Both  through  actions  brought  by  mortgagees  to  perfect 
their  title  upon  default  and  actions  brought  by  mort- 
gagors to  redeem  mortgaged  property,  courts  of  equity 
acquired  jurisdiction  over  litigation  concerning  mort- 
gaged property.  In  the  practice  of  these  courts  in  deal- 
ing with  such  litigation  there  has  developed  a  change  from 
the  common  law  view  of  a  mortgage  to  what  miglit  be 
called  the  equitable  view — namely  the  view  that  a  mort- 
gage simply  grants  to  the  mortgagee  a  lien  upon  the 
property  affected,  as  security  for  a  debt,  but  does  not 
transfer  title  to  him.  This  equitable  view  is  now  estab- 
lished in  many  jurisdictions  by  statute.  While  this  de- 
velopment has  applied  to  chattel  mortgages  as  well  as  to 
real  property  mortgages,^  in  the  case  of  the  former  the 
development  has  not  been  so  extensive,  either  territorially 

3Whitmore  v.  Parks  et  al.,  22  Tenn.   (3  Humph.)    95;    Chimney  v, 
Blackman,  3  Douglas   (British)   391. 
1  See  §  239,  supra. 


620  LAW    OF    RECEIVERS. 

or  as  to  its  effect  upon  the  legal  rights  of  the  parties,  as 
in  the  case  of  the  latter.  The  common  law  view  of  the 
effect  of  a  chattel  mortgage  on  the  title  still  largely  pre- 
vails, though  in  some  jurisdictions  the  effect  is  declared 
by  statute  to  be  only  the  equitable  one  above  mentioned. ^ 
Even  in  such  jurisdictions  the  mortgagee  is  given  the 
right  on  default,  especially  when  the  mortgage  stipu- 
lates that  he  may  do  so,  to  sell  the  property  by  some  sum- 
mary method,  or  proceed  in  foreclosure.^  The  foreclosure 
here  mentioned  is  an  equitable  foreclosure,  that  is,  an 
action  through  which  the  mortgagee  seeks  the  payment  of 
his  debt  by  a  sale  of  the  property,  with  the  right  on  the 
part  of  the  mortgagor  to  receive  any  surplus  upon  the  sale 
or,  on  the  part  of  the  mortgagee,  to  have  a  personal  judg- 
ment against  the  mortgagor  for  any  deficiency.  In  such 
foreclosure  actions  it  is  now  generally  recognized,  either 
because  the  right  has  come  to  be  granted  by  courts  of 
equity  through  their  inherent  powers  or  has  been  estab- 
lished by  statute,  that  the  mortgagee  may,  on  a  proper 
showing,  have  a  receiver  appointed;  and,  when  he  fore- 
closes, the  mortgagee  has  this  right,  even  though  he  has 
the  right  to  take  possession  through  an  action  at  law  in 
replevin.* 

&.    General  Principles  Governing  Receiverships  in  Actions  to 
Foreclose  Chattel  Mortgages. 

§  261.   Discretion  of  Court. 

The  general  principles  governing  the  appointment  of 
receivers  and  the  operation  of  receiversliips,  as  set  forth 
in  the  early  chapters  of  this  work,  are  applicable  in  actions 
to  foreclose  chattel  mortgages.     The  purpose  of  the  re- 

2  See  California  Civil  Code.  Commonwealth  Co.,  43  Kan.  93,  22 

3  See  California  Civil  Code,  Wil-  Pac.  982;    Haggard  v,  Sanglin,  31 
son  V.  Brannan,  27  Cal.  258.  Wash.  165,  71  Pac.  711;   Libert  v. 

4  H.  B.  Claflin  Co.  v.  Furtick.  119  Unfried,  47  Wash.  182,  91  Pac.  774. 
Fed.    429;    State    Journal    Co,    v. 


MORTGAGES,  PLEDGES,  AND  LIENS.  621 

ceivership  is  to  preserve  and  care  for  the  property  in- 
volved in  the  action  so  that  it  may  be  available  for  proper 
disposal  under  the  final  decree  of  the  court.^  The  remedy 
is  merely  ancillary  to  a  suit  in  equity ;  it  is  not  a  matter 
of  right;  and  whether  it  will  be  granted  or  withheld  is 
largely  within  the  discretion  of  the  court.  In  a  Maiyland 
case  affecting  mortgaged  chattels,^  the  court,  after  re- 
marking that  the  question  of  the  propriety  of  appointing 
a  receiver  had  been  discussed  in  former  decisions  prob- 
ably more  fully  and  more  frequently  than  any  other 
question,  called  attention  to  the  fact  that  in  a  somewhat 
earlier  case,^  the  results  of  the  court's  previous  deliber- 
ations on  the  matter  had  been  reduced  to  five  proposi- 
tions :  *'  (1)  The  power  to  appoint  is  a  delicate  one  and  to 
be  exercised  with  great  circumspection;  2.  It  must  ap- 
pear that  the  claimant  has  a  title  to  the  property  and  the 
court  must  be  satisfied  by  affidavit  that  a  receiver  is  neces- 
sary to  preserve  the  property;  3.  There  is  no  case  where 
the  court  appoints  a  receiver  merely  because  the  measure 
can  do  no  harm ;  4.  The  fraud  or  imminent  danger  of  the 
intermediate  possession  should  not  be  taken  by  the  court 
but  must  be  clearly  proved ;  5.  Unless  the  necessity  be  of 
the  most  stringent  character  the  court  will  not  appoint 
until  the  defendant  is  first  heard  in  response  to  the  alle- 
gation." 

§  262.    Necessity  for  Pending-  Suit. 

Since  a  receivership  is  merely  an  ancillary  remedy 
there  can  not  be  an  action  merely  for  the  appointment  of 
a  receiver ;  there  must  be  pending  before  the  court  some 
action  seeking  a  general  relief.  In  the  matter  we  are  now 
discussing  an  action  seeking  the  payment  of  a  debt  by  the 

1  H.  B.  Claflin  Co.  v.  Furtick,  119  2  Voshell  v.  Hynson,  26  Md.  83. 

Fed.    429;    Libert    v.    Unfiled,    47  3  Blondheim    v.   Moore,    11    Md. 

Wash.  182,  91  Pac.  774,  365. 


622 


LAW    OP    RECEIVERS. 


sale  of  property  in  aid  of  which  relief  the  power  of  the 
court  to  appoint  a  receiver  may  be  called  into  operation.^ 
In  a  foreclosure  action,  as  in  any  other  action,  the  juris- 
diction of  the  court  is  limited  to  the  issues  raised  by  the 
proceeding;  it  can  not  permit  n©r  compel  parties  not 
directly  interested  in  those  issues  to  be  brought  before 
it  nor  permit  nor  compel  its  receivers  to  take  possession 
of  property  which  is  not  the  subject  matter  of  the  liti- 
gation.^ 


'  1  state  V.  "Union  National  Bank, 
145  Ind.  537,  57  Am.  St.  Rep.  209, 
44  N.  E.  585. 

2  Ex  parte  Equitable  Trust  Co., 
231  Fed.  571,  145  C.  C.  A.  457.  This 
matter  was  an  appeal  to  the 
United  States  Circuit  Court  of  Ap- 
peals, Ninth  Cii-cuit,  from  the  Dis- 
trict Court  of  the  U.  S.  for  the 
Second  Division  of  the  Northern 
District  of  California  from  certain 
orders  made  by  the  District  Court 
and  an  original  application  for 
writs  of  prohibition  and  manda- 
mus. The  Equitable  Trust  Co.,  as 
trustee  under  a  deed  of  trust  se- 
curing bonds  of  the  Western  Pa- 
cific Railway  Company,  brought 
suit  in  the  District  Court  to  fore- 
close the  deed  of  trust  and  receiv- 
ers were  appointed  to  take  posses- 
sion of  all  of  the  property  of  the 
railway  company.  In  due  time  all 
of  the  parties  to  the  action  were 
before  the  court  with  stipulations 
asking  for  and  consenting  to  an 
immediate  decree  of  foreclosure 
and  an  order  of  sale  of  all  the 
properties  of  the  defendant  com- 
pany. At  the  time  the  mortgage, 
or  trust  deed,  which  was  sought 
to  be  foreclosed,  was  executed, 
there  was  also  made  a  certain  con- 
tract. The  defendant  railway  com- 
pany    and     the     Denver     &     Rio 


Grande  Railroad  Company  were 
among  the  parties  to  this  contract. 
By  the  contract,  for  all  practical 
purposes  it  may  be  said  here,  the 
Denver  Company  was  obligated  to 
pay  certain  amounts  to  the  West- 
ern Company,  if  that  company 
failed  to  meet  payments  of  inter- 
est and  sinking  fund  on  the  mort- 
gage and  these  amounts  were  to 
be  turned  over  to  the  trustee  under 
the  mortgage.  The  Denver  Com- 
pany, it  was  claimed,  had  failed  to 
make  the  payments  called  for  un- 
der this  contract  and  at  or  about 
the  time  of  commencing  the  fore- 
closure suit,  the  trustee.  Equitable 
Trust  Co.  of  New  York,  com- 
menced an  action  in  the  District 
Court  of  New  York  against  the 
Denver  Company  to  enforce  the 
rights  claimed  under  this  contract. 
At  one  of  the  hearings  in  the  fore- 
closure suit  the  existence  of  this 
contract  and  the  pendency  of  the 
New  York  action  were  brought  to 
the  attention  of  the  court  and  an 
order  was  made  enjoining  the 
trustee  from  proceeding  with  the 
New  York  suit  without  the  con- 
sent of  the  California  court  and 
ordering  that  the  Denver  Company 
be  made  a  party  to  the  foreclosure 
suit  and  directed  to  interplead 
therein.  The  appeal  was  from  this 


MORTGAGES,  PLEDGES,  AND  LIENS. 


623 


In  the  summary  of  general  principles  quoted  from  a 
Maryland  decision  in  the  preceding  section  it  is  stated 
that  ''it  must  appear  that  the  claimant  has  a  title  to  the 
proi)erty. "  It  is  not  necessary,  however,  in  a  foreclosure 
suit  that  the  plaintiff  should  base  his  claim  upon  a  strictly 
formal  mortgage.  The  intent  of  the  parties  to  a  contract 
largely  governs  its  effect  and  an  instrument  regardless  of 
its  form  may,  pursuant  to  the  intent  of  its  signers,  be 
construed  to  have  the  force  of  a  mortgage.  The  matter  is 
not  one  of  form  but  of  substance  and  equity.  In  an 
Arkansas  case,^  it  is  said:  ''Equity  requires  no  partic- 
ular words  to  be  used  in  creating  a  lien.  It  looks  through 
the  form  to  the  substance  of  an  agreement  and  if  from 


order  and  the  prohibition  proceed- 
ings sought  an  order  forbidding 
the  District  Court  from  enforcing 
its  order  with  reference  to  the  in- 
terpleading of  the  Denver  Com- 
pany. In  the  foreclosure  suit  it 
had  been  shown  that  there  was 
need  for  an  early  sale  because  a 
favorable  opportunity  to  re-organ- 
ize and  re-finance  the  defendant 
debtor  company  had  been  arranged 
for,  an  opportunity  which  a  very 
large  majority  of  the  bondholders 
were  anxious  to  take  advantage  of, 
and  this  opportunity  would  be  lost 
if  an  early  sale  was  not  had.  The 
Court  of  Appeals  reversed  the 
order  enjoining  the  trustee  from 
proceeding  in  New  York  and 
issued  the  writ  of  prohibition.  In 
the  course  of  its  opinion  the 
Court  of  Appeals  says:  "The  Dis- 
trict Court  in  California  was  not 
asked  to  give  relief  against  the 
Denver  Company,  nor  was  it 
asked  to  appoint  receivers,  except 
to  protect  and  preserve,  pending 
the  litigation,  the  property  sub- 
ject to  the  mortgage  lien,   which 


did  not  include  the  right  of  the 
trustee  to  enforce  rights,  herein 
involved,  against  the  Denver  Com- 
pany, for  it  may  be  reiterated  that 
it  was  not  to  be  sold  under  fore- 
closure, but  was  to  survive  to  the 
trustee  for  the  benefit  of  the  bond- 
holders. It  comes  then  to  this: 
The  receivers  had  a  right  to  the 
custody  of  only  the  property  the 
subject  matter  of  litigation  de- 
scribed in  the  amended  com- 
plaint." And  again:  "We  would 
not  in  any  sense  lessen  the  power 
of  a  court  of  equity  to  protect 
itself  against  being  made  an  in- 
strument of  injustice.  It  may  ap- 
propriately, and  should,  scrutinize 
matters  brought  before  it  and 
which  are  fairly  within  and  di- 
rectly related  to  the  issues  pre- 
sented. But  its  jurisdiction  is 
always  limited  to  the  subject  mat- 
ter in  the  case  before  it. 

3  Martin  v.  Schichtt,  60  Ark. 
595,  31  S.  W.  458. 

See,  also,  Arkansas  Cypress 
Shingle  Co.  v.  Meto.  etc.  Co.,  97 
Ark.  534.  134   S.  W.  1195. 


(j24  LAW    OF   RECEIVERS. 

the  instrument  evidencing  the  agreement  the  intent  ap- 
pears to  give  or  to  charge  or  to  pledge  property,  real  or 
personal,  as  a  security  for  an  obligation,  and  the  property 
is  so  described  that  the  principal  things  intended  to  be 
given  or  charged  can  be  sufficiently  identified  the  lien 
follows."  Instruments  that  are  in  effect,  though  not  in 
form,  mortgages  are  sometimes  spoken  of  as  equitable 
mortgages  and  the  liens  they  create  as  equitable  liens. 
It  is  to  be  noticed,  however,  that  the  term  ''equitable 
mortgage"  is  here  used  in  a  sense  different  from  that  in 
which  we  have  used  it  above  to  designate  a  mortgage 
viewed  simply  as  giving  a  lien  by  way  of  security,  in  con- 
trast wdth  a  common  law  mortgage  viewed  as  granting 
title.  While  the  court  may  not,  on  the  hearing  of  a 
motion  for  the  appointment  of  a  receiver,  finally  deter- 
mine the  intent  of  the  instrument  relied  upon  by  plaintiff 
claiming  it  to  be  a  mortgage,  it  may,  however,  determine 
that  there  is  sufficient  probability  of  the  correctness  of 
plaintiff's  contention  to  warrant  the  appointment  as  far 
as  that  point  is  concerned.^ 

Though  a  mortgagee  may  have  taken  possession  of  the 
mortgaged  property  or  purchased  it  at  a  summary  sale, 
he  may  be  under  the  necessity  of  commencing  an  action 
to  foreclose  or  in  the  nature  of  an  action  to  foreclose  and 
may,  on  a  proper  showing,  in  such  an  action  have  a 
receiver  appointed.^ 

4  Keane  v.  Kibble  et  al.,  28  Idaho  intended  as  a  mortgage.  The  re- 
274,  154  Pac.  972.  In  this  case  the  ceivership  was  allowed.  See,  how- 
contention  of  defendant  was  that  ever,  a  strong  dissenting  opinion, 
the  instrument  sued  upon  was  a  In  Semmes  v.  Rudolph  Stecher 
conditional  sale  and  not  a  mort-  Brewing  Co.  (Ruediger),  195  Mo. 
gage;  and  that,  title  being  in  App.  621,  187  S.  W.  604,  it  was  held 
plaintiff,  he  could  not  have  a  re-  that  an  instrument,  "in  the  nature 
ceiver  appointed  over  his  own  of  a  chattel  mortgage,"  was  a 
property.  In  his  affidavit,  used  on  transfer  of  the  title  sufficient  to 
the  motion,  plaintiff  contended  bring  it  within  the  purview  of  a 
that  he  could  under  the  law  and  statute  concerning  bulk  sales, 
would  show,  on  the  trial,  by  parol  5  in  Alexander  v.  Houston 
evidence  that  the  instrument  was  (Miss.),  31  So.  211,  complainants. 


MORTGAGES,  PLEDGES,  AND  LIENS. 


625 


§  283.    Property  Affected  by  Receivership. 

Since  the  purpose  of  the  receivership  is  to  preserve 
the  property  involved  in  the  action  and  hold  it  ready  for 
distribution  in  accordance  with  the  final  decree  of  the 
court,  in  a  foreclosure  action,  the  receiver  can  be  placed 
in  possession  only  of  the  property  covered  by  the  mort- 
gage and  it  is  error  for  the  court  to  direct  the  receiver 
to  take  possession  of  property  not  so  covered.^ 

AVhen  it  is  claimed  that  certain  property,  such  as  a 
leasehold,  had  l^een  taken  in  the  name  of  a  third  party 
instead  of  in  the  name  of  the  mortgagor,  for  the  purpose 
of  defrauding  the  mortgagee  of  his  security,  and  a  show- 
ing is  made  sufficient  to  warrant  the  belief  that  the  claim 
is  w^U  founded,  the  court  may  order  the  receiver  to  take 


uuder  a  provision  of  the  mortgage 
to  the  effect  that  they  could  claim 
a  foreclosure  at  any  time  before 
the  imturity  of  the  debt  if  they 
becanif  dissatisfied  with  the  secur- 
ity, e.'fjrcised  this  option  and  pur- 
chafed  at  a  summary  sale  for  less 
ttaj  the  amount  of  the  debt.     De- 
findants  refused  to  deliver  posses- 
ion and  complainants  sued  to  per- 
fect their  title,  or,  in  case  it  was 
found  defective,  to  foreclose.     On 
the  equitable  showing  made  by  the 
/complaint     a     receiver     was     ap- 
pointed, and  in  J.  I.  Case  Thresh- 
ing   Machine    Co.    v.    Barney,    54 
Okla.  686,  154  Pac.  674,  the  plain- 
tiff sued  to  foreclose  a  mortgage 
on  a  threshing  machine  securing  a 
debt  of  about   $2400.     A   receiver 
v/as    appointed    and    on    order    of 
court,    sold    the    property    before 
trial   to   plaintiffs   for   $1400.     De- 
fendants cross-complained  on  the 
ground  that  plaintiffs   had   before 
commencing  suit  wrongfully  taken 
possession  of  the  property  and  by 
I  Rec. — 40 


neglecting  it  had  permitted  it  to 
deteriorate  in  value.  On  the  trial 
the  court,  of  its  own  motion,  dis- 
charged the  receiver  and  set  aside 
all  of  his  acts  and  refused  to  per- 
mit plaintiifs  to  prove  that  they 
had  purchased  at  the  receiver's 
sale.  The  appellate  court  ruled 
that  this  order  of  the  trial  court 
was  erroneous,  although  it  ex- 
pressly refrained  from  deciding 
whether  or  not  the  trial  court  had 
"authority"  to  appoint  a  receiver 
and  order  the  property  sold  and 
"assumed"  that  it  had  that 
"power."  It  ruled  however  that 
the  taking  of  the  property  by 
plaintiff  before  action  was  justified 
under  a  stipulation  of  the  mort- 
gage giving  it  the  power  on  de- 
fault to  take  and  sell  the  property. 
1  Ex  parte  Equitable  Trust  Co. 
of  New  York,  231  Fed.  571,  145 
C.  C.  A.  457;  State  v.  Union  Nat. 
Bank,  145  Ind.  537,  57  Am.  St.  Rep. 
209,  44  N.  E.  585;  Thomas  v.  Arm- 
strong, 51  Okla.  203,  151  Pac.  689. 


626 


LAW   OF   RECEIVERS. 


possession  of  the  property  and  hold  pending  the  result 
of  a  full  hearing  of  the  matter.^ 

When  the  mortgaged  property  is  being  used  in  a 
business  and  it  is  necessary  for  the  purpose  of  preserving 
the  value  of  the  property  as  security  for  the  debt  the 
court  may  order  the  receiver  to  continue  the  business, 
especially  when  the  mortgage  expressly  covers  the  good 
will.^ 

If  the  mortgaged  property,  while  in  the  possession  of 
the  receiver,  is  destroyed  by  fire  and  the  property  was 
insured  for  the  benefit  of  the  mortgagee,  the  receiver  will 
be  authorized  to  collect  the  insurance,  and  the  lien  of  the 
mortgage  will  be  transferred  to  the  fund.^ 

§  264.    The  Court's  General  Control  Over  the  Receivership. 

As  the  question  of  propriety  of  creating  a  receivership 
is  within  the  very  wide  discretion  of  the  court  and  to  be 


2  Leader  Pub.  Co.  v.  Grant  Trust 
&  S.  Co.,  182  Ind.  651,  108  N.  E. 
121. 

Where  goods  which  have  been 
fraudulently  purchased  are  mort- 
gaged by  the  purchaser  and  the 
seller  is  claiming  the  property  as 
against  the  mortgagee,  a  receiver 
may  be  appointed  to  preserve  the 
property  pending  the  determina- 
tion of  the  title  to  it  regardless  ot 
the  solvency  or  insolvency  of  the 
mortgagee.  Exchange  Bank  v, 
H.  B.  Claflin  Co.,  100  Ga.  640; 
Wolfe  v.  Claflin,  81  Ga.  65. 

Unsecured  creditors  may  iden- 
tify and  separate  what  goods  they 
can  from  the  debtor's  common 
stock  and  a  receiver  may  be  ap- 
pointed to  take  charge  of  the  goods 
so  identified  and  separated  but  not 
for  the  whole  property  where  a 
mortgagee  of  it  is  solvent.  Atlan- 
tic, etc..  Ice  Co,  v.  Bluthenthal,  101 
Ga.  541. 


3  Cake  V.  Mohun,  164  U.  S.  311, 
41  L.  Ed.  447,  17  Sup.  Ct  100; 
Leader  Pub.  Co.  v.  Grant  1  &  S. 
Co.,  supra. 

The  fact  that  a  mortgage  <S)v. 
ered  certain  stock,  machinery  an 
the   crops  for  a  certain  year  di 
not   give   the   court   the   right   tc 
direct   the    receiver   to   farm   the 
property  for  the  next  year.     Bur- 
ton V,  Pepper,  116  Miss.  139,  76  So, 
762, 

Where  the  mortgage  covers 
property  in  process  of  manufacture 
and  the  property  will  depreciate 
unless  the  manufacturing  is  con- 
tipued,  the  court  may  authorize 
the  receiver  to  continue  the  work. 
Valley  Nat.  Bank  v,  H,  B.  Claflin 
Co.,  108  Iowa  504,  79  N.  W.  279. 

4  First  State  Bank  v.  Hubbard, 
etc.,  Co,  (Tex,  Civ,),  178  S.  W. 
1015. 


MORTGAGES,  PLEDGES,  AND  LIENS.  627 

determinecl,  in  the  last  analysis,  by  its  judgment  as  to 
what  course  will  probably  -be  for  the  best  interest  of  all 
the  parties  concerned,  so  all  of  its  details  are  within  the 
same  discretion  and,  except  where  prescribed  by  statute, 
are  to  be  determined,  in  the  light  of  all  the  facts  laid 
before  the  court  and  from  the  point  of  view  of  this  object 
of  the.  proceeding. 

Unless  otherwise  prescribed  by  statute  the  court  may 
in  the  first  instance  make  the  appointment  on  an  ex  parte 
hearing  and  without  notice.  Usually  such  an  appoint- 
ment is  only  temporary ;  and,  at  any  rate,  such  an  appoint- 
ment is  always  open  to  review  through  a  motion  on  the 
part  of  the  defendant  to  vacate  the  order  and  dismiss 
the  receiver.^  The  receivership  may  be  vacated  at  any 
time,  though  not  without  due  regard  to  the  acts  of 
the  receiver  and  other  rights  that  may  have  accrued 
thereunder. 2 

The  receiver  is  an  officer  of  the  court  and  is  under  its 
direction  and  control.  Orders  establishing  his  duties  and 
powers  should  be  definite  and  explicit  and,  if  ambiguous, 
may  be  declared  erroneous  on  that  ground.^  It  is  the 
duty  of  the  receiver  to  seek  the  advice  and  direction  of 
the  court  in  regard  to  difficulties  that  arise  in  the  course 
of  his  administration.*    The  receiver  is  under  the  pro- 

1  Meyer    v.    Thomas,    131    Ala.  had  heen  appointed  ex  parte  and 

111,  30  So.  89;  Wilson  v.  Aultraan  subsequently  a   motion  to   vacate 

&  T.  Co.,  91  Ky.  299,  15  S.  W.  783;  was   granted   on   the   ground   that 

Rice  V.  Ahlman,  70  Wash    6,  126  insolvency  of  the  mortgagor  was 

Pac.  64;   Libert  v.  Unfried  et  ux.,  not  shown,  the  order  vacating  was 

47  Wash.  182,  91  Pac.  774;  O'Don-  not  conclusive  as  against  creditors 

nell  V.   First'  Nat.   Bank,    9    Wyo.  or  trustee  in  bankruptcy  in  a  suit 

408    64  Pac.  337.  to  recover  a  preference.     Golden 

2'Mains     V.     Des     Moines     Nat.  Hill    Distilling   Co.   v.   Logue,    243 

Bank,  113  Iowa  395,  85  N.  W.  758;  Fed.  342,  156  C.  C.  A.  122. 

J.  I.  Case  Threshing  Machine  Co.  3  Watson  v.  Cudney,  144  111.  App. 

624. 


V.  Barney,  54  Okla.  686,  154  Pac 
Ji;    Libert  v.  Unfried  et   ux.,  4' 
,'ash.   182,  91   Pac.  774. 
Where  a  receiver  on  foreclosure      Co.,  231  Fed.  594,  145  C.  C.  A.  4S0 


674-    Libert  v.  Unfried  et   ux.,  47  4  Guaranty    Trust    Co.    of    New 

Wash.   182,  91   Pac.  774.  York  v.  International  Steam  Pump 


628  LAW   OF   RECEIVERS. 

tection  of  tlie  court  and  other  parties  may  not  proceed 
against  him  or  the  property  under  his  control  without 
the  sanction  of  the  court;  but  orders  made  in  this  regard 
should  not  be  revoked  without  an  opportunity  being  given 
to  all  interested  parties  to  be  heard.^ 

All  such  questions  as  the  proper  person  to  be  appointed, 
the  character  of  expenditures  to  be  made  by  the  receiver 
and  charged  against  the  estate,  and  the  amount  of  the  fee 
to  be  paid  the  receiver  are  within  this  equitable  discretion 
of  the  court.^  Because  of  its  general  control  over  the 
receiver,  the  court  may,  on  foreclosure  sale  being  decreed, 
if  the  statute  does  not  otherwise  provide,  authorize  the 
receiver  to  make  the  saleJ 

§  265.    Grounds  for  Appointing  a  Receiver. 

Wliile  it  is  true  that  the  question  of  the  propriety  of 
appointing  a  receiver  is  always  within  the  discretion  of 
the  court,  it  is  true,  nevertheless,  that,  either  through  the 
development  of  the  practice  of  courts  of  equity  or  through 
statutory  enactments  governing  the  matter,  the  principle 
has  been  established  that  a  certain  sort  of  equitable 
showing  must  be  made  by  the  party  applying  for  a 
receiver  before  the  court  will  feel  justified  in  making  the 
appointment.  The  general  rule  is  practically  that  the 
showing  must  be  to  the  effect  that  the  property  involved 
is  in  danger  of  being  lost,  removed  from  the  jurisdiction, 
or  materially  injured.     Since  the  only  interest  that  the 

5  Equitable    Trust    Co.,    etc.    v.  Co.  v.  Commonwealth  Co.,  43  Kan. 

Great   Shoshone,   etc.,    Co.    et   al.,  93,  22  Pac.  982;  Hughes  v.  Edisto 

245  Fed.  697,  158  C.  C.  A.  99;  At-  Cypress    S.    Co.,    51    S.    C.    1,    28 

lantic   Realty   Co.   v.  Wlodar,   119  S.  E.  2;    Euphrat  v.  Morrison,  39 

App.  Div.  850,  104  N.  Y.  Supp.  843;  Wash.  311,  81  Pac.  695;   Farmers' 

In  re  Tobenkin,  119  App.  Div.  850,  Loan  &  Trust  Co.  v.  Hotel  Bruns- 

104  N.  Y.  Supp.  843;   Tobenkin  v.  wick    Co.,    12    App.    Div.    626,    42 

O'Brien,    119    App.    Div.    850,    104  N.  Y.  Supp.  350. 
N.  Y.  Supp.  843.  T  Leader  Pub.  Co.  et  al.  v.  Grant 

r.  Rose    v.    Nicholson,    128    Ark.  Trust  &  Savings  Co.,  182  Ind.  651; 

296.  194  S.  W.  501;   State  Journal  108  N.  E.  121. 


MORTGAGES,  PLEDGES,  AND  LIENS. 


629 


mortgagee  has  in  the  property  is  to  have  it  held  as 
security  for  his  debt ;  this  general  rule,  as  far  as  fore- 
closure actions  are  concerned,  has  come  to  be  expressed 
in  special  rules  relative  to  that  purpose.  Sometimes 
statutes  simply  set  forth  the  grounds  on  which  receivers 
may  generally  be  appointed ;  these  statutes  are  held  to  be 
merely  declaratory  of  the  equity  rules  and  when  applied 
to  foreclosure  actions  are  interpreted  with  reference  to 
the  equity  rules  relating  thereto.  In  some  jurisdictions 
there  are  statutes  relating  especially  to  foreclosure 
actions.  These  statutes  require  a  showing  similar  to  that 
required  under  the  rules  of  equity  courts  but  usually 
eliminate  some  detail,  such  as  the  insolvency  of  the  mort- 
gagor. Either  under  the  equity  rules  or  statutory  pro- 
visions there  is  room  for  the  operation  of  the  discretion 
of  the  court ;  it  is  never  compulsory  on  the  c.ourt  to  make 
the  appointment  simply  because  a  technically  sufficient 
showing  has  been  made ;  the  court  can  always  ask  whether 
or  not  the  mortgagee  can  in  all  conscientiousness  ask  for 
the  remedy. 

It  is  both  an  equity  and  universal  statutory  require- 
ment that  the  mortgagee  asking  for  a  receivership  as  an 
aid  to  his  foreclosure  suit  must  show  that  the  mortgaged 
property  is  inadequate  security  for  the  debt.^  The  inade- 
quacy shown,  in  order  to  meet  the  requirements  of  the 
rule,  either  equitable  or  statutory,  must  be  a  condition 
that  did  not  exist  at  the  time  the  mortgage  was  made, 
and  must  be  due  to  some  delinquency  of  the  debtor  or  to 
causes  over  which  he  had  no  control  and  of  such  a  char- 
acter as  to  justify  the  mortgagee's  request  for  the  relief. ^ 

It  is  a  requirement  of  the  equity  rule,  that  the  mort- 
gagee must  show  that  the  mortgagor  or  the  person  liable 

1  Wright    V.    Wright,    180    Ala.  Tuttle   v.   Blow,    176    Mo.    158,    98 

343,  60  So.  931;  Keane  v.  Kibble  et  Am.  St.  Rep.  488,  75  S.  W.  617. 

al.,    28   Idaho    274,    154    Pac.   972;  2  Whitehead  v.  Hale,  118  N.  C. 

Leader  Pub.  Co.  v.  Grant  T.  &  S.  601,  24  S.  E.  360. 
Co.,   182  Ind.  651,  108  N.  E.  121; 


630  LAW   OF   RECEIVERS. 

for  a  deficiency  judgment  is  insolvent.^  This  require- 
ment is  sometimes  dispensed  with  in  statutes  dealing  with 
the  question.^  If  the  property  has  passed  into  the  hands 
of  a  third  person  his  possession  will  not  be  interfered 
with  unless  it  is  shown  that  he  is  insolvent  and  unable  to 
respond  to  a  judgment  for  any  damage  that  might  be 
done  to  the  property  pending  foreclosure.^ 

It  is  the  requirement  of  the  equity  rule  that,  in  addition 
to  showing  the  inadequacy  of  the  security  and  the  insol- 
vency of  the  mortgagor,  the  mortgagee  must  also  show 
that  the  property  has  suffered  some  sort  of  equitable 
waste  or  injury  at  the  hands  of  the  mortgagor  or  is  in 
danger  of  suffering  such  waste  pending  the  action.  Even 
though  statutes  may  not  expressly  require  such  a  show- 
ing courts  usually  interpret  statutes  as  being  declaratory 
of  the  equity  rule  and  require  the  showing  to  be  made. 
To  meet  the  requirements  of  the  rule  the  waste  shown 
must  be  of  such  a  character  as  to  affect  the  value  or 
availability  of  the  property  as  security  for  the  debt,  and 
must  be  something  dift'erent  from  the  depreciation 
naturally  due  to  ordinary  use  of  the  property.*^  The 
mere  fact  that  there  is  delay  in  the  progress  of  the  suit 
will  not  justify  the  appointment  of  a  receiver,  even 
though  the  delay  may  be  due  to  the  tactics  of  the  mort- 
gagor.'^    The  fact  that  the  property  is  perishable  will, 

3  Stillwell-Bierce      &       Smith-  6  H.    B.    Claflin    Co.    v.    Furtick, 

Vaile    Co.    v.    Williamston    Oil    &  119    Fed.   429;    Ridgely   v.   Abbott 

Fertilizer  Co.  (C.  C),  SO  Fed.  68;  Quicksilver    Mining    Co.,    16    Cal. 

Mannos   v.    Bishop,   etc.,    Co.,    181  ^PP-  '^^^'  ^^"^  P^^-  1^36;  Reynolds 


Ind.  343,  104  N.  B.  579. 


V.   Quick,    128   Ind.    316,   27   N.    B. 
621;    Mannos    v.    Bishop-Babcock- 

4  See:  Keane  v.  Kibble  et  al.,  28  Becker  Co.,  181  Ind.  343,  104  N.  B. 
Idaho  274,  154  Pac.  972;  Leader  579.  Tuttle  v.  Blow,  176  Mo.  158, 
Pub.  Co.  V.  Grant  T.  &  S.  Co.,  182  95  Am.  St.  Rep.  488,  75  S.  W.  617; 
Ind.  651,  108  N.  E.  121.  Buphrat    v.    Morrison,    39    Wash. 

5  Meyer  V.  Thomas,  131  Ala.  Ill,  311,  81  Pac.  695;  O'Donnell  v. 
30  So.  89;  Commerce  Trust  Co.  v.  First  Nat.  Bank,  9  Wyo.  408,  64 
White,  169  Mo.  App.  5,  154  S.  W.      Pac.  337. 

S64.  7  Mannos    v.    Bishop  -  Babcock- 


MORTGAGES,  PLEDGES,  AND  LIENS.  631 

however,  be  taken  into  account  in  determining  what  is  a 
reasonable  time  to  allow  the  mortgagor  to  sell  the  prop- 
erty after  default  under  a  claim  that  there  had  been  a 
stipulation  to  the  effect  that  he  should  have  the  privilege 
of  doing  so.^  The  fact  that  the  property  has  been  attached 
and  sold  will  not  defeat  the  mortgagee's  right  to  a 
receiver,^  and  the  fact  that,  pending  the  foreclosure 
action,  the  property  is  levied  upon  may  be  reason  for 
appointing  a  receiver  and  enjoining  a  sale  under  the 
levy.^"  That  a  receivership  will  prevent  a  multiplicity  of 
suits  may  justify  the  appointment.^^  When  a  court  has 
enjoined  the  summary  sale  of  mortgaged  property,  the 
mortgagee  is  entitled  to  a  receiver  pending  the  trial  of 
the  action.^2 

The  requisite  showing  to  justify  the  appointment  of  a 
receiver  must  be  made  by  competent  and  satisfactory 
evidence.^^  Where,  however,  the  court  has  jurisdiction 
to  appoint  a  receiver  and  an  order  appointing  is  possibly 
erroneous  simply  because  of  some  incompetency  or 
informality  of  the  evidence  received  as  a  basis  for  the 
order,  prohibition  against  further  proceedings  under  the 
receivership  is  not  an  available  remedy.^*  A  subsequent 
lienor  can  not  object  to  the  appointment  of  a  receiver 
when  it  is  made  to  appear  that  the  debt  of  the  mortgagee 
foreclosing  is  much  greater  than  the  value  of  the  prop- 
erty.^^  A  receiver  need  not  be  appointed  when  the  defen- 
dant offers  to  furnish  a  bond  that  will  afford  the  com- 

Becker  Co.,  181  Ind.  343,  104  N.  E.  12  Citizens'  State  Bank  v.  First 

579.  Nat.   Bank,  56   Tex.   Civ.   515,   120 

8  Hill  V.  Cohen,  21  Ky.  Law  Rep.      g.  W.  1141. 
1356,  55  S.  W.  1. 

9  Cooper  V.   Berney  Nat.  Bank, 
99  Ala.  119,  11  So.  760. 

10  Guerra  v,  Nistal,  66  Fla.  579,  ^^  Skeen  et  al.  v.  District  Court, 
64   So.  236.  29  Idaho  331,  158  Pac.  1072. 

11  Wiedemann    v.    Sann    (N.    J.  i^Whaley    v.    Bright,    189    Ala 
Eq.),  31  Atl.  211.  134,   66   So.  644. 


13  Arnold  et  al.  v.  Meyer   (Tex. 
Civ.),  198  S.  W.  602. 


632  LAW   OF   RECEIVERS. 

plainant  as  ample  protection  as  a  receivership  would 
give  liim.^^ 

8,   Receiverships  Affecting  Pledges. 

§  266.    General  Rules  Applicable. 

Since  the  distinguishing  characteristic  of  a  lien  ob- 
tained by  pledge  is  the  giving  to  the  pledgee  possession 
of  the  property  involved,  and  since,  also,  a  pledgee  usu- 
ally has  the  right  to  collect  his  debt  by  summary  sale 
of  the  property,  we  do  not  find  questions  arising  as  to 
the  right  of  a  pledgee  to  have  the  aid  of  a  receivership 
in  enforcing  his  lien.^  On  the  other  hand,  receivers  of 
pledgees  or  of  pledgors  may  be  appointed  and  thus 
the  pledged  property  become  involved  in  receivership 
proceedings.  In  such  cases  the  general  rule  applicable 
to  all  receiverships  applies.  The  receiver,  so  to  speak, 
takes  the  property  as  he  finds  it ;  no  new  titles  are  created ; 
vested  liens  are  not  divested ;  the  receiver  has  no  greater 
rights,  as  a  rule,  in  the  property  than  its  owner  had. 
The  questions  that  arise  in  such  cases  involve  simply  the 
application  of  this  principle  to  the  peculiar  facts  that 
attend  the  pledging  of  property  as  security  for  a  debt 
or  an  obligation.  Any  person  who  would  have  a  right 
to  demand  possession  from  the  pledgee,  has  the  same 
right  as  against  the  receiver  of  the  pledgee.^    The  pos- 

16  Williams  v.  Noland,  2  Tenn.  These  provisions  furnished  ample 

Ch.  151.  remedy  at  law  for  any  holder  of 

1  Under     a     special     statute     a  bonds  that  remained  unpaid  after 

municipality  had  the  power  to  bor-  maturity  and  he  was  not  entitled 

row  money  to  pay  for  local  street  to  a  receivership  created  in  a  suit 

improvements    and    to   secure   the  in    equity    brought   to    collect    the 

debt    by    "pledging"    assessments  assessments.   Street  Grading  Dist., 

levied  upon  property  owners  bene-  etc.  v.  Hagadorn,  186  Fed.  451,  108 

flted    by   the    improvements.     The  C.  C.  A.  729. 

"pledge"  was  represented  by  bonds  2  A  guarantors  administrator  is 
issued  by  the  municipality.  The  entitled  to  receive  pledged  prop- 
law  provided  also  various  methods  erty  from  the  pledgee's  receiver 
for  collecting  unpaid  assessments,  when  such  administrator  has  paid 


MORTGAGES,    PLEDGES,    AND    LIENS. 


633 


session  of  a  pledgee  can  not  be  disturbed  by  a  receiver 
of  the  pledgor,  unless  the  debt  is  paid;^  nor  does  the 
appointment  of  a  receiver  deprive  the  pledgee  of  his 


the  debt  guaranteed  by  him. 
Hinckley  v.  Calvin,  233  111.  139,  84 
N.  E.  174. 

This  is  simply  the  rule  that  a 
surety  upon  paying  the  debt  of  his 
principal  is  subrogated  to  the  bene- 
fit of  any  collateral  security  which 
the  creditor  holds  for  the  payment 
of  the  debt;  and  to  the  benefit  of 
all  rights  and  remedies  which  the 
creditor  had  against  the  principal 
debtor. 

3  Booth  V.  Atlanta,  etc.,  Assn., 
132  Ga.  100,  63  S.  E.  907. 

National  Exchange  Bank  v.  Ben- 
brook,  etc..  Furnishing  Co.  (Tex. 
Civ.),  27  S.  W.  297.  This  case  gives 
the  reason  for  the  rule  and  shows 
some  of  the  contentions  that  have 
been  raised  against  its  application. 
In  the  opinion  the  court  said:  "It 
is  not  questioned  that  the  contract 
by  which  the  school  warrants  were 
delivered  as  security  to  appellant 
is  in  all  respects  legal,  and  of  bind- 
ing force  upon  all  parties.  The 
money  loaned  to  appellee  repre- 
sented by  the  notes,  went  into  the 
treasury,  and  became  a  part  of  the 
assets  of  the  corporation,  and  the 
school  warrants  were  turned  over 
to  appellant  to  secure  the  repay- 
ment of  this  money,  and,  by  the 
terms  of  the  written  contract,  ap- 
pellant had  the  right,  upon  default 
in  the  payment  of  any  of  the  notes 
executed  by  appellee,  to  sell  such 
warrants,  either  at  public  or 
private  sale,  and  apply  the  pro- 
ceeds to  the  satisfaction  of  the 
debt  for  which  said  warrants  had 
been  delivered  as  security.  The 
fact    that    appellee    (corporation) 


subsequently  became  unable  to 
meet  its  obligations  and  insolvent, 
and  the  fact  that  appellant  was 
about  to  sell  the  warrants  under 
the  power  granted  to  it  in  the  said 
contracts,  furnish  no  sufficient 
ground  for  a  court  of  equity  to 
summarily  wrest  such  securities 
from  the  possession  of  appellant, 
and  place  them  in  the  hands  of  a 
receiver,  at  the  instance  of  credit- 
ors who  have  acquired  no  specific 
interest  in  such  school  warrants. 
The  court  had  no  right  or  authority 
to  interfere  with  appellants  pos- 
session of  the  warrants,  without 
first  requiring  the  payment  of  the 
debt  which  they  were  pledged  to 
secure.  Carter  v.  Hightower,  79 
Tex.  135,  15  S.  W.  223;  In  re  Home 
Provident  Safety  Fund  Assn.,  129 
N.  Y.  288,  29  N.  E.  323;  Hudson  v. 
Wilkinson,  61  Tex.  606;  Goldfrank 
V.  Young,  64  Tex.  432,  437;  Risk  v. 
Kansas  Trust  &  Banking  Co.,  58 
Fed.  45;  Schultz  v.  Jerrard  (N.  J. 
Ch.)  3  Atl.  265;  Beach  Rec.  §§  80-82 
Jones  Pledges  §§  720,  724,  730; 
King  V.  Texas  Banking  &  Insur- 
ance Co.,  58  Tex.  669.  This  is  not  a 
case  of  an  insolvent  corporation 
preferring  creditors;  and  the 
proposition  urged  by  appellant, 
that  an  insolvent  corporation  can 
not  prefer  creditors,  as  its  prop- 
erty constitutes  a  trust  fund  for 
the  benefit  of  all  creditors,  is  not 
applicable.  At  the  time  appellant 
made  the  loans  of  money  to  appel- 
lee, and  received  the  school  war- 
rants as  security  for  such  loans, 
it  is  not  shown  that  the  appellee 
(corporation)    was  insolvent;    and 


634 


LxVW    OF    RECEIVERS. 


right  to  sell  under  the  pledge.^  The  receiver  of  a  pledgor 
has  the  right  to  redeem  the  property.^  The  receiver  of 
the  pledgor  and  the  pledgee  can  not  effect  a  sale  of  the 
property  to  the  pledgee  on  terms  contrary  to  the  condi- 
tions of  the  pledge  agreement  and  disadvantageous  to  the 
creditors.^  The  receiver  of  the  pledgor  may  contest  the 
validity  of  the  pledge^  or  of  a  foreclosure  sale.^  While 
the  above  stated  general  rule  prevails,  nevertheless  the 
appointment  of  a  receiver  may  atfect  the  remedies  of  a 
pledgee,  as  it  may  those  of  any  other  lienor.^ 


if  it  had  been  insolvent  at  the  time 
the  money  loaned  by  appellant  be- 
came part  of  the  assets  of  the  cor- 
poration; and  it  is  admitted  in 
this  case  that  the  transaction  was 
bona  fide,  and  not  intended  for 
the  purpose  of  absorbing  the 
assets  of  the  corporation.  It  is  also 
urged  by  appellee,  in  support  of 
the  action  of  the  court  below,  that 
under  the  law,  upon  the  death  of 
the  pledgor,  the  pledgee  can  not 
proceed  to  sell  the  subject  of  the 
pledge,  but  must  proceed  through 
the  probate  court  in  the  regular 
course  of  administration.  This  is 
a  sound  proposition  of  law,  but,  in 
our  judgment,  it  has  no  applica- 
tion to  the  question  involved  in 
this  case." 

The  rule  applies  even  though 
possession  by  the  pledgee  was  not 
obtained  until  after  the  death  of 
the  pledgor.  Brady  v.  Furlow,  22 
Ga.  613.  See,  also,  Coleman  v. 
Salisbury,  52  Ga.  470. 

4  National  Exch.  Bank  v.  Ben- 
brook,  etc..  Furnishing  Co.  (Tex. 
Civ.),  27  S.  W.  297. 

5  Powell  v.  Waldron,  89  N.  Y. 
328,  42  Am.  Rep.  301. 

6  Ozan  Lumber  Co.  v.  Goldonna 
Lumber  Co.,  124  La.  1025,  50  So. 
839. 


7  Ballard  v.  Audubon  Nat.  Bank, 
222  Fed.  57,  137  C.  C.  A.  595. 

8  Where  the  pledgee  of  city  war- 
rants has  sold  them  to  himself  on 
foreclosure  of  the  pledge  and  sues 
the  city  thereon  the  receiver  of 
the  insolvent  pledgor  may  inter- 
vene and  set  up  his  claim  that 
such  foreclosure  was  void.  Muhl- 
enberg v.  Tacoma,  25  Wash.  36,  64 
Pac.  925. 

9  If  a  foreclosure  action  is  neces- 
sary the  receiver  of  the  pledgor  is 
a  necessary  party,  Denny  v.  Cole, 
22  Wash.  372,  61  Pac.  38,  79  Am. 
St.  Rep.  940. 

A  pledgee  can  not  claim  priority 
as  having  an  equitable  lien  when 
receivers  had  been  appointed  be- 
fore he  perfected  his  legal  lien  by 
reducing  the  property  to  posses- 
sion. American  Can  Co.  v.  Erie 
Preserving  Co.,  183  Fed.  96,  105 
C.  C.  A.  388,  afflrming  orders 
(C.  C.  1909)  171  Fed.  540,  548. 

Since  a  receiver  has  the  right  to 
elect  whether  or  not  he  will  be 
bound  by  an  executory  contract  of 
the  person  over  whose  estate  he 
was  appointed,  the  contract  being 
for  personal  services  calling  for 
large    expenditures    in    their    per- 


MORTGAGES,  PLEDGES,  AND  LIENS.  635 

4.    Receiverships  Affecting  Mechanics'  Liens. 
§  267.    Receiverships  in  Foreclosure  of  Mechanics'  Liens. 

A  mechanic's  lien  is  purely  a  creation  of  statute.  It 
was  not  known  to  the  Common  Law.  Though  it  exists 
by  statute  in  perhaps  every  state  of  the  United  States, 
there  is  not  that  great  volume  of  precedent  in  the  records 
of  English  and  American  equity  courts  to  point  to  tlie 
proper  solution  of  questions  concerning  receiverships  in 
suits  foreclosing  such  liens  as  there  is  in  the  case  of  other 
liens,  such  as  mortgages.  In  deciding  these  matters 
courts  have  been  left  practically  to  their  own  initiative. 
An  examination  of  some  of  the  decided  cases  will  serve 
to  show  how  courts  have  reasoned  in  considering  the 
matter. 

In  an  early  New  York  case  a  **  receiver  of  rents  and 
profits"  was  denied.^  The  application  was  based  upon 
the  grounds  of  inadequacy  of  security,  insolvency  of  the 
debtor,  and  waste,  by  way  of  failure  to  pay  interest  on 
prior  encumbrances  and  prolonging  the  litigation  for  the 
purpose  of  collecting  the  rents.  The  court  considered 
the  question  to  be  whether  or  not  the  lienor  was  entitled 
to  the  rents.  It  considered  the  matter  from  the  point  of 
view  of  an  analogy  between  a  mechanic's  lien  and  a  mort- 
gage. ''It  has  been  held  in  this  court,"  says  the  opinion, 
''that  the  proceedings  to  foreclose  a  mechanic's  lien 
are  similar,  or  analogous,  to  proceedings  to  foreclose 
a  mortgage  on  real  property.  But  this  only  applies  to 
the  proceedings  in  court;  it  is  not  intimated  that  the  lien 
resembles  a  mortgage  on  real  estate.  *  *  *  In  equity 
the  word  lien  is  used  to  denote  a  charge,  or  incumbrance 
merely,  where  there  is  no  right  to  the  thing  itself.  Our 
real  estate  liens  are  not  necessarily  connected  with  pos- 

formance,  the  pledgee  of  the  United  Electric,  etc.,  Co.  v.  Louis- 
money  to  be  earned  under  such  a  iana,  etc..  Light  Co.,  71  Fed.  61.5. 
contract  is  not  entitled  to  receive  i  Meyer  v.  Seebald.  11  Abb. 
them     as     against     the     receiver.  Frac.  U.  S.  (N.  Y.)  326,  note. 


536  LAW    OF    RECEIVERS. 

session  any  more  than  they  are  dependant  upon  it  (mort- 
gages not  overdue,  etc.).  *  *  *  I  regard  the  object  of 
the  law  to  be  to  give  the  mechanic  a  preference  over  sub- 
sequent assignees  and  lienors  and  no  more;  to  give  him 
an  advantage  in  time  but  not  to  give  him  a  security  of  as 
high  character  as  a  mortgage  by  which  the  mortgagor 
acknowledges  the  debt,  conveys  the  whole  property  to  the 
mortgagee  to  satisfy  it  upon  condition  of  non-payment, 
vesting  the  latter  with  the  legal  right  and  leaving  in  him- 
self but  an  equitable  one.*  *  *  Such  an  estate  and 
such  a  right  it  could  not  have  been  intended  to  vest  in  a 
mechanic  who  simply  files  a  notice  of  the  amount  he 
claims  (without  any  acknowledgment  by  the  owner  of  its 
being  due)  and  has  yet  to  prove  it  affirmatively  to  be  ''due 
in  a  legal  proceeding  to  foreclose. ' '  It  might  be  observed 
here  that  the  courts  of  New  York  had  regularly  held  that, 
on  default,  a  mortgagee  of  real  property  was  entitled  to 
the  rents  and  profits,  even  in  the  absence  of  a  stipulation 
to  that  effect  in  the  mortgage,  and  could  obtain  an  equit- 
able lien  upon  them  by  having  a  receiver  appointed  in  a 
foreclosure  action.  It  had  been  frequently  held,  also,  by 
the  courts  of  that  state,  that  courts  of  equity  had  power 
to  appoint  receivers  in  mortgage  foreclosure  actions  not 
only  because  of  their  inherent  powers  but  because  of  a 
statute  giving  them  power  to  make  such  appointments  in 
all  cases  in  which  it  had  been  the  practice  of  equity  courts 
to  do  so. 2 

2  In    Webb    v.    Van    Zandt,    16  statute  nor  is  any  reason  for  the 

Abb.  Practice  (N.  Y.)   314,  note,  a  decision  given, 
receivership  was   allowed.     A  re-  In  GaJlagher  v.  Karns,  27  Hun 

ceiver   of   rents    and    profits    was  (N.   Y.)    375,   a   receiver   was    al- 

asked  for  on  the  ground  of  inade-  lowed  in  an  action  to  foreclose  a 

quacy  of  security,  though  the  re-  lien  for  the  cost  of  certain  work 

porter's  notes  state  that  an  argu-  in   boring   wells   on    oil-producing 

ment  on  the  ground  of  threatened  property.     Nothing  is  said  in  the 

waste    was    made    and    that    an-  opinion     about     the     grounds     on 

alogy    between    the    lien    and    a  which  the  appointment  was  based, 

mortgage  was  drawn.   In  the  opin-  The  appointment  was  based  upon 

ion  there  is  no  reference  to  any  a  special  statute  and  it  is  pointed 


MORTGAGES,  PLEDGES,  AND  LIEXS. 


637 


In  a  Minnesota  case,^  a  receiver  was  appointed  by  the 
trial  court.  The  order  was  reversed  but  expressly  on  the 
ground  that  the  showing  made  in  the  lower  court  was  not 
sufficient.    The  appellate  court,  considering  the  solution  ot 


out  that  the  statute  provided  that 
"courts  shall  have  full  power  to 
enforce  rights  and  equities  be- 
tween all  parties  by  any  of  the 
remedies  usual  in  said  courts"; 
and  it  is  said:  "Liens  and  equities 
arising  thereout  are  enforced  in 
this  court  by  the  remedy  reached 
through  the  instrumentality  of  a 
receiver,  wherever  and  whenever 
such  liens  and  equities  are  in  dan- 
ger and  liable  to  fail  without  such 
instrumentality."  The  case  cites 
Webb  v.  Van  Zandt,  supra,  as  au- 
thority. 

In   Poerschke    v.    Kedenburg,    6 
Abb.  Prac.  U.  S.  (N.  Y.)  172,  there 
is  dictum  based  on  Webb  v.  Van 
Zandt,  that  a  receiver  may  be  ap- 
pointed in  a  mechanics'  lien  case. 
In  Mylvim  Corp.  v.  Passman  & 
Son,  157  N.  Y.   Supp.  372,  it  was 
decided  that  a  receiver  had  been 
improperly    allowed.      The    action 
was   in   foreclosure   by    a   second 
mortgagee   in   possession,   collect- 
ing the  rents  on  the  authority  of 
a  stipulation  in  the  mortgage  and 
an  assignment  of  the  rents.     The 
application   was   by   a  mechanics' 
lienor    defendant.      It    was    ruled 
that  in  the   absence   of  a  statute 
expressly  permitting  the  appoint- 
ment and  in   the  absence  of  any 
showing  of  waste  a  receiver  could 
not  be  allowed. 

In  Meyer  v.  Seebold,  referred  to 
in  the  text,  there  is  cited,  by  way 
of  analogous  authority,  a  Texas 
case,  Pratt  v.  Tudor,  14  Tex.  37. 
This    was    an    action    in    forcible 


entry  and  detainer  by  a  mechan- 
ics' lienor  against  the  debtor,  the 
plaintiff  claiming  the  right  of  pos- 
session until  he  was  paid.    It  was 
held  that  the  action  did   not  lie. 
The  statute  gave  the  mechanic  a 
lien  "in  the  nature  of  a  mortgage," 
but,  as  pointed  out  in  the  opinion, 
did  not  specify  which  party  was 
to  remain  in  possession.     "In  this 
state,"    it    is    said,    "a    mortgage 
does  not  give  possession  nor  any 
right  of  possession,  even  after  for- 
feiture,  especially  with  reference 
to  real  property."    In  the  absence 
of  a  special  stipulation,  the  mort- 
gagor usually   remains   in  posses- 
sion.    "The  law  does  not  contem- 
plate   that    satisfaction    shall    be 
had  out  of  rents  and  profits.     Un- 
less   expressly   set   forth   we   are 
not  to  presume  an  intention  that 
owners    should    be    debarred    the 
use    of    their    property    until    the 
termination  of  a  suit  of  which  the 
main     issue     might    be     whether 
there  was  anything  owing  on  the 
contract  or  not  and  which  might 
by     accident     be     prolonged     for 
years."     It    is    pointed    out    that 
there  is  no  analogy  between  this 
lien    and    the   liens    given   to    me- 
chanics on  personal  property  un- 
der the  common  law  for  the  rea- 
son that  in  regard  to  the  former 
the    recording    laws    provide    the 
protection  that  is  furnished  by  the 
possession  upon  which  the  latter 
depend. 

3  Northland  Pine  Co.  v.  Melin 
Bros.,  136  Minn.  236,  161  N.  W- 
407,  408. 


638  LAW    OF   RECEIVERS. 

the  question  necessary  to  a  proper  decision  of  tlie  case, 
ruled  that  the  lower  court  had  authority  to  grant  the 
relief  if  a  sufficient  showing  w^as  made.^  The  allegations 
of  the  complaint  were  to  the  effect  that  complainant,  a 
materialman,  was  one  of  several  lienors  holding  an  aggre- 
gate of  some  $50,000  worth  of  liens ;  that  there  were  prior 
mortgages ;  that  the  mortgages  and  liens  equaled  the  value 
of  the  property ;  that  the  building  was  unfinished  and  if 
allowed  to  remain  as  it  was  w^ould  rapidly  deteriorate; 
that  unused  material  on  the  ground  would  deteriorate  if 
not  taken  care  of;  that  the  owners  were  insolvent  and 
unable  to  proceed  and  that  work  on  the  building  had 
ceased.  As  expressed  in  the  application  and  directed  in 
the  order  of  appointment  the  receiver  was  to  take  pos- 
session of  and  manage  the  property,  including  the  im- 
provements and  material  on  the  ground  furnished  for  the 
erection  of  the  building  ''in  such  manner  as  will  best 
conserve  the  interests  of  all  persons  having  valid  liens 
against  the  property"  until  such  time  as  the  court  miglit 
otherwise  order.  The  appellate  court,  speaking  through 
Mr.  Justice  Bunn,  says :  ' '  In  this  state,  while  the  lien  is 
purely  a  creature  of  statute,  an  action  to  enforce  it  is  an 
ordinary  civil  action,  proceeding  according  to  the  usual 
course  of  the  law,  and  governed  by  the  same  rules  of 
practice  and  procedure  as  any  other  similar  action, 
except  as  expressly  modified  by  the  statute  itself.  Equit- 
able principles  are  applicable  in  enforcing  the  lien.  It  has 
been  held  in  a  few  cases  in  other  states  that  a  receiver 
of  the  rents  and  profits  can  not  be  appointed  in  a  mechan- 
ic's lien  action  in  the  absence  of  a  statute  authorizing 
such  appointment.  [Stone  v.  Tyler,  173  HI.  147;  Meyer 
V.  Seibold,  11  Abb.  Prac.  U.  S.  326;  (Contra  Webb  v.  Van 
Zandt,  16  Abb.  Prac.  314) ;  Pratt  v.  Tudor,  14  Tex.  37]. 
These  cases  are  manifestly  not  in  point,  as  the  receiver 
in  the  case  at  bar  w^as  not  to  take  the  rents  or  profits,  but 
merely  to  conserve  the  property  and  the  material  on  hand, 

1  See  also  Dezurick  v.  Iblings   UlinnJ,  167  N.  W.  116. 


MORTGAGES,  PLEDGES,  AND  LIENS. 


639 


pending  the  action.  We  hold  that  the  court  had  the  power 
to  appoint  a  receiver  for  these  purposes  if  the  facts 
showed  that  it  was  necessary  for  the  protection  or  preser- 
vation of  the  property."* 


4  In  the  above  case  the  counter 
showing  was  a  complete  refuta- 
tion, both  by  denial  and  affirma- 
tive statement,  of  all  the  allega- 
tions of  the  complaint.  In  revers- 
ing the  order  of  appointment  the 
court  says:  (quoting  an  earlier 
decision)  "The  showing  must  be 
clear,  strong,  and  convincing. 
Such  an  application  will  not  be 
granted  in  a  doubtful  case";  and, 
"When  we  consider  how  little  a 
receiver  could  do  to  help  out  the 
lien  claimants,  and  how  much  he 
could  do  to  embarrass  the  owners 
of  the  property,  and  what  expense 
might  be  incurred,  it  is  difficult  to 
escape  the  conclusion  that  the  or- 
der was  inadvertently  made." 

In  Chicago  Title  etc.  Co.  v. 
Chapman,  132  111.  App.  55,  an 
order  appointing  a  receiver  was 
affirmed.  Among  other  things  it 
was  shown  that  the  building  was 
not  completed  and  that  a  mort- 
gagee who  had  loaned  a  sum  of 
money  to  pay  for  the  construction 
had  diverted  part  of  the  fund  to 
other  purposes  and  still  held  some 
of  it.  An  action  to  foreclose  a 
deed  of  trust  was  commenced 
about  the  same  time  and  a  motion 
for  a  receiver  made  in  that  suit 
also.  The  two  motions  were  heard 
at  the  same  time.  The  suits  were 
consolidated  and  an  order  made 
appointing  a  receiver  to  complete 
the  building,  make  it  tenantable 
and  rent  it.  Just  before  the  order 
w^as  made  the  foreclosing  trus- 
tee withdrew  its  motion  for  a 
receiver   but   the    appellate    court 


intimates  that  this  withdrawal 
was  ineffective  and  that  the 
trustee  was  a  party  defendant 
in  the  mechanics'  lien  case  so 
that  the  court  was  warranted 
in  appointing  a  receiver  be- 
cause of  the  foreclosure  of  the 
trust  deed.  However  it  is  pointed 
out  that  there  was  no  attempt 
made  in  the  order  to  determine 
what  might  be  a  proper  disposi- 
tion of  the  rents  and  that  the 
statute  authorizing  the  court,  on 
a  foreclosure  of  a  mechanic's  lien, 
to  complete  the  building  where 
the  same  should  be  deemed  for 
the  best  interests  of  all  the  par- 
ties. 

In  Stone  v.  Tyler,  173  111.  147, 
50  N.  E.  688  it  was  ruled  that  in 
the  absence  of  a  statute  specially 
authorizing  a  receiver  the  court 
was  not  empowered  to  appoint  a 
receiver  of  rents  and  profits  in  a 
mechanic's  lien  foreclosure.  It 
was  also  ruled  that  when  such 
a  suit  was  pending  at  the  time  a 
statute  authorizing  the  appoint- 
ment in  such  suits  "in  the  same 
manner,  for  the  same  causes,  and 
for  the  same  purposes  as  in  cases 
of  foreclosure  of  mortgages"  went 
into  effect  was  not  applicable  to 
the  case,  both  on  general  prin- 
ciples and  because  of  special  pro- 
visions in  the  act. 

In  Rudd  V.  Littell,  20  Ky,  Law 
Rep.  158,  162,  45  S.  W.  451,  46 
S.  W.  3  it  was  held  that  although, 
where  a  building  was  constructed 
under  a  contract  with  a  remain- 
derman, who,  under  a  special  stat- 


640  LAW   OF   RECEIVERS. 

§  268.    Receiverships  Affecting  Property  Covered  by  Mechan- 
ics' Liens. 

Property  covered  by  mechanics*  liens  may  be  affected 
by  receivership  proceedings  although  they  do  not  arise 
in  actions  to  foreclose  the  liens,  and  the  same  rules  apply 
here  as  in  foreclosure  of  mortgages.  The  appointment  of 
a  receiver  does  not  divest  the  lien,  although  it  may  affect 
the  lienor 's  methods  of  enforcing  it.^  The  appointment  of 
a  receiver  does  not  obviate  the  necessity  of  taking  all  the 
necessary  statutory  steps  to  protect  and  preserve  the 
lien.^  If  the  property  is  sold  by  the  receiver,  the  lien 
follows  the  fund.^  If  a  receiver  is  appointed  for  the  prop- 
erty of  an  insolvent  contractor,  the  receiver  may  be 
authorized  to  continue  the  w^ork;  he  may  himself  have  a 
mechanic's  lien  upon  the  property  and  those  serving  him 
will  be  protected  either  by  proper  court  order  or  by  the 
right  to  liens.*  A  receiver  of  property  is  limited  by  the 
terms  of  any  order  authorizing  him  to  make  improve- 

ute,  had  been  appointed  by  the  without  permission  of  the  re- 
court  as  agent  for  the  other  re-  ceivership  court;  but  the  judg- 
niainder  interests  and  had  been  ment  would  be  binding  only  upon 
authorized  to  malte  a  loan  for  the  the  parties  to  the  action  and  the 
purpose  of  paying  for  the  building,  receiver's  possession  could  not  be 
the  contractor's  lien  against  the  disturbed  except  by  permission  of 
property  was  limited  to  the  the  court.  Richardson  v.  Hickman, 
amount  of  the  loan,  the  contractor  etc.,  et  al.,  32  Ark.  406.  See,  also, 
was  entitled  in  equity  to  be  paid  Andi'ews,  etc.,  Iron  Co.  v.  I.  D. 
from  rents  collected  through  a  re-  Smead,  etc.,  Co.,  5  Ohio  C.  Dec. 
ceiver.  460,  11  Ohio  Cir.  Ct.  R.  286. 

1  Fenton  et  al.  v.  Fenton  Bldg.  2  Withrow  Lumber  Co.  v.  Glas- 

Co.,  90  Conn.  7,  96  Atl.  145;    Tot-  gow    Inv.    Co.,    101    Fed.    863,    42 

ten  &  H.  I.   &  S.  Foundry  Co.  v,  C.  C.  A.   61;    Smith  v.   Pierce,  45 

Muncie  Nail  Co.,  148  Ind.  372,  47  App.  Div.  628,  60  N.  Y.  Supp.  1011. 

N.    E.    703;     Randall    v.    Wagner  3  Randall  v.  Wagner  Glass   Co., 

Glass    Co.,    47    Ind.    App.    439,    94  47  Ind.  App.  439,  94  N.  E.  739. 

N.   E.   739;    Hickey   v.   Collom,   47  4  Fenton  et  al.  v.  Fenton  Bldg. 

Minn.  565,  50  N.  W.  918;  Burns  v.  Co.,  90  Conn.  7,  96  Atl.  145;    Gui- 

Sewell,  48  Minn.  425.  51  N.  W.  224.  marin  &  Co.  v.  Southern  L.  &  T. 

An    action    to    foreclose    a    me-  Co.,  100  S.  C.  12,  84  S.  E.  298.  See, 

chanic's  lien  might  be  maintained  also,  §§34  et  seq.,  supra. 


MORTGAGE^,  PLEDGES,  AND  LIENS. 


641 


ments  and  one  serving  him  in  such  matter  is  bound  also 
by  the  order.^  If  a  mechanic's  lien  or  the  right  to  one 
is  included  in  the  receivership  property,  the  receiver  may 
proceed  to  enforce  it.*^  The  possession  of  property  by  a 
court  in  mechanic's  lien  foreclosure  proceedings  may  be 
sufficient  to  support  the  superior  jurisdiction  of  one  court 
as  against  another  court  of  concurrent  jurisdiction  under 
the  rule  that  where  the  causes  of  action  in  the  two  courts 
are  not  the  same,  comity  between  courts  leaves  the  juris- 
diction for  all  purposes  to  the  court  that  first  acquires 
actual  possession.^ 


5  Tenth  Nat.  Bank  of  Philadel- 
phia V.  Smith  Const.  Co.,  218  Pa. 
St.  584,  67  Atl.  874. 

6  Curtis  V.  Broadwell,  66  Iowa 
662,  24  N.  W.  265;  German  Bank 
V.  Schloth,  59  Iowa  316,  13  N.  W. 
314;  Fullerton  Lumber  Co.  v. 
Gates,  89  Mo.  App.  201. 

7  In  Rogers,  etc.,  Hardware  Co. 
V.  Cleveland  Bldg.  Co.,  132  Mo. 
442,  53  Am.  St.  Rep.  494,  31 
L.  R.  A.  335,  34  S.  W.  57,  it  was 
held  that,  where  a  mechanics'  lien 
suit  in  the  state  court  had  pro- 
ceeded to  the  point  where  a  judg- 
ment as  to  the  amount  of  the 
claim  and  granting  a  lien  had 
been  rendered  and  a  transcript  of 
the  judgment  had  been  filed  so  as 
to  entitle  the  claimant  to  a 
special  execution  before  a  re- 
ceiver in  a  mortgage  foreclosure 
suit  in  a  federal  court  had  been 
appointed,  the  state  court  retained 
exclusive  jurisdiction,  although 
the  special  execution  had  not  is- 
sued; citing  Heidritter  v.  Eliza- 
beth, etc.,  Co.,  112  U.  S.  294,  305, 
28  L.  Ed.  729,  5  Sup.  Ct.  135. 

Where  a  state  court  had  ap- 
pointed a  receiver  in  a  lien  suit 
after  a  personal  judgment  had 
I  Rec. — 41 


been  rendered  in  a  federal  court 
in  an  action  in  which  the  property 
had  been  attached  but  before  exe- 
cution had  issued;  a  suit  had  been 
commenced    in    the    federal    cour': 
by  the  judgment  creditor  in  which 
he  alleged   that  the  lien  was   in- 
valid or  inferior  to  his  judgmeuc, 
the  state  court  was  without  juris- 
diction to  appoint  a  receiver,  the 
foreclosure  action  had  been  insti- 
tuted to  delay  and  hinder  the  en- 
forcement   of   the    judgment,    and 
that  the  judgment  claim  was  prior 
to    a   trust    deed    securing    bonds 
for     $80,000,     and     in     which     he 
prayed   for  a   decree  determining 
priorities    and    asked    for    a    re- 
ceiver;  and  before  the  motion  for 
a    receiver    was    heard    a    suit    to 
foreclose  the  trust  deed  was  com- 
menced in  the  state  court  and  the 
former    receivership    extended    to 
that   suit;    it   was   held   that   the 
state  court  had  the  exclusive  jur- 
isdiction.   Questions  as  to  the  suf- 
ficiency   of  the   complaints   or   of 
the    evidence    in    the    state    court 
could  not  be  determined  by  a  fed- 
eral  court   having   no  jurisdiction 
to  review  the  proceedings  in  that 
court;  although  the  jurisdiction  of 


642  LAW   OF    RECEIVERS. 

5.   Receiverships  Respecting  Statutory  Labor  Liens. 
§  269.    Riiles  Governing  the  Subject. 

In  many  states  of  the  Union  statutes  have  been  enacted 
designed  ''to  protect  employes  and  laborers  in  tlieir 
claims  for  wages''^  and  providing,  generally,  that  when 
the  business  of  an  employer  is  suspended  by  the  appoint- 
ment of  a  receiver  the  wages  of  specified  classes  of  em- 
ployes, accruing  within  a  designated  period  before  the 
creation  of  the  receivership,  shall  be  preferred  to  other 
claims  against  the  employer.  These  statutes  have  gen- 
erally been  recognized  as  valid  legislation,  but  they  are 
strictly  construed  in  regard  to  all  points,  such,  for  in- 
stance, as  the  classes  of  employes  that  come  ^\dthin  their 
protection.2  Two  important  points  in  regard  to  their 
application  are  necessary  to  be  noticed  here. 

In  the  first  place,  unless  the  statute  expressly  gives  the 
preferred  employe  a  lien  upon  the  property,  or  some 
portion  thereof,  of  the  employer,  it  will  be  held  that  the 
employe's  claim  for  wages  does  not  displace  any  existing 
specific  lien  and  that  the  employe  is  simply  to  be  placed 
in  the  list  of  general  creditors  with  a  preference  over  all 

the  state  court  to  appoint  a  re-  no  barrier  to  other  liens  and  ac- 
ceiver  in  the  lien  suit  might  be  tual  seizure  by  another  court." 
doubtful,  there   was  no  doubt  as      Pacific  Coast  Pipe  Co.  v.  Conrad 

^  .^  .  .  ,.  ..  t  A^  c^  i^  fv,^  City  Water  Co.,  et  al.,  237  Fed. 
to  Its  jurisdiction  to  do  so  in  the  •'  '  ' 


foreclosure  suit,  even  though  the 
appointment  might  have  been  im- 


673. 

1  Colorado      Revised      Statutes, 

1908,  §§  6998-7000. 

provident;  and  the  merger  of  the  ^  Security  Trust  Co.  v.  Bank  of 

two  receiverships  in  the  state  gernice,  239  Fed.  665,  152  C.  C.  A. 
court  had  occurred  under  such  cir-  499  gee  reference  to  point  in 
cumstances  as  to  leave  no  point  Schmidtman  v.  Atlantic,  etc.,  Co., 
of  time  at  which  the  jurisdiction  230  Fed.  769,  145  C.  C.  A.  79. 
of  the  federal  court  could  attach.  As  to  the  strict  construction  on 
The  attachment  in  the  suit  in  the  the  point  of  the  identification  of 
federal  court  created  but  a  secur-  the  property  or  fund  to  which  such 
ity  to  pay  the  judgment;  "it  did  a  preference  may  attach,  see  Gulf 
not  draw  the  realty  into  the  cus-  Pipe  Line  Co.  v.  Lasater  (Tex. 
tody  of  the  federal  court  and  was      Civ.  App.),  193  S.  W.  773. 


MORTGAGES,  PLEDGES,  AND  LIENS. 


643 


others  in  that  class.    The  point  is  fully  treated  and  this 
conclusion  reached  in  an  original  consideration  of  the 
matter  by  the  United  States  Circuit  Court  of  Appeals  of 
the  Second  Circuit,  in  construing  a  New  York  statute  of 
this  sort.2     In  its  opinion  the  court,  speaking  through 
Judge  Lacombe,  says:  '' Manifestly  the  statute  involved'' 
is  in  derogation  of  the  Common  Law  and  of  common 
rights.    It  is  a  well  established  principle  that  a  receiver 
of  an  insolvent  corporation  takes  the  property  subject 
to  existing  liens.    The  fact  of  insolvency  and  the  fact  of 
the  appointment  of  a  receiver  does  not  impair  a  valid 
contract  lien.    *    *    *    Impairment  of  existing  contract 
liens  must  be  found  in  a  statute  or  they  will  not  be  found 
at  all.     Statutes  which  disturb  vested  rights  are  to  be 
closely  scrutinized  and  are  not  to  be  given  such  construc- 
tion, unless  their  language  clearly  indicates  an  intention 
on  the  part  of  the  legislature  to  change  the  existing  law. 
*    *    *    The  security  afforded  by  a  lien  well  recognized 
in  law  and  equity  has  always  been  held  entitled  to  con- 
sideration.   The  person  who  has  a  specific  lien  on  prop- 
erty is  entitled  to  pay  himself  out  of  that  property ;  and, 
if  it  be  insufficient,  then  to  prove  his  claim  for  deficiency 
and  to  share  with  unsecured  creditors  in  the  proceeds  of 
property  not  covered  by  his  lien.     No  other  creditor  is 
entitled  to  any  part  of  the  proceeds  of  property  covered 
by  lien  until  the  lienor  is  first  paid.     These  principles 
have  been  so  well  settled  for  so  long  that  it  might  fairly 
be  supposed  that  a  legislature  seeking  to  exclude  their 
application  in  certain  cases  would  declare  its  intention  in 
unmistakable  language.     Certainly  the  language  of  this 
statute  is  not  unmistakable ;  it  may  be  construed  to  sub- 
ordinate all  specific  liens  to  claims  for  wages  of  em- 
ployes ;  it  may  also  be  construed  to  give  the  latter  prefer- 
ence only  in  unencumbered  assets."^ 

3  Schmidtman   v.   Atlantic,    etc.,      Law    (chapter    415,    §  8,    Laws    of 
Co.,  230  Fed.  769,  145  C.  C.  A.  79.      1897). 

4  Section    9,    New    York    Labor         5  To  same  effect  see  Central  Sav. 


Gl-J:  LAW   OF   RECEIVERS. 

The  other  point  concerning  these  statutes  to  which  wo 
here  call  attention  is  the  proposition  that,  even  though 
the  statute  expressly  protects  the  preferred  employe  by 
giving  him  a  lien  upon  the  property  of  the  employer  for 
his  wage  claim,  the  lien  does  not  displace  specific  liens  to 
which  the  property  was  subject  at  the  time  the  employer 
acquired  it.  The  lien  created  by  the  statute  attaches 
only  to  the  property  of  the  employer.  If  the  property 
is  acquired  subject  to  a  vendor's  lien  for  the  purchase 
price  or  to  a  prior  mortgage  or  other  encumbrance,  the 
''property"  of  the  employer  is  simply  the  equity  remain- 
ing over  and  above  these  encumbrances ;  and  this  equity 
is  all  that  the  statutory  lien  can  affect.® 

6.  Receiverships  Affecting  Equitable  Liens. 
§  270.    General  View  of  the  Subject. 

It  has  been  said  that  the  only  lien  upon  real  estate 
which  equity  creates  is  that  of  a  vendor's  lien  for  the 
purchase  price. ^  The  circumstances  under  which  equi- 
table liens  may  be  created  against  personal  property  are, 

Bank  v.  Newton,  et  al.,  59  Colo.  Where  the  statute  extends  its 
150,  147  Pac.  690.  In  the  opinion  protection  to  wages  accruing 
in  this  case  it  is  pointed  out  that  '-within"  a  certain  period  prior  to 
the  Supreme  Court  of  Illinois,  in  the  appointment  of  the  receiver, 
Seymour  v.  Berg,  227  111.  411,  10  the  term  "within"  will  be  con- 
Ann.  Cas.  340,  81  N.  E.  339,  adopted  strued  to  mean  "subsequent  to," 
this  view,  thereby  overruling  one  and  the  benefits  will  inure  not 
of  its  earlier  decisions,  Heckman  only  to  persons  employed  before 
V.  Tammen,  184  111.  144,  56  N.  E.  the  receivership  but  to  the  em- 
361.  One  who  takes  a  mortgage  ployees  of  a  receiver  who  con- 
upon  property  subject  to  an  em-  tinues  the  business, 
ployee's  lien  for  wages  takes  as  i  As  we  have  stated  supra,  §  339, 
security  only  the  equity  remaining  however,  the  term  "equitable  lien" 
In  the  property  over  and  above  the  is  frequently  applied  to  a  contract 
mortgage.  Security  Trust  Co.  v.  lien  where,  because  of  the  inten- 
Bank  of  Bernice,  239  Fed.  665,  152  tion  of  the  parties,  the  lien  is 
C.  C.  A.  499.  created  by  a  contract  but  the  con- 
6  Authorities  here  will  be  given  tract  is  not  in  the  usual  form;  such 
•when  certain  manuscript  now  equitable  liens  may  of  course  at- 
being  revised  is  returned — F.  D.  tach  to  real  property. 


MORTGAGES,  PLEDGES,  AND  LIENS. 


645 


however,  almost  innumerable.  It  is  not  practical  here 
to  seek  to  enumerate  or  classify  them  or  to  set  forth  the 
application  of  the  principles  governing  receiverships  to 
them  with  any  particularity.  Certain  general  principles 
may,  however,  be  stated. 

As  a  rule,  the  assistance  of  a  receivership  may  be  had 
in  a  suit  to  enforce  an  equitable  lien  under  the  same 
circumstances  and  conditions  under  which  that  remedy  is 
available  in  foreclosing  a  contract  lien.^ 

It  is,  of  course,  always  a  question  as  to  whether  or  not 
a  claimant  has  a  lien  which  he  can  enforce  by  foreclosure, 
with  the  aid  of  a  receivership,  or  which  he  can  enforce 
against  property  in  the  hands  of  a  receiver.^  Equitable 
liens,  like  other  liens,  are  not  divested  by  the  appointment 
of  a  receiver;  the  receiver  takes  the  property  of  the 
debtor  subject  to  all  valid  pre-existing  Uens.^    Liens  can 


2  Meridian  Oil  Co.  v.  Randolph, 
26  Okla.  634,  110  Pac.  722. 

Where  a  sales  agent  makes  ad- 
vances to  the  manufacturers  upon 
goods   which   are  to   be   stored  in 
separate  warehouses   and   insured 
in  his  name,  he  has  such  an  equit- 
able lien  as  will  be  protected  by 
a    record.     Garrison    v.    Vermont 
Mills,    154    N.    C.    1,    31    L.    R.    A. 
(N.  S.)  450,  69  S.  E.  743. 
V-'s  Where    goods    are    sold    on    a 
■  dbnditional  sale  contract  in  which 
they  were  not  to  be  removed  and 
proceeds  from  their  sale  were  to 
be  paid  to  the  vendors,  an  appli- 
cation for  a  receiver  by  the  vendor 
was  refused  even  though  the  pur- 
chaser  was    insolvent   and   appro- 
priating   the    proceeds.     Steele    v. 
Aspy,   128  Ind.   367,   27   N.   E.   739. 
4  Brackett  v.  Middlesex  Banking 
Co.,    89     Conn.     645,    95    Atl.     12; 
Knickerbocker  Trust  Co.  v.  Green 
Bay    Phosphate    Co.,    62    Fla.    519, 
56  So.  699;   Travis  v.  McBride,  166 


Mich.  126,  131  N.  W.  520;  Albien 
V.  Smith,  24  S.  D.  203,  123  N.  W. 
675;  First  Nat.  Bank  v.  J.  1.  Camp- 
bell Co.,  52  Tex.  Civ.  445,  114  S.  W. 
887. 

A  factor's  lien  will  be  enforced. 
Cameron  v.  Cronse,  11  App.  Div. 
391,  42  N.  Y.  Supp.  58. 

An  equitable  right  of  set-off  may 
be  enforced  as  against  a  receiver. 
In  re  Farmers'  &  Merchants'  Bank 
of  Lawrence,  194  Mich.  200,  160 
N.  W.  601. 

A  lumber  company  entered  into 
an  agreement  with  its  creditors 
whereby  they  extended  the  time  of 
payment  of  their  debts  and  agreed 
not  to  give  any  creditor  collateral 
security  without  the  consent  of  the 
other  creditors  and  also  agreed  to 
prorate  its  profits  amongst  its 
creditors.  It  afterwards,  with  the 
consent  of  its  creditors,  agreed  to 
give  a  creditor  who  furnished 
goods  to  be  used  as  funds  for 
operating    expenses    a    first    lien 


646 


LAW   OF   RECEIVERS. 


not  be  perfected  after  the  appointment  of  a  general 
receiver  or  a  receiver  in  insolvency  proceedings.^  After 
the  appointment  of  a  receiver  any  enforcement  of  a  lien 
that  involves  an  interference  with  his  possession  can  not 
be  effected  without  the  consent  of  the  court  in  which  the 
receivership  proceedings  are  had.*  A  sale  of  the  involved 
property  wall  not  destroy  the  lien ;  the  lien  will  attach  to 
the  proceeds,  unless  some  estoppel  has  been  created 
against  the  claimant.'^  While  a  lien  against  a  special  fund 
may  be  lost  if  the  fund  can  not  be  traced,  any  improper 
mingling  of  the  fund  with  other  moneys  by  the  receiver 


upon  lumber  produced  at  its  mill. 
Upon  the  company  going  into  a  re- 
ceivership, it  was  held  that  the  lien 
would  be  recognized.  Atlanta  Nat. 
Bank  v.  Four  States  Grocer  Co. 
(Tex.  Civ.),  135  S.  W.  1135. 

5  Brown  v.  Massachusetts  Hide 
Corporation,  218  Fed.  769,  134  C.  C. 
A.  447,  citing  Thomas  v.  Taggart, 
209  U.  S.  385,  52  L.  Ed.  845,  28  Sup. 
Ct.  519;  Zartman  v.  First  Nat. 
Bank.  216  U.  S.  134,  54  L.  Ed.  418, 
30  Sup.  Ct.  368. 

As  to  the  right  of  an  owner, 
pending  receivership  proceedings, 
to  create  liens  against  any  interest 
that  may  remain  to  him  after  prior 
claims  are  paid,  see  Lauraine  v. 
Masterson  (Tex.  Civ.),  193  S.  W. 
708. 

It  is  only  under  special  circum- 
stances or  specific  provisions  ot 
the  statute,  or  decree  of  court  that 
a  lien  may  be  acquired  over  prop- 
erty in  the  hands  of  a  court  of 
equity.  Clinchfield  Fuel  Co.  v. 
Titus,  226  Fed.  574,  141  C.  C.  A. 
330. 

6  Randall  v.  Wagner  Glass  Co., 
47  Ind.  App.  439,  94  N.  E.  739;  In 
re  New  Glenwood  Canning  Co.,  150 
Iowa  696,  130  N.  W,  800. 


The  receivership  court  may  with- 
out an  abuse  of  discretion,  refuse 
permission  to  a  lien  claimant  to 
foreclose  his  lien  by  means  of  an 
independent  suit.  Holmes  &  Hib- 
bard  Mortg.  Co.  v.  Ardmore  Nat. 
Bank,  48  Okla.  319,  150  Pac.   105. 

An  equitable  lien  upon  property 
in  the  hands  of  a  receiver  must  be 
established  and  enforced  in  the  re- 
ceivership proceedings.  James 
Freeman  Brown  Co.  v.  Harris,  88 
S.  C.  558,  70  S.  E.  802. 

The  receivership  court  may 
order  a  fund  to  be  obtained  for  the 
purpose  of  satisfying  a  lien  by  a 
separate  sale  of  the  property 
covered  thereby.  State  v.  District 
Court  in  and  for  Third  Judicial 
Dist.,  37  Utah  418,  108  Pac.  1121. 

See,  also,  Galey  v.  Guffey,  248 
Pa.  St.  523,  94  Atl.  238. 

7  Liens  upon  property  held  by  a 
receiver  are  not  diverted  by  a  sale 
by  him.  Central  Trust  Co.  v. 
Wabash,  etc.,  Ry.  Co.,  30  Fed.  344; 
Myers  v.  Estell,  48  Miss.  372;  Mil- 
ler V.  Bowles,  58  N.  Y.  253;  Fidelity 
Title,  etc.,  Co.  v.  Schenley,  etc.,  R, 
Co.,  189  Pa.  St.  363,  69  Am.  St.  Rep. 
815.  42  Atl.  140. 


MORTGAGES,  PLEDGES,  AND  LIENS. 


647 


or  any  diversion  of  the  fund  will  not  destroy  the  lien, 
except  in  case  of  an  estoppel  against  the  claimant  and,  if 
possible,  the  lien  will  be  satisfied  from  other  sources.^ 
A  lien  claimant  who  intends  to  appeal  from  an  adverse 
order  in  the  receivership  proceeding  must  lay  the  neces- 
sary foundation  by  proper  exception  and  objection  to 
the  order.* 


8  Where  the  income  of  a  railroad 
has  been  diverted  from  a  mort- 
gagee entitled  to  it,  his  claim  may 
be  met  from  the  corpus.  Moore  v. 
Donahoo,  217  Fed.  177,  133  C.  C.  A. 
171. 

The  fact  that  the  receiver  mixed 


the  fund  collected  with  other 
moneys  will  not  prevent  an  en- 
forcement of  a  lien  against  the 
fund  if  it  can  be  traced  into  his 
hands.  Scully  v.  Colean  Mfg.  Co., 
160  111.  App.  286. 

9  Narfleet  v.  Tarbaro  Cotton  Fac- 
tory, 172  N.  C.  833,  89  S.  E.  785. 


CHAPTER  XII. 

PROCEEDINGS  IN  AID  OF  GENERAL  CREDITORS. 

1.    In  General. 
§  271.    Scope  of  Treatment  of  Subject. 

The  remedy  by  receivership  is  one  employed,  or 
granted,  by  courts  of  equity.  The  appointment  of  a 
receiver  can  be  invoked  only  in  a  pending  suit  brought 
to  obtain  some  relief  which  the  court  has  jurisdiction  to 
grant.  The  receivership  is  merely  ancillary  to,  or  in  aid 
of,  the  main  cause  of  action.  There  are  in  general  four 
classes  of  equitable  actions  in  which  this  remedy  may  be 
available.  One  of  these  classes  consists  of  cases  where, 
after  the  rendition  of  a  judgment  or  decree,  the  ordinary 
processes  of  the  court  or  its  legally  constituted  officers 
can  not  efficiently  act  or  properly  perform  the  duties 
required  to  carry  the  judgment  or  decree  into  effect.^ 
We  come  now  to  consider  certain  of  this  class  of  cases. 

It  frequently  happens  that  creditors  who  have  reduced 
their  claims  to  the  form  of  money  judginents  are,  for  one 
reason  or  another,  unable  to  realize  upon  the  judgments 
and  secure  payment  of  their  claims  by  means  of  execu- 
tion, garnishment,  attachment,  or  any  of  the  other  proc- 
esses by  which  courts  assist  judgment  creditors  in  this 
behalf.  Courts  of  equity  have  come  to  the  assistance  of 
judgment  creditors  in  this  situation  in  two  well  estab- 
lished lines  of  cases,  in  both  of  which,  under  proper  con- 
ditions, receivers  may  be  appointed  to  hold  the  property 
involved  until  the  final  determination  of  the  cause. 
These  cases,  so  far  as  they  involve  the  remedy  of  a 
receivership,  form  the  subject  matter  of  this  chapter. 
There  are  also  to  be  considered,  as  analogous  to  these 
equity   actions,    two    statutory   proceedings,    now   very 

1  See  §  6,  supra. 

(648) 
/ 


PROCEEDINGS  IN  AID  OF   GENERAL   CREDITORS.  649 

widely  existing,  wliicli  are  designed  to  attain  the  same 
results  and  involve  the  appointment  of  so-called  receivers. 

§  272.    Right  of  Contract  Creditors  to  Have  Receiver  Appointed. 

In  limine,  it  is  necessary  to  observe  that  a  mere  con- 
tract creditor  who,  neither  by  his  contract  nor  by  a  judg- 
ment, has  obtained  a  lien  upon  any  property  of  his  debtor, 
is  not  in  a  position,  unless  aided  by  a  special  statute,^  to 
institute  an  action  in  equity  in  which  he  can  ask  for  the 
appointment  of  a  receiver  and  thus  deprive  the  debtor  of 
the  possession  and  management  of  his  property.     This 
proposition  would  naturally  follow  from  the  general  rule 
applicable  to  the  appointment  of  a  receiver  in  any  case 
to  the  effect  that  one  seeking  such  an  appointment  must 
show  either  that  he  has  a  clear  right  to  the  property 
itself  or  that  he  has  some  lien  upon  it  or  that  the  prop- 
erty constitutes  a  special  fund  to  which  he  has  a  right  to 
resort  for  the  satisfaction  of  his  claim.^    The  application 
of  this  general  rule  to  a  typical  case  of  such  a  contract 
creditor  is  well  set  forth  by  the  United  States  Circuit 
Court  of  Appeals  in  passing  on  an  order  appointing  a 
receiver  made  by  a  District  Court  of  West  Virginia.^* 
The  action  was  brought  by  a  creditor  holding  unsecured 
notes  to  the  amount  of  ten  thousand  dollars.    The  allega- 
tions of  the  complaint  were  to  the  effect  that  the  defen- 
dant though  solvent  was  heavily  embarrassed  and  unable 
to  meet  his  current  obligations,  including  plaintiff's  notes 

1  Civ.  Code  1895,  §  2716,  of  Geor-  In  many  states,  at  the  instance 

gia,  authorizes  a  receiver  for  an  in-  of  creditors,  general  or  otherwise, 

solvent  trader  at  the  instance  of  receivers  may  be  appointed  to  talte 

creditors  representing  one-third  of  possession  of  the  property  of  in- 

the  unsecure'd  debts  of  the  trader.  solvent  corporations  and  wind  up 

A  debt  secured  by  collateral  secur-  ^^^.^.  ^^^^.^^      g^^  ^^^^^  ^    ^^^,^^ 

ity  of  pledge,  though  such  security  ^^  ^^^^    ^^^^  ^_  ^    ^    ^^^^^^  g3^_ 
may  be  less  than  the  debt,  is  not 

an  unsecured  debt  under  this  pro-  -  See,  §  6,  supra, 

vision.  Farmers'  Union  Warehouse  3  Davis  et  al.  v.  Hayden,  238  Fed. 

Co.   V.   Coweta  Fertilizer  Co.,  133  734,  151  C.  C.  A.  584. 
Ga.  132,  65  S.  E.  291. 


650  LAW  OP   RECEIVERS. 

with  interest;  tliat  his  property  was  largely  encumbered 
and  only  equities  remained  for  unsecured  creditors ;  that 
many  of  his  creditors  were  pressing  him  and  either  had 
commenced  or  threatened  to  commence  suits ;  that  if  the 
property  was  sold  at  forced  sale  the  unsecured  creditors 
would  get  nothing,  but  that  the  property  could  be  con- 
served so  as  to  pay  all  creditors  in  full.  The  appellate 
court  said :  ''' We  rest  our  decision  on  the  ground  that  the 
facts  alleged  in  plaintiff's  bills  present  no  case  for  the 
cognizance  of  the  federal  court  of  equity.  It  is  to  be 
noted  that  plaintiff  is  a  mere  contract  creditor,  without 
lien  or  security  of  any  kind,  and  without  the  claim  of 
right  to  charge  any  specific  property  with  the  payment 
of  his  debt;  that  Thompson,  though  temporarily  embar- 
rassed by  lack  of  ready  money,  is  asserted  to  be  abun- 
dantly solvent;  that  the  suit  was  evidently  brought  in 
pursuance  of  a  prearranged  plan  between  the  plaintiff 
and  Thompson;  and  that  it  was  the  obvious  purpose  of 
the  suit,  not  to  enforce  the  plaintiff's  own  demand,  but 
to  enable  Thompson,  by  means  of  a  receivership  and  in- 
junction, to  prevent  his  creditors  from  taking  any  steps 
to  collect  their  claims.  And  the  case  for  relief  amounts 
only  to  this :  That  certain  creditors  of  Thompson  have 
obtained  judgments  against  him  on  which  executions  may 
issue ;  that  other  creditors  have  levied  attachments  upon 
his  property;  that  still  others  threaten  to  sell  the  collat- 
erals held  in  pledge,  as  they  have  the  right  to  do ;  and 
that  in  consequence  the  assets  of  Thompson  are  liable  to 
become  so  depleted  that  unsecured  creditors  will  not  be 
paid. 

''We  are  clearly  of  the  opinion  that  these  facts  are  in- 
sufficient to  warrant  the  action  of  the  court  below.  In  its 
most  favorable  aspect  the  plaintiff's  case  comes  under  no 
recognized  head  of  equity  jurisdiction.  Indeed,  we  take 
it  to  be  an  established  principle  of  jurisprudence  that  a 
court  of  equity  is  without  jjower,  in  the  absence  of  statu- 


PROCEEDINGS  IN   AID   OF  GENERAL  CREDITORS.  651 

tory  authority,  to  appoint  a  receiver  of  the  assets  of  an 
individual  debtor,  or  to  enjoin  the  prosecution  of  claims 
against  him,  at  the  suit  of  a  mere  contract  creditor  who 
has  no  lien  or  other  security,  and  who  asserts  no  right 
to  subject  any  specific  property  to  the  payment  of  his 
debt.  Equity  may  aid  in  a  proper  case  when  legal  reme- 
dies have  been  exhausted,  but  can  not  be  resorted  to  in 
the  first  instance.  The  authorities  to  this  effect  are 
numerous  and  of  uniform  import.  Among  the  leading 
cases  which  illustrate  and  apply  the  doctrine  are  Thomp- 
son V.  Railroad  Companies,  73  U.  S.  (6  Wall.)  134,  18 
L.  Ed.  765;  Scott  v.  Neely,  140  U.  S.  106,  11  Sup.  Ct.  712, 
35  L.  Ed.  358 ;  Scott  v.  Armstrong,  146  U.  S.  499,  13  Sup. 
Ct.  148,  36  L.  Ed.  1059;  Cates  v.  Allen,  149  U.  S.  452,  13 
Sup.  Ct.  977,  37  L.  Ed.  804,  and  HoUins  v.  Brierfield, 
C.  &  I.  Co.,  150  U.  S.  371, 14  Sup.  Ct.  127,  37  L.  Ed.  1113. 
In  the  last-named  case  the  Supreme  Court  said : 

*'  'The  plaintiffs  were  simple  contract  creditors  of  the 
company,  their  claims  had  not  been  reduced  to  judgment, 
and  they  had  no  express  lien  by  mortgage,  trust  deed,  or 
otherwise.  It  is  the  settled  law  of  this  court  that  such 
creditors  can  not  come  into  a  court  of  equity  to  obtain 
the  seizure  of  the  property  of  their  debtor,  and  its  appli- 
cation to  the  satisfaction  of  their  claims ;  and  this,  not- 
withstanding a  statute  of  the  state  may  authorize  such  a 
proceeding  in  the  courts  of  the  state.* 

"We  are  convinced  that  the  appointment  of  a  receiver 
and  the  restraining  of  creditors  in  this  case,  upon  the 
facts  alleged  by  both  parties  to  the  original  bill,  are  not 
only  without  support  in  principle  or  precedent,  but  mani- 
fest the  attempted  exercise  of  powers  which  as  repeated 
decisions  declare,  are  not  possessed  by  a  federal  court.  "^ 

4  In  this  case,  answering  the  311,  106  C.  C.  A.  453,  as  follows: 
argument  that  jurisdiction  had  "An  individual  is  not  a  corpora- 
been  obtained  by  the  consent  of  tion.  The  administration  of  the 
the  debtor,  the  court  quoted  from  affairs  of  an  insolvent  individual 
Maxwell    v.    McDaniels,    184    Fed.  is  not  a  recognized  head  of  equity 


652 


LAW   OF    RECEIVERS. 


jurisdiction,  as  is  the  administra- 
tion of  ttie  assets  of  an  insolvent 
corporation.  Tlie  subject-matter  in 
the  former  case  is  not  one  over 
which  the  court  has  jurisdiction. 
Mere  waiver  by  the  defendant  of 
objections  otherwise  fatal  to  the 
capacity  of  the  plaintiff  to  involve 
the  jurisdiction  in  the  case  of  a 
corporation  removes  the  only  ob- 
stacle to  the  granting  of  the  relief 
desired.  In  the  case  of  an  indi- 
vidual defendant  it  leaves  un- 
touched the  most  serious  difficulty 
of  all,  namely,  that  the  subject- 
matter  is  not  one  within  the 
province  of  the  court." 

Answering  the  argument  that 
the  appointment  was  based  upon 
a  West  Virginia  statute  providing 
that  "a  court  of  equity  may,  in 
any  proper  case  pending  therein, 
in  which  the  property  of  a  corpora- 
tion, firm  or  person  is  involved, 
and  there  is  danger  of  the  loss  or 
misappropriation  of  the  same  or 
a  material  part  thereof,  appoint  a 
special  receiver  of  such  property 
or  of  the  rents,  issues  and  profits 
thereof,  or  both,"  the  court  quoted 
from  Thompson  v.  Adams  (60  W. 
Va.  463,  55  S.  E.  668),  as  follows: 
"Under  our  statute  a  receiver  will 
be  appointed  where  there  is  dan- 
ger of  loss  or  misappropriation  of 
the  property,  or  a  material  part 
thereof  of  a  debtor;  but  this  is 
only  done  in  a  proper  pending  case. 
It  certainly  must  be  at  the  in- 
stance of  some  one  who  has  a  right 
to  charge  the  property  and  the 
statute  does  not  mean  to  extend 
this  remedy  to  every  one  who 
claims  to  be  a  common  creditor. 
Equity  must  have  jurisdiction,  in- 
dependent of  the  appointment  of  a 
receiver." 

The  appointment  of  a  receiver 


at  the  instance  of  a  general 
creditor  is  not  justified  by  a 
statute  providing  that  a  receiver 
may  be  appointed  "when  in  the 
discretion  of  the  court,  it  may  be 
necessary  to  secure  ample  justice 
to  the  parties."  Grays  Harbor 
Commercial  Co.  v.  Fifer,  97  Wash. 
380,  166  Pac.  770;  Blum  v.  Rowe, 
98  Wash.  683,  L.  R.  A.  1918C,  630, 
168  Pac.  781. 

Other  cases  establishing  the 
same  doctrine  as  to  the  rights  of 
mere  contract  creditors  are  the 
following:  Smith  v.  Superior 
Court,  97  Cal.  348,  32  Pac.  322; 
International  Trust  Co.  v.  United 
Coal  Co.,  27  Colo.  246,  83  Am.  St. 
Rep.  59,  60  Pac.  621;  Hogsett  v. 
Thompson,  258  Pa.  St.  85,  101  Atl. 
941;  Cahn  v.  Johnson,  12  Tex.  Civ. 
App.  304,  33  S.  W.  1000. 

In  certain  North  Carolina  cases 
a  different  position  has  been  taken 
and  contract  creditors  have  been 
permitted  to  maintain  equitab.e 
actions  in  which  they  sought  both 
to  establish  their  claims  and  to  set 
aside  transfers  alleged  to  be  in 
fraud  of  creditors.  This  position  is 
based  upon  the  proposition  that, 
while  the  equity  rule  that  required 
a  litigant  to  show  that  he  had  ex- 
Irausted  his  legal  remedies  before 
he  could  ask  for  the  assistance  of 
an  equity  court  was  logical  when 
the  two  courts  were  separate  in- 
stitutions, each  having  its  own  set 
of  rules  of  practice,  the  equity 
court  operating  simply  in  aid  of 
the  law  court,  because  it  was 
necessary  to  preserve  the  harmony 
of  their  actions  in  the  exercise  of 
their  separate  functions,  the  rea- 
sons for  the  rule  and  therefore 
the  rule  itself  "cease  when  the 
powers  of  both  and  the  functions 
of  each  are  committed  to  a  single 


PROCEEDINGS  IN   AID  OP   GENERAL   CREDITORS.*  653 

2,  Creditors'  Equity  Suits  to  Set  Aside  Fraudulent 
Conveyances. 

§  273.    General  Nature  of  the  Action. 

It  is  a  function  for  which  courts  of  equity  are  peculiarly 
fitted  to  detect  fraud  and  to  restore  to  their  rights  per- 
sons who  have  been  wronged  thereby  and  a  means  of 
making  this  function  effective  is  the  appointment  of 
receivers. 1  It  is  in  pursuance  of  this  power  that  such 
courts  have  entertained  jurisdiction  of  one  class  of  cases 
by  which  they  have  come  to  the  aid  of  judgment  creditors 
who  have  not  been  able  to  realize  upon  their  judgments 
and  secure  payment  of  their  claims  through  the  ordinary 
legal  processes  provided  for  that  purpose.  There  are 
two  distinctive  features  of  this  class  of  suits:  (1)  The 
action  is  brought  to  reach  some  specific  piece  or  pieces 
of  property,  real  or  personal;  (2)  the  property  involved 
is  of  such  a  character  that  it  could  ordinarily  be  effec- 
tively reached  by  means  of  such  a  law  process  as  a  writ 
of  execution.    The  reason  why  the  creditor  must  go  into 

tribunal  substituted  in  place  of  523;  Thompsen  v.  Diffenderfer,  1 
both."  Dawson  Bank  v.  Harris,  84  Md.  Ch.  489;  Haight  v.  Burr,  19 
N.  C.  206;  Hancock  v.  Wooten,  et  ^d.  130;  Voshell  v,  Hynson,  26 
al.,  107  N.  C.  9,  11  L.  R.  A.  466,  12  ^d-  ^3;  Meridian  News,  etc.,  Co. 
S.  E.  199.  In  the  latter  case  after  ^-  ^*^™'  ^t^-  Paper  Co.,  70  Miss, 
a  decree  declaring  the  transfer  ^^^'  ^^  ^°-  '^^^'  Buckley  v.  Bald- 
void  and  setting  it  aside  a  receiver  Z^""'    ^^    ^^'^«-    S«4,    13    So.    851; 

was  appointed  to  hold  the  prop-  f  "'°'\ '-/'"T/'^'"'  ^'"  '^"■' 
,.,  ,,  ,  ,.  .  ^,  \>  ^1  ^-  J-  Eq.  126;  State  v.  Dela- 
erty  until  the  relative  rights  of  ^^.^^  g  ^^.^^  ^^_  y)  527-  Ellett 
the  Interested  creditors  couid  be  ^  Newman,  92  N.  C  519-  Mitchell 
'^'*"™^"^^-  V.  Barnes.  22  Hun.  (N.'y.)  194; 
1  Heard  v.  Murray,  93  Ala.  127,  Simmons  Hardware  Co.  v.  Waibel, 
9  So.  514;  Webb  v.  First  Baptist  1  S.  D.  488,  36  Am.  St.  Rep.  755,' 
Church  Trustees,  90  Ky.  117,  13  ii  l.  R.  A.  267,  47  N.  W.  814;' 
S.  W.  362;  In  re  Lewis  Pet'tion,  52  Gunn  v.  Blair,  9  Wis.  352;  North- 
Kan.  660,  35  Pac.  287;  West  v.  ern  Pac.  R.  Co.  v.  St.  Paul  M  & 
Chasten,  12  Fla.  315;  St.  Louis,  etc.,  M.  R.  Co.,  47  Fed.  536;  affirmed  in 
Coal  &  Min.  Co.  v.  Edwards,  103  4  U.  S.  App.  149;  Towle  v.  Ameri- 
III.  472;  Baker  v.  Backus'  Admr.,  can  Bldg.  Loan  &  Invest.  Soc,  60 
32  111.  79;  Powell  v,  Quinn,  49  Ga.  Fed.  131. 


654  LAW   OF    RECEIVERS. 

equity  is  because  some  embarrassment,  impediment,  or 
obstruction  stands  in  the  way  of  a  safe  and  practical 
exhaustion  of  the  law  process  due  to  the  fact  that  the 
debtor  has  transferred  the  legal  title  or  placed  some  en- 
cumbrance upon  it  for  the  purpose  of  hindering,  delaying, 
or  defrauding  his  creditors. ^  The  purpose  of  the  suit  is 
to  have  the  impediment  declared  fraudulent  and  void  as 
to  the  plaintiff  and  thus  open  up  the  way  to  the  effective 
sale  of  the  property  under  the  law  process.^ 

§  274.    Conditions  for  Appointment  of  Receiver. 

The  equitable  remedy  of  a  receivership  is  not  open  to 
a  litigant  who  has  an  available  and  adequate  remedy  at 
law.^  In  some  jurisdictions  a  judgment  creditor,  because 
the  fraudulent  conveyance  is,  as  to  him,  a  nullity,  what- 
ever its  effect  as  between  the  parties  may  be,  could  sell 
the  property  on  execution  and  the  purchaser  could  main- 
tain an  action  in  ejectment  against  the  vendee,  trying  the 
issue  of  fraud  in  such  action.^  This  method,  however, 
would  hardly  be  safe.  Usually  the  judgment  creditor 
would  have  to  be  the  purchaser,  setting  off  his  judgment 
against  the  purchase  price.  He  would  then  lose  his  judg- 
ment if  he  failed  effectively  to  prove  the  fraud.  Under 
these  circumstances  the  legal  remedy  is  held  not  to  be 
exclusive  and  the  equitable  principle  above  referred  to 
is  held  to  be  satisfied  if  the  creditor  shows  that  he  has 
some  sort  of  a  lien  upon  the  property.     His  judgment 

2  Shainwald  v.  Lewis,  6  Fed.  766,  gation.  Kubl  v.  Martin,  26  N.  J. 
7  Sawy.  (U.  S.)  148;  Fusze  v.  Eq.  60,  or  by  a  receiver,  appointed 
Stern    17  111.  App.  429;  De  Long  v.      for   the    purpose,   after  judgment. 

Rankin  v.   Schultz.   141   Iowa   681, 


Mechanics,  etc.,  Bank,  168  App. 
Div.  525,  153  N.  Y.  Supp.  1010, 
1012. 


118  N.  W.  383;    Shand  v.  Hanley, 
71  N.  Y.  319. 
1  See,  §  8,  supra. 

3  Under  some  circumstances  the  ^  Maders  v.  Whallon,  74  Hun  372, 

property  may  be  ordered  sold  pen-  26  N.  Y.  Supp.  614;  Smith  v.  Reid, 
dente  lite  and  the  proceeds  held  134  n.  Y.  568,  31  N.  E.  1082;  Burch 
to  await  the  outcome  of  the  liti-      v.  Brantley,  20  S.  C.  503. 


PROCEEDINGS  IN   AID  OF  GENERAL   CREDITORS.  655 

may  give  him  a  lien;  or  he  may  liave  a  lien  by  having 
attached  the  property  at  the  commencement  of  the  action ; 
or  he  may  secure  a  lien  by  a  levy  of  execution.^  In  this 
way  the  creditor  also  removes  the  objection  which,  as  we 
have  just  above  shown,  stands  in  the  way,  under  another 
general  rule  concerning  the  creation  of  receiverships,  of 
a  mere  contract  creditor's  going  into  equity  and  asking 
for  that  remedy. 

§  275.    General  Principles  and  Grounds  for  the  Appointment  of 
a  Receiver. 

The  appointment  of  receivers  in  actions  against  fraud- 
ulent conveyances  has  naturally  developed  under  the 
practice  of  equity  courts.  Hence  the  general  rules  gov- 
erning receiverships  apply  in  this  class  of  cases.  The 
appointment,  like  the  appointment  in  general,  rests  in  the 
sound  judicial  discretion  of  the  court,  under  the  statu- 
tory provisions,  and  the  practice  of  the  court,  upon  notice 
given  to  the  debtor  and  those  interested  in  the  property, 
or  their  appearance.  The  order  should  receive  special 
care  and  be  drawn  with  reference  to  the  object  or  purpose 
of  the  receivership,  having  reference  to  the  nature  and 
character  of  the  property  involved.  The  general  duties 
imposed  upon  the  receiver,  and  the  general  rules  regard- 
ing the  regularity  of  the  appointment,  and  the  methods 
of  attacking  the  same,  are  equally  applicable  to  this  class 
of  receiverships ;  and  so  with  reference  to  the  bond  and 
sureties  of  the  receiver,  as  well  as  the  general  principles 
governing  the  selection  of  a  receiver,  his  powers,  duties, 
functions,  and  liabilities. 

3  Hirsch  v.  Israel,  106  la.  498,  76  steps  to  procure  a  lien  upon  the 

N.    W.    811;    Beck    v.    Burdett,    1  property.    Pearce  v.  Jennings,   94 

Paige  (N.  Y.)  305,  19  Am.  Dec.  436;  Ala.  524,  10  So.  511. 

Storm    V.    Waddell,    2    Sandf.    Ch.  If  the  judgment  lien  has  expired 

(N.  y.)  494,  511.  the  action  will  not  lie.   Newman  v. 

A  creditor  may  lose  his  right  to  Willetts,    52    111.    98.    See    note   4, 

a  receiver  through  laches  in  taking  §  372,  supra. 


656  LAW    OF    RECEIVERS. 

Granting  tliat  the  plaintiff  has  placed  himself  in  a 
position  that  entitles  him  to  ask  for  a  receiver,  the  ques- 
tion as  to  whether  or  not  he  shows  sufficient  equitable 
necessity  to  warrant  the  employment  in  the  case  of  this 
drastic  remedy  is  decided  under  the  general  rules  gov- 
erning that  matter,  with  such  adaptations  as  are  necessi- 
tated by  the  circumstances  of  the  case.^ 

Where  possession  of  the  proi^erty  involved  in  the 
action  has  been  obtained  by  fraud  or  the  property  has 
been  dealt  with  in  some  fraudulent  manner,  a  showing 
of  the  fraud  is  usually  sufficient  to  warrant  a  receiver- 
ship.- The  showing  in  this  behalf  must  be  sufficient  to 
warrant  the  belief  that  the  plaintiff  will  probably  prevail 
in  the  action.^  Since  all  that  the  creditor  is  entitled  to  is 
the  satisfaction  of  his  judgment,  a  showing  that  the 
judgment  debtor  has  sufficient  other  property  for  that 
purpose  will  defeat  the  application  for  a  receiver,  even 
though  the  creditor  may  have  the  right  to  pursue  the  par- 
ticular property  involved  in  the  action.^  A  receiver  of 
the  property,  or  of  the  rents  and  profits  thereof,  will  not 
be  appointed  if  the  vendee  or  transferee  is  in  possession, 
is  not  insolvent,  and  can  be  made  to  respond  to  any 
judgment  against  him  for  the  property,  or  the  rents  and 
profits,  or  any  damage  to  the  property.^  It  might  be 
that  a  receiver  would  be  appointed  to  prevent  a  multi- 
plicity of  suits  involving  it.^    The  circumstances  that  may 

1  See,  chapter  2,  supra.  ceiver  will  be  appointed,  assuming 

2  See,  §  6,  supra.  that  the  plaintiff  gets  into  court. 

3  See,  §  12,  supra.  Of  course   a  receiver  can   not  be 

4  Second  Ward  Bank  v.  Upmann,  appointed  if  the  complaint  does 
12  Wis.  499.    We  are  not  in  this  not  state  a  cause  of  action. 

text  concerned  with  the   question  5  Turnipseed  v.  Kentucky  Wagon 

as  to  v.bat  allegations  are  neces-  Co.,  97  Ga.  258,  23  S.  E.  84;  Clark 

sary  to  establish  a  cause  of  action  v.  Raymond,  85  la.  737,  52  N.  W. 

so  that  the  creditor  may  maintain  489;     Gassaway    v.    Heidenheimer 

his  suit,  whether  or  not  he  shows  (Tex.  Civ.  App.),  37  S.  W.  343. 

that  he  is  entitled  to  a  receiver.  c  Thus  where  goods  were  seized 

Our    province    is   simply   to    show  under  a    writ   of   attachment   and 

under    what    circumstances    a    re-  were  then  replevied  by  the  debtor, 


PROCEEDINGS  IN   AID   OF   GENERAL   CREDITORS.  657 

sufficiently  show  fraud  and  the  necessity  for  a  receiver 
are,  of  course,  innumerable."^ 

§  276.    Effect  of  Assignment  for  Benefit  of  Creditors. 

"While  any  transaction  with  reference  to  the  debtor's 
title  to  property,  such  as  a  sale,  a  mortgage,  or  a  judg- 
ment, may  be  attacked  as  a  fradulent  conveyance,  an 
assignment  for  the  benefit  of  creditors  needs  to  receive 
special  attention.  This  method  of  handling  the  assets 
of  a  debtor  is  entirely  statutory  and  the  proceedings 
under  such  an  assignment  are  such  only  as  are  provided 
for  in  the  statute  permitting  it.  It  is,  of  course,  imprac- 
ticable to  consider  in  detail  the  various  statutes  bearing 
on  such  questions.  If  there  is  in  the  hands  of  an  assignee 
a  surplus  over  and  above  what  is  necessary  to  satisfy  the 
claims  of  the  creditors  to  be  benefited  by  the  assignment, 
the  surplus  may  be  reached  by  garnishment.^  If  the 
assignment  is  sufficiently  defective  to  make  it  invalid  it 

and  a  subsequent  attachment  ^  Werborn's  Admr.  v.  Kahn,  93 
creditor  in  the  same  court  charged  Ala.  201,  9  So.  729 ;  Stern  v. 
fraud  and  collusion  between  the  Austern,  120  N.  C.  107,  27  S.  E. 
debtor  and  the  first  attaching  31;  Wagener  v.  Pape,  46  S.  C. 
creditor,  it  was  held  that  a  re-  245,  24  S.  E.  340. 
ceiver  should  be  appointed  in  Where,  after  the  levy  of  execu- 
order  to  prevent  a  multiplicity  of  tion,  a  portion  of  the  land  involved 
suits.  Sackhoff  v.  Vandegrift,  98  was  sold  in  condemnation  pro- 
Ala  192,  13  So.  495.  .  ceedings  and  the  condemnation 
And  where,  after  one  creditor  of  price  paid  into  court,  a  receiver 
a  manufacturing  firm  attached  his  could  be  appointed  to  take  the 
property,  other  creditors  began  fund  and  hold  it  pending  the  out- 
replevin  proceedings,  charging  come  of  the  action.  Ahlbanser  v. 
fraud,  in  an  equitable  action  by  the  Doud,  74  Wis.  400,  43  N.  W.  169; 
attaching  creditor  against  the  see,  also.  Rose  v.  Bevan,  10  Md. 
other  claimants,  seeking  to  pro-  466,  69  Am.  Dec.  170;  Beam  v. 
tect  the  attachment  lien,  and  to  Bennett,  51  Mich.  148,  16  N.  W. 
secure  an  adjudication  in  one  suit  316. 

upon    the    conflicting    claims,    the  i  Leeds  v.  Sayward,  6  N.  H.  83; 

appointment    of    a    receiver    was  Viall  v.  Bliss,  9  Pick.  (Mass.)  13; 

held  proper.    National  Park  Bank  Ward  v.  Lamson,  6  Pick.   (Mass.) 

V.  Goddard,  62  Hun  31,   16  N.  Y.  358;    Brewer  v.   Pitkins,   11   Pick. 

Supp.  343.  (Mass.)    298;    Copeland    v.   Weld, 
I  Rec. — 42 


658  LAW   OF   RECEIVERS. 

does  not  operate  to  assign  the  property;  under  such  cir- 
cumstances the  property  is  not  then  in  the  custody  of  the 
law  and  remains  open  to  seizure  on  legal  process. ^  If 
permissible  under  the  statute,  general  creditors  may 
intervene  in  the  proceedings,  ask  that  the  proceeds  of 
property  sold  under  an  invalid  assignment  and  one  giv- 
ing an  improper  preference  be  distributed  among  all  the 
assignor's  creditors,  and  that  a  receiver  be  appointed  to 
administer  the  trust.^ 

But  the  proposition  that  we  are  chiefly  interested  in 
here  is  that  such  an  assignment  may  itself  be  attacked 
as  a  fraudulent  conveyance  in  a  suit  of  the  kind  that 
forms  the  subject  of  this  subdivision.  In  an  Alabama 
case  the  appointment,  without  notice,  of  a  receiver  as 
against  an  assignee  for  the  benefit  of  creditors  was  sus- 
tained on  appeal.^  The  case  well  illustrates  the  sort  of 
facts  that  will  justify  the  appointment  of  a  receiver  in 
such  a  case.  The  complaint  alleged  that  the  defendants 
were  insolvent;  that  they  had,  on  the  pretense  of  pay- 
ment of  a  simulated  debt,  transferred  a  large  part  of  their 
stock  of  merchandise  to  their  mother  and  that  she  was 
disposing  of  them  through  an  agent;  that  the  rest  of 
their  goods  had  been  assigned,  for  the  benefit  of  certain 
creditors,  to  an  insolvent  assignee,  who  was  not  under 

8    Me.   44;    Jewett   v.   Barnard,    6  A  receiver  will  not  be  appointed 

Me.  381;  Todd  v.  Bucknam,  11  Me.  as  against  an  assignee,  or  trustee, 

41.  who  is  responsible  and  denies  the 

2  Bradley  v.  Bailey,  95  Iowa,  745,  charge  of  fraud.  Levenson  v. 
64  N.  W.  758.  Elson,  88  N.  C.  182. 

3  Hockaday  v.  Drye,  7  Okla.  288,  An  assignment  to  the  debtor's 
54  Pac.  475.  father,  an  insolvent,  without  actual 

4  Maxwell  v.  Peters  Shoe  Co.,  change  of  possession  is  presump- 
109  Ala.  371,  19  So.  412.  A  receiver  tively  fraudulent  and  justifies  a  re- 
will  be  appointed  when  the  as-  celvership.  Connah  v.  Sedgwick,  1 
signee,  or  trustee,  is  not  responsi-  Barb.  (N.  Y.)  210;  see,  also,  Han- 
ble  and  will  probably  dispose  of  cock  v.  Wooten,  107  N.  C.  9,  11 
the  property  before  the  termina-  L.  R.  A,  466,  12  S.  E.  199;  and 
tion  of  the  suit.  Ellett  v.  Newman,  State  v.  Foot,  27  S.  C.  340,  3  S.  E. 
92  N.  C.  519.  546. 


PROCEEDINGS  IN   AID  OF   GENERAL   CREDITORS.  659 

bond ;  that  the  assignee  was  making  fraudulent  prefer- 
ences ;  that  both  the  mother  and  the  assig-nee  were  aware 
of  defendant's  insolvency;  that  the  entire  transaction  was 
a  scheme  to  hinder,  delay,  and  defraud  creditors. 

Mere  delay  on  the  part  of  the  assignee,  or  trustee,  will 
not  justify  the  appointment  of  a  receiver  at  the  request 
of  impatient  creditors,  who  can  point  to  no  substantial 
fraud.^  It  is  improper  to  appoint  a  receiver  to  collect 
the  assets  and  deliver  them  to  the  assignee ;«  but  the 
court,  in  lieu  of  appointing  a  receiver,  may  permit  the 
assignee  to  collect  the  assets  and  restrain  him  from  dis- 
tributing them  until  the  suit  has  been  finally  determined."' 
An  instruction  to  the  receiver  to  sell  the  property  and 
distribute  the  proceeds,  so  far  as  necessary,  in  settling 
the  claims  of  the  creditors  plaintiffs,  and  the  balance 
among  other  creditors  is  erroneous.* 

3.  Creditors'  Equity  Suits  to  Reach  Assets  Not 
Accessible  Under  Law  Process. 

§  277.   Nature  of  the  Action. 

''The  principle  being  established  that  every  species  of 
property  belonging  to  a  debtor  may  be  reached  and 
applied  to  the  satisfaction  of  his  debts,  the  powers  of 
this  court  are  perfectly  adequate  to  carry  that  principle 
into  full  effect."^  This  quotation  expresses  the  principle 
upon  which  the  jurisdiction  of  equity  courts  to  entertain 
the  second  class  of  cases  in  which  they  come  to  the  aid 
of  judgment  creditors  is  based.  The  fundamental  allega- 
tion that  states  the  cause  of  action  in  a  proper  complaint, 
or  bill,  is  one  to  the  effect  that  the  judgment  debtor  owns 

5  Pyles  V.  Riverside  Furniture  ^  Spring  v.  Strauss,  3  Bosw. 
Co.,  30  W.  Va.  123,  2   S.   E.   909;       (N.  Y.)  607. 

Dozier  v    Logan.  101  Ga.   173,   28  s  Middleton   v.   Taber,   46    S.   C. 

S.  E.  612.  337,  24  S.  E.  282. 

6  Mussbaum  v.  Price,  80  Ga.  205,  i  Edmeston  v.  Lyde,  1  Paige  Ch. 
5  g   g    291  ^'•-  ^-^   ^2^'  ^^^'  ^'^  ^'^-  '^®'^-  ^^*" 


660  LAW   OP   RECEIVERS. 

property,  equitable  interests,  clioses  in  action,  or  what- 
not, that,  under  the  laws  of  the  jurisdiction  in  which  the 
judgment  was  obtained  can  not  be  seized  and  sold  under 
process  of  execution  or  the  like.  It  has  sometimes  been 
held  that  such  an  action  is  available  only  to  one  whose 
judgment  is  based  on  a  cause  of  action  that  was  itself 
cognizable  only  in  a  court  of  equity ;-  but  the  prevailing 
opinion  is  that  it  is  open  to  one  who  has  obtained  a  judg- 
ment at  law  as  well  as  to  one  who  has  obtained  his  judg- 
ment in  equity.^  The  purpose  of  the  action  is  to  subject 
these  * 'equitable,"  or  non-executionable,  assets  of  the 
debtor  to  the  payment  of  the  creditor's  claim. 

§  278.    Conditions  for  Appointing  a  Receiver. 

To  meet  the  proposition  that  a  litigant  wdio  has  an 
available  remedy  at  law  is  not  entitled  to  a  receiver,  a 
creditor  in  this  class  of  action  is  required  to  show  that 
he  has  had  execution  issued  and  that  the  execution  has 
been  returned  nulla  bona}    The  positive  affidavit  that  no 

2  Donovan  v.  Finn,  1  Hopk.  Ch.  Rhodes  v.  Cousins,  6  Rand.  (Va.) 
(N.  Y.)  59,  14  Am.  Dec.  531;  Pettit  188,  18  Am.  Dec.  715;  Zell  Guano 
V.  Candler,  3  Wend.  (N.  Y.)  618,  Co.  v.  Heatherly,  45  W.  Va.  311, 
624.  31  S.  E.  932. 

3  Board  of  Public  Works  v.  Co-  The  legal  remedy  of  mandamus 
lumbia  College,  17  Wall.  (U.  S.)  may  be  available  to  a  creditor,  as 
521,  530,  21  L.  Ed.  687;  Spindle  v.  in  the  case  of  a  judgment  against 
Shreve,  111  U.  S.  542,  28  L.  Ed.  a  political  corporation,  like  a 
512,  4  Sup.  Ct.  522;  Spader  v.  county,  or  a  city;  if  so,  the  fact 
Davis,   5   Johns.   Ch.    (N.   Y.)    280.  that  it  fails  to  produce  the  money 

1  Biedler  v.  Douglas,  35  111.  App.  — "a  very  usual  result  in  the  use 

124;    Skeele  v.   Stanw^ood,  33   Me.  of  all  remedies" — will  not  entitle 

307,    309;    Gorton    v.    Massey,    12  a  creditor  to  maintain  an  equitable 

Minn.  145,  147,  90  Am,   Dec.  287;  action    and    have    a    receiver    ap- 

Adee    v.    Bigler,    81    N.    Y.    349;  pointed  to  collect  a  tax:     Thomp- 

Bayand     v.     Fellows,      28     Barb.  son  v.  Allen  County,  115  U.  S.  550, 

(N.    Y.)     451;     Wiggins    v.    Arm-  29  L.  Ed.  472,  6  Sup.  Ct.  140;  Rees 

strong,  2  Johns.  Ch.   (N.  Y.)    144;  v.    Watertown,    86    U.    S.    107,    22 

Hendricks   v.   Robinson,    2   Johns.  L.  Ed.  72.    In  the  latter  case  the 

Ch.  283,  296;  Carter  v.  Hightower,  court  says:     "The   remedy    (man- 

79  Tex.  135,  15  S.  W.  223;   Hulse,  damns)   is  in  law  and  theory  ade- 

etc,  v.  Wright,  Wright  (Ohio)  61;  quate  and  perfect.    The  diflBculty 


PROCEEDINGS  IN   AID   OP   GENERAL   CREDITORS. 


6G1 


execution  has  been  returned  is  a  sufficient  answer  to  the 
motion  for  a  receiver.^ 

The  rule  that  a  litigant  asking-  for  a  receiver  must 
show  that  he  has  some  interest  in  or  lien  upon  the  prop- 
erty sought  to  be  involved  in  the  receivership  is  met  by 
the  proposition  that  the  filing  of  a  bill  in  this  class  of 
cases  gives  the  plaintiff  a  lien  which  dates  from  the  com- 
mencement of  the  action.2 

§  279.    Grounds  for  the  Appointment  of  a  Receiver. 

When  a  creditor  has  qualified  himself  to  commence  his 
action  and  to  ask  for  a  receiver  under  the  rules  set  forth 
in  the  preceding  section,  the  judgment  debtor  has  but 
little  opportunity  to  resist  the  application.  He  can  not 
ordinarily  question  the  judgment;^  the  fact  that  he 
refuses  voluntarily  to  offer  his  property  in  satisfaction 


is  in  its  execution  only.   The  want 
of  a  remedy  and  the  inability  to 
obtain  the  fruits  of  a  remedy  are 
quite    distinct,   and    yet   they    are 
confounded    in    the    present    pro- 
ceeding.   ...    A  court  of  equity 
can   not,   by   avowing   there   is    a 
right  but  no  remedy  known  to  the 
law,  create  a  remedy  in  violation 
of  law,  or  even  without  authority 
of  law.    It  acts   upon   established 
principles   not   only,    but   through 
established  channels."    A  remedy 
at  law  is  inadequate,  in  the  equity 
sense,   only   when    "in   its    nature 
or    character   it    is    not    fitted    or 
adapted     to    the    end     in    view." 
Thompson  v.  Allen  County,  supra. 
A  receiver  will  not  be  appointed 
merely      because     the      equitable 
remedy  may  be  more  convenient 
than   the   law   process.    Harris   v. 
Beauchamp,    1    Q.    B.    801;     Man- 
chester, etc.,  Co.  V.  Parkinson,  22 
Q.  B.  173. 


The  facts  that  property  subject 
to  levy  is  not  saleable  and  that 
the  sheriff  is  disqualified  from 
serving  the  writ,  do  not  justify  the 
appointment  of  a  receiver.  Buck- 
eye Engine  Co.  v.  Donan  Brewing 
Co.,  47  Fed.  6. 

Acceptance  of  a  note  for  the 
judgment  does  not,  unless  ac- 
cepted as  satisfaction  thereof,  bar 
the  creditor  from  this  legal 
remedy.  Balde  v.  Smith,  5  Ch. 
Sent.  11. 

2  Wright  V.  Strong,  3  How.  Pr. 
(N.  Y.)  112;  Ahlhauser  v.  Doud, 
74  Wis.  400,  43  N.  W.  169. 

3  Heard  v.  Murray,  93  Ala.  127, 
9  So.  514;  Spader  v.  Davis,  5 
Johns.  Ch.  (N.  Y.)  280;  Weed  v. 
Pierce,  9  Cow.  (N.  Y.)  722,  728; 
Ames  v.  Blunt,  5  Paige  Ch.  (N.  Y.) 
13. 

1  Mattingly  v.  Nye,  75  U.  S.  370, 
19  L.  Ed.  380. 


662  LAW   OF   RECEIVERS. 

of  the  judgment  is  considered  as  fraud  and  the  appoint- 
ment of  the  receiver  follows  almost  as  a  matter  of  course.^ 
A^ice-Chancellor  Sanford,  in  an  early  New  York  case,^ 
has  given  a  very  clear  epitome  of  plaintiff's  rights  in  the 
action.  First  he  called  attention  to  the  distinction  be- 
tween this  class  of  action  and  the  one  considered  in  the 
preceding  division  of  the  chapter,  as  follows:  ''The 
power  of  the  Court  of  Chancery  to  aid  the  creditor  in 
removing  fraudulent  impediments  in  the  way  of  levying 
on  the  personal  property  liable  to  execution,  or  selling 
the  real  estate  of  his  debtor,  is  an  old  established  ground 
of  jurisdiction,  which  is  not  in  question  here.  The  bill 
in  those  cases  was  auxiliary  to  the  carrying  into  effect 
the  process  of  the  law  courts,  and  differed  from  our 
creditor's  suit  now  under  consideration,  in  this,  that  in 
the  suit  to  set  aside  a  fraudulent  conveyance  of  land,  so 
as  to  give  effect  to  a  judgment,  the  bill  need  not  allege 
anything  more  than  the  recover}^  of  the  judgment,  and 
where  it  was  to  remove  an  obstruction  affecting  movable 
property,  it  was  only  requisite  to  allege  an  execution 
issued  to  the  county  wiiere  the  property  was  situated;"* 
w^iile  in  the  creditor's  bill  against  equitable  interests  and 
things  in  action,  the  creditor  must  show  the  issuing  of 
an  execution  and  its  regular  return  unsatisfied."  Then, 
in  regard  to  the  latter  sort  of  suit,  the  Vice-Chancellor 
said:  "I  may  therefore  assume,  that  by  the  law  [not 
statute]  of  this  state  as  settled  more  than  twenty  years 

2  Gage    V.    Smith,    79    111.    219;  that  the  property  of  the  debtor,  if 

Corning,    etc.,    v.   White,    2    Paige  any  he  has,  will  be  misapplied,  and 

(N.    Y.)    567,    22    Am.    Dec.    659;  entitles  the  complainant  to  an  in- 

Congden  V.  Lee,  3  Edw.  Ch.  (X.  Y.)  junction   in   the   first   instance,    it 

304;  Bank  of  Monroe  V.  Schermer-  ^^^^^   ^^   ^^   ^^^^^^  ^   ^^^^^^  ^^ 
horn,  Clarke  Ch.  (N.  Y.  214;  Aus- 
tin V.  Figueira,  7  Paige  (N.  Y.)  56. 

In  Bloodgood  v.  Clark,  4  Paige 
(N.  Y.)   574,  the  rule  is  stated  as 

follows:    "In  these  cases  of  cred-  ^  Storm  v.  Waddell,  2  Sandf.  Ch. 

itors'    bills    where    the    return    of  (N.  Y.)   [1845]  494,  at  511. 

execution  unsatisfied    presupposes  ■*  See,  §  274,  supra. 


course  to  appoint  a  receiver  to 
collect  and  preserve  the  property 
pending  the  litigation." 


PROCEEDINGS  IN  AID   OF  GENERAL   CREDITORS.  663 

before  this  case  arose,  an  unsatisfied  execution  creditor 
had  a  right  to  file  a  bill  in  this  court  to  compel  payment 
of  his  debt  out  of  the  equitable  interests  and  things  in 
action  of  the  judgment  debtor. 

*'I  will  now  endeavor  to  show  what  is  the  effect  of  such 
a  bill  when  filed  and  duly  prosecuted. 

''Before  filing  it,  the  creditor  must  have  obtained  a 
judgment  or  a  decree  for  the  payment  of  money,  issued 
his  execution  against  both  the  real  and  personal  proi3erty 
of  his  debtor,  and  had  it  actually  returned  and  filed.  And 
he  must  state  in  his  bill  under  oath  that  the  sum  claimed 
upon  his  judgment  or  decree  is  due  to  him  over  and  above 
all  claims  of  the  debtor  by  way  of  off-set  or  otherwise. 
This  makes  a  case  which  leaves  little  room  for  contin- 
gency or  uncertainty  in  the  result  of  the  suit,  so  far  as 
complainant's  debt  is  concerned.  His  cause  of  action 
must  be  upon  the  records  of  some  court  of  law  which  of 
themselves  are  evidence  of  the  existence  of  the  debt. 

"Upon  filing  the  bill,  an  injunction  is  taken  out  and 
served  with  the  subpoena  to  answer,  restraining  the 
debtor  from  parting  with  any  of  his  property  or  effects  till 
the  further  order  of  the  court.  And  for  the  better  pro- 
tection of  the  property  and  its  conversion  into  money,  a 
receiver  is  speedily  appointed,  who,  under  the  order  of 
the  court,  is  vested  with  all  such  property  (or  with  suffi- 
cient specific  portions  of  it  to  pay  the  complainant 's  debt 
and  costs,  and  all  prior  claims  upon  the  same),  and  the 
debtor  is  compelled  to  assign  and  deliver  such  property 
to  the  receiver  under  the  direction  of  a  master  of  the 
court. 

''Unless  the  defendant  can  make  a  defense  on  some 
one  of  the  very  narrow  grounds  open  to  him,  the  decree 
presently  ensues,  which  directs  the  receiver  to  pay  to  the 


664  LAW    OP   RECEIVERS. 

complainant  out  of  the  fund  in  his  hands,  the  judgment 
with  interest,  and  the  costs  of  the  suit."^ 

§  280.    Necessity  for  Showing  Existence  of  Property  of  Debtor. 

The  general  rules  respecting  the  necessity  for  the  exr 
istence  of  property  have  heretofore  been  discussed.^ 

In  our  present  discussion  we  have  thus  far  spoken  of 
this  action  as  being  designed  to  enable  the  creditor  to 
subject  to  his  judgment  property,  such  as  equitable  inter- 
ests^ and  choses  in  action,  that,  under  the  law  of  the 
jurisdiction,  can  not  be  subjected  to  seizure  under  execu- 
tion or  other  similar  writs.  In  this  phase  of  the  action, 
the  property  sought  to  be  involved  is  known  to  the  cred- 
itor and  is  specifically  mentioned  in  the  bill.  Such  is 
also  the  situation  with  reference  to  the  property  involved 
in  the  creditor's  action,  just  above  discussed,  to  set  aside 
fraudulent  transfers.^  It  may  be,  however,  that  the 
debtor  has  concealed  his  property  in  some  way  or  other 
so  that,  while  the  creditor  practically  knows  that  the 
debtor  has  property,  he  does  not  know  where  or  in  what 
form  it  is.    In  this  situation  the  creditor  is  entitled  to  the 

5  The  judgment,  which,  as  above  is   essential   to  keep  in  mind  the 

stated,  is  essential  as  a  foundation  distinction  between  a  suit  brought 

for  the  creditor's  right  of  action  in  to  enforce  satisfaction  of  a  judg- 

this  character  of  suit,  is  not  neces-  ^lent  already   obtained— the   kind 

sarily  one  obtained  in  a  law  court.  ^^  ^^^.^  ^^  ^^^  ^^^  considering- 
The    creditor's    claim    may    be    o" 


and  a  suit  brought  to  obtain  a 
judgment  in  the  first  instance.  See 
Shainwald  v.  Lewis,  6  Fed.  766, 
7  Sawy.  148. 


such  a  character  as  to  be  cogni- 
zable only  in  an  equity  court  and 
the  creditor  may  have  to  resort  to 

such    a    court    for    his    judgment. 

o-                    i.-                        i.      •   j„  1  See,  §  13,  supra. 

Since   executions   on   equity   ]udg-  .  »      .       i      • 

ments  have  been  allowed  a  cred-  2  Equitable  interests,  choses  in 
iter  may  maintain  such  a  suit  as  action,  etc.,  may,  by  statute,  be 
we  are  discussing  upon  an  equity  subject  to  legal  process  and  there- 
judgment  and  return  unsatisfied  fore  be  reachable  by  a  creditor 
of  execution  based  thereon.  In  without  the  necessity  for  an  equit- 
considering  the  necessity  for  an  able  action.  See  Shainwald  v. 
execution  returned  unsatisfied  as  Lewis,  6  Fed.  766,  7  Sawy.  148. 
a  foundation  for  an  equity  suit,  it  3  See,   §  273,  supra. 


PROCEEDINGS  IN   AID   OF   GENERAL   CREDITORS.  665 

aid  of  equity,  the  foundation  of  the  jurisdiction  being 
the  identical  principle  above  stated,  namely,  the  power  of 
equity  to  subject  all  the  property  of  a  debtor  to  the  pay- 
'  ment  of  his  debts.    The  action  brought  by  a  creditor  seek- 
ing unknown  property  is  identical  in  principle  with  that 
brought  by  a  creditor  seeking  specific  property  not  sub- 
ject to  execution,  and  proceeds,  in  all  material  points, 
along  the  same  lines  and  to  the  same  end.    The  peculiar 
features  of  the  action,  not  relating  at  all  to  the  principle 
on  which  the  jurisdiction  is  founded,  are  that  the  prop- 
erty is  not  specifically  mentioned  in  the  complaint  and 
that  the  property,  when  discovered,  may  be  of  such  a 
character  that  it  could  have  been  reached,  at  the  outset, 
by  execution,  if  its  existence  or  whereabouts  had  been 
known.    If  it  should  happen  to  be  of  that  character  the 
court  nevertheless   retains   jurisdiction   and   treats   the 
property  under  the  receivership  in  the  same  manner  as 
it  would  any  other  property.    The  "discovery"  is  made 
either  through  replies,  given  in  the  answer,  to  inquiries 
set  forth  in  the  bill,^  or  through  a  receiver  to  whom  is 
given  the  duty  and  the  power  to  ferret  out  the  property 
and  reduce  it  to  possession.     That  equity  courts  have 
jurisdiction  to  entertain  an  action  of  this  character  was 
the  main  question  at  issue  on  a  motion  to  vacate  an  order 
appointing   a  receiver   and   ordering   the   defendant   to 
make  an  assignment  to  him  in  a  suit  arising  in  the  Fed- 
eral District  Court  of  the  District  of  California."     The 
allegations  of  the  bill  illustrate  the  nature  of  the  juris- 
diction which  the  court  was  asked  to  exercise.    The  com- 
plainant, asignee  of  a  certain  bankrupt  firm,  had  obtained 
a  decree  against  defendant,  in  an  equity  action,  based  on 
the  charge  that  he  had  obtained  possession  of  funds  of 
the  firm  "by  fraud  and  collusion  and  by  means  of  fraud- 
ulent   and    collusive    judgments    founded    on    fictitious 

4Pettit  V.  Chandler,  3  Wend.  (N.  Y.)  618,  624;  Vicksburg,  etc.,  R.  R. 
Co.  V.  Phillips,  64  Miss.  108,  1  So.  7. 

5  Shainwald  v.  Lewis,  6  Fed.  766,  7  Sawy.  148. 


666  LAW    OF   RECEIVERS. 

debts."  In  tlie  complaint  in  the  action  referred  to  here, 
after  alleging  the  jurisdictional  facts  of  obtaining  this 
judgment''  and  of  the  return  of  an  execution  unsatisfied, 
averred:  ''that  respondent  had  procured  a  homestead  to 
be  declared  upon  his  land — had  sold  valuable  real  estate, 
and  threatens,  intends,  and  is  about  to  leave  and  depart 
from  the  United  States,  and  take  and  carry  with  him  all 
his  money  and  other  property,  with  the  intent,  object, 
purpose,  and  design  of  preventing  the  same  from  being 
levied  upon  or  applied  in  satisfaction  of  said  decree,  and 
with  intent  to  hinder,  delay,  and  defraud  this  complain- 
ant of  the  moneys  and  property  to  which  he  is  entitled 
under  said  decree.  That  since  the  enrolling  of  said 
decree  the  respondent  has  secretly  transferred  a  large 
part  of  his  property  to  divers  persons,  and  has  secreted 
the  remainder  of  his  property  with  the  intent  and  design 
aforesaid,  and  to  prevent  said  property  from  being  seized 
on  execution  or  secured  or  applied  to  satisfy  said  decree. ' ' 
Concerning  the  bill,  the  court  said:  "If  these  allegations 
are  true,  or  even  partially  true,  a  stronger  case  for  the 
appointment  of  a  receiver  could  not  well  be  imagined. 
Unless  this  court  can  interpose  in  the  most  summary 
manner  the  complainant  will  be  remediless,  and  its  decree 
abortive." 

It  will  thus  be  seen  that  this  class  of  actions  may  be 
maintained  and  a  receiver  obtained  without  an  actual 
showing  that  the  debtor  has  any  specific  property  that 
the  receiver  may  take.  All  that  is  necessary  is  a  circum- 
stantial showing  that  he  has  or  ought  to  have  some 
property.'^ 

6  A  question  at  issue  on  the  552,  Fed.  Cas.  No.  13542,  it  was 
hearing  of  the  motion  was  as  to  alleged  that  defendant  Goldman, 
whether  or  not  a  creditor  could  who  had  been  a  wholesale  boot 
maintain  his  action  based  on  an  and  shoe  dealer,  had  in  a  very 
unsatisfied  equity  judgment  in-  short  time  disposed  of  a  very  large 
stead  of  a  judgment  at  law.  stock    of   goods,    contracted    large 

7  In  Strong  v.  Goldman,  8  Biss.  personal    and    commercial    debts. 


PROCEEDINGS  IN  AID  OP  GENERAL  CREDITORS.  667 

§  281.    Property  Affected  by  the  Receivership. 

Every  species  of  property,  owned  by  the  debtor  at  the 
time  of  the  commencement  of  the  suit,  may  be  brought 
under  the  administration  of  the  receiver;  and  all  of  his 
property  may  be  so  brought,  although  the  court  may,  in 
its  discretion,  instruct  the  receiver  to  impound  only  suffi- 
cient property  to  satisfy  the  demands  of  plaintiftV  with 
interest  and  costs,  after  the  property  has  been  freed  of 
any  valid  prior  encumbrances.^  Property  acquired  by 
the  debtor  subsequent  to  the  filing  of  the  bill  will  not  be 
affected,  but  may  be  brought  in,  if  necessary,  by  a  sup- 
plemental bill.^ 

§  282.    Effect  of  an  Assignment  for  Benefit  of  Creditors. 

The  fact  that  the  debtor  has  made  an  assignment  for 
the  benefit  of  creditors  does  not  prevent  a  non-assenting 
creditor  from  maintaining  an  action  in  equity  to  secure 
the  satisfaction  of  his  judgment.  Because  of  the  limited 
powers  that  an  assignee  for  creditors  has  under  the  stat- 
ute it  is  held  that  the  proceedings  under  the  assignment 
should  not  be  considered  exclusive  and  a  bar  to  general 
equity  action  and  that  there  will  not  be  created  any  con- 
flict of  jurisdiction  between  the  equity  court  and  the 
court  having  jurisdiction  of  the  assignment  proceedings.^ 


and   then   assigned   a   small   rem-  lumbia  College,   17  Wall.    (U.   S.) 

nant  for   the  benefit  of  his  cred-  521,  530,  21  L.  Ed.  687;  Shainwald 

itors.  V.  Lewis,  6  Fed.  766,  7  Sawy.  148; 

In  Bloodgood  v.  Clark,  4  Paige  Storm    v.    Waddell,    2    Sandf.    Ch. 

(N.  Y.)    577,  it  is  said:     'It  is  no  (N.  Y.)  494;   Pettit  v.  Chandler,  3 

sufficient  answer  to   such  an  ap-  Wend.  (N.  Y.)  618,  624;  Spader  v, 

plication  to  say  there  may  not  be  Davis,  5  Johns.  Ch.  (N.  Y.)  280. 

any    property    to    protect,    as    the  2  Holmes  v.  Millage  L.  R.,  1  Q.  B. 

complainant  proceeds  at  the  peril  Div.  (1893)   551;   Graff  v.  Bonnett, 

of  costs   if  there   be  no  property  25  How.   Pr.    (N.   Y.)    470,   2  Rob. 

and  if  there  is  nothing  for  the  re-  54;    Storm   v.    Waddeil,    2    Sandf. 

ceiver  to  take  the  defendant  can  Ch.    (N.  Y.)    494;    Eager  v.  Price, 

not    be    injured    by    the    appoint-  2  Paige  (N.  Y.)  333. 

ment."  i  Strong  v.  Goldman.  8  Biss.  552, 

1  Board  of  Public  Works  v.  Co-  Fed.  Cas.  No.  13542.   This  case  was 


668 


LAW    OF    RECEIVERS. 


§  283.    Lien  and  Priority  Acquired  by  the  Complainant. 

By  filing  his  bill  the  creditor  acquires  a  lien  upon  all 
of  the  property  of  the  debtor  that  is  brought  into  the 
receivership,  and  the  lien  dates  from  the  filing.  While 
there  may  be  found  expressions  placing  the  lien  at  the 
time  of  some  later  step  in  the  cause,  such  as  the  serving 
of  the  subpoena,  or  even  the  appointment  of  the  receiver, 
they  were  probably  made  because  they  were  sufficient  for 
the  purposes  of  the  case  under  consideration.^ 

The  lien  establishes  two  priorities  in  favor  of  the 
creditor.  His  lien  is  superior  to  any  right  subsequently 
acquired  in  the  property.-     The  lien  gives  the  action  a 


instituted  in  a  federal  court  at  a 
time  when  the  debtor  had  made  an 
assignment  for  creditors  under  an 
Illinois  statute  and  proceedings 
thereunder  were  pending  in  the 
proper  Illinois  court.  Such  pro- 
cee'dings  are  purely  statutory  and 
such  statutes  exist  in  most  of  the 
states.  While  these  statutes  vary 
in  detail  they  are  sufficiently  simi- 
lar in  general  provisions  and  in 
their  purpose  to  warrant  the 
opinion  that  the  conclusion 
reached  in  the  cited  case  would 
apply  to  such  proceedings  under 
any  of  the  statutes.  The  equity 
jurisdiction  was  Invoked  because 
of  the  evident  fraudulent  con- 
cealment of  assets  by  the  debtor 
and  the  conclusion  of  the  court 
was:  "On  this  showing  It  seems 
to  me  there  is  a  case  made  for 
the  appointment  of  a  receiver  to 
be  clothed  with  powers  competent 
for  the  court  to  confer,  for  the 
purpose  of  bringing  suits,  or  prose- 
cuting this  suit,  and  unearthing  if 
possible  the  disposition  this  man 
has  made  of  this  property.  A  re- 
ceiver will  therefore  be  appointed 
with  such  powers  as  the  court  may 


now  or  hereafter  confer  upon  him 
in  the  premises." 

In  this  connection  see  also  the 
general  subject  of  Conflict  of  Juris- 
diction. 

1  Shainwald  v.  Lewis,  6  Fed.  766, 
7  Sawy.  148;  Storm  v.  Waddell,  2 
Sandf.  Ch.  (N.  Y.)  494;  Fetter  v. 
Cirode,  4  B.  Monroe  (Ky.)  482; 
Newdigate  v.  Jacobs,  9  Dana  (Ky.) 
17. 

2  Weed  V.  Smull,  3  Sandf.  Ch. 
(N.  Y.)  273. 

The  point  at  issue  in  Storm  v. 
Waddell,  2  Sandf.  Ch.  (N.  Y.) 
494,  frequently  referred  to  in  these 
notes,  was  as  to  the  respective 
priorities  of  a  creditor  suing  in 
equity  and  an  assignee  in  bank- 
ruptcy, when  the  equity  suit  had 
been  commenced  before  the  bank- 
ruptcy proceedings.  The  case  was 
decided  in  favor  of  the  equity  com- 
plainant. The  lengthy  discussion 
in  the  opinion  of  the  nature  and 
force  of  the  equity  action  was  for 
the  purpose  of  showing  that  the 
creditor  had  a  lien  within  the 
meaning  of  that  term  as  used  in 
a  certain  section  of  the  bank- 
ruptcy stati   e  then  in  force. 


PROCEEDINGS  IN   AID   OF   GENERAL  CREDITORS. 


669 


certain  aspect  of  an  action  in  rem,  and  the  action  may 
continue  as  against  tlie  property  even  after  the  judgment 
debtor  has  been  discharged  from  the  debt  in  bankruptcy 
proceedings.^  If,  however,  the  property  discovered  and 
brought  into  the  receivership  is  such  that  it  was  subject 
to  levy  of  execution  the  lien  of  an  equitable  complainant 
will  not  be  superior  to  that  of  one  who  levies  execution 
upon  it  prior  to  the  appointment  of  the  receiver.^  The 
lien  thus  acquired  can  not  displace  any  prior  valid  lien ; 
if,  however,  a  prior  encumbrancer  of  land  is  not  entitled 
to  rents  and  profits  until  he  secures  a  lien  upon  them  by 
the  appointment  of  a  receiver,  a  judgment  creditor  will 
be  entitled  to  all  rents  collected  by  his  receiver  until  the 
encumbrancer  by  intervention  or  independent  action 
secures  his  right  to  them  by  having  the  receivership  ex- 
tended to  cover  his  claim.^ 


An  assignment  under  the  insol- 
vent acts  after  the  commencement 
of  the  suit  only  gives  to  the 
assignee  a  right  to  the  surplus 
after  the  payment  of  the  com- 
plainant's debt.  Corning,  etc.,  v. 
White,  2  Paige  (N.  Y.)  567,  22  Am. 
Dec.  659. 

3  Fetter  v.  Cirode,  4  B.  Monroe 
(Ky.)  482. 

4  Lansing,  etc.,  v.  Easton,  7 
Paige  (N.  Y.)  364;  Storm  v. 
Badger,  8  Paige  (N.  Y.)  130. 

In  commenting  on  these  two  de- 
cisions in  Storm  v.  Waddell,  2 
Sandf.  Ch.  (N.  Y.)  494,  the  vice- 
chancellor  says:  "Whatever  may 
be  the  true  grounds  of  the  rule,  it 
does  not  affect  the  force  of  the 
lien  of  a  creditor's  suit,  upon 
equitable  interests  and  things  in 
action.  In  the  absence  of  an 
authoritative  exposition  of  the  rea- 
sons, 1  submit  that  the  decisions 
may  be  upheld  on  the  following. 
Tha    object    of   these    suits    is    to 


remedy  the  defect  of  legal  process 
in  the  collection  of  debts.  There 
is  no  difficulty  in  obtaining  satis- 
faction out  of  the  chattels  of  the 
debtor,  in  ordinary  cases,  by  sale 
on  execution.  And  the  creditor 
who  first  levies  his  execution  on 
such  chattels  is  entitled  to  priority 
by  his  greater  vigilance.  The 
effecting  of  such  a  levy  indicates 
that  the  remedy  at  law  was  not 
imperfect,  and,  as  that  is  the  prin- 
cipal remedy,  and  the  one  in 
equity  is  ancillary,  the  former 
should  take  precedence,  so  long  as 
the  possession  and  title  remain  in 
the  debtor.  But  when  the  proceed- 
ing in  equity,  by  an  oraer  for  a  re- 
ceiver or  otherwise,  has  made 
what  is  equivalent  to  an  actual 
levy  in  behalf  of  the  suitor  in  this 
court,  he  is  then  the  vigilant  cred- 
itor and  obtains  the  prior  lien." 

5  Morrogh  v.  Hoare,  5  Ir.  Eq. 
Rep.  (1842-43)  195.  See,  also,  Hol- 
land V.  Cork  &  K.  R.  Co.,  Ir.  Eq. 


670  LAW   OF   RECEIVERS. 

In  the  second  place,  when  more  than  one  action  has 
been  commenced  against  the  same  debtor  in  an  effort  to 
reach  the  same  property,  the  various  creditors  are  pre- 
ferred in  the  order  in  which  their  complaints  are  filed.*^ 

§  284,   Duties  and  Powers  of  Receiver.^ 

Upon  the  appointment  of  a  receiver  the  title  to  the 
debtor's  property  is  vested  in  him,  subject  to  certain 
qualifications  and  conditions.  Usually,  however,  the 
debtor  is  compelled  to  make  an  assignment  to  the  receiver. 
His  title  is,  of  course,  defeasible  and  the  title  to  such 
property  as  remains  after  the  claims  of  the  creditors 
who  are  parties  to  the  action  reverts  to  the  debtor.  The 
receiver  acts  under  the  orders  of  the  court.  He  has 
powder  to  take  whatever  steps  are  necessary  to  reduce 
the  property  of  the  debtor  to  possession.  If  he  finds 
property  that  has  been  fradulently  conveyed  he  has  the 
powder  to  sue  to  have  the  conveyance  set  aside^  and  reduce 
it  to  his  possession. 

§  285.    Effect  of  Statutory  Provisions. 

The  jurisdiction  of  courts  of  equity  to  entertain  suits 
of  this  character  has  been  maintained  without  the  aid  of 
statutory  enactment  and  is  an  inherent  power.  However, 
in  many  jurisdictions  statutes  have  been  passed  definitely 

Rep.   (1868)   417.    See,  also,  §  247,      the  hands  of  the  debtor  by  the  in- 

gupra.  junction,    may   be    decreed   to   be 

6  Corning,  etc..  v.  White,  2  Paige      delivered   to   the   complainant   or 

sold  by  a  master  and  applied   in 


(N.  Y.)  567,  22  Am.  Dec.  659;  Bur 

rell  V.  Leslie,  6  Paige  (N.  Y.)  445 


satisfaction  of  the  debts  and 
costs."   Storm  v.  Waddell,  2  Sandf. 

See,  however,  Boynton  v.  Rawson,      ^^    (NY)  494   544 

1  Clarke's  Ch.   (N.  Y.)    584.     See,  2  oiney  v.  Tanner,  10  Fed.  101; 

also,  Hancock  V.  Wooten,  107  N.  C.      Brown  v.   Folsom,   62  N.  H.  527; 

9,  11  L.  R.  A.  466,  12  S.  E.  199.  Miller  v.  MacKenzie,  29  N.  J.  Eq. 

1  "A    receiver    is    a    convenient      291;   Bostwick  v.  Menck,  40  N.  Y. 

and  important,  but  not  indispens-      383;    South  Bend  Toy  Mfg.  Co.  v. 

able  part  of  the  proceeding.    The      Pierre,  etc.,  Ins.  Co.,  4  S.  D.  173, 

effects   locked  up,   as  it  were,   in      56  N.  W.  98. 


PROCEEDINGS  IN  AID  OF   GENERAL  CREDITORS.  671 

assigning  tlie  jurisdiction  and  regulating  tlie  procedure. 
In  some  instances  the  statutes  were  prompted  by  diver- 
gencies of  opinion  among  tlie  courts  as  to  the  extent  of 
the  jurisdiction  or  respecting  some  details  of  the  pro- 
cedure.i  T^^^  statutes  are  frequently  construed  as  being 
merely  declaratory  of  the  equity  rule,  or  principle. 
Where  the  statute  specifically  makes  provision  concern- 
ing any  particular  detail  of  the  procedure,  such  as  the 
time  when  the  lien  of  the  creditor  attaches  to  the  prop- 
erty, it  is  conclusive.^  If  the  statute  does  not  expressly 
provide  for  a  receiver,  one  will  be  appointed  in  a  proper 
case,  under  a  general  statute  allowing  a  receiver  in  case 
of  fraud  or  when  there  is  danger  of  loss.* 

4.  Proceedings  Supplementary  to  Execution.^ 

§  286.    General  Character  of  Such  Proceedings  with  Reference 

to  Receiverships. 

In  many  of  the  code  states  statutes  have  been  enacted 

to  permit  a  proceeding,  commonly  called  '^proceedings 

supplementary  to  execution,"  designed  to  assist  a  judg- 

1  "The  provisions  [of  the  N.  Y.  time  of  the  service  of  a  copy  of  the 

statute]    referred    to    were    Intro-  petition  and  notice  of  the  mjunc- 

duced    into   the   statutes   of   New  tion.                          ,   ,„«  t     ziqs  7fi 

York    chiefly    to    set   at   rest   the  3  Hirsch  v.  Israel.  106  la.  498.  76 

questia    vexata    which    had    been  N.  W.  811. 

raised  by  the  cases  of  Hadden  V.  i  In     some     states,     under    the 

Spader     and     Donovan     v.     Fin,  statute  dealing  with  garnishments, 

already  noticed."    .    .      .  The  doc-  a  receiver  may  be  appointed  m  aid 

trine  of  Hadden  V.  Spader  was  thus  of     the     proceedings.      Myres     v. 

explicitly    recognized    by    legisla-  Frankenthal,     55     111.     App.     390. 

tion"    Shainwaldv.  Lewis.  6Fed.  Where     the     garnishee      was      a 

766    7  Sawy    148.    The  statute  re-  pledgee  of  corporate  stock,  and  his 

ferred    to    is    2    Revised    Statutes  debt  was  past  due.  and  he  raised 

173    174   which  went  into  effect  on  no  objection,  it  was  proper  for  the 

January   1.   1830;    and   in   connec-  court  to  appoint  a  receiver  to  sell 

tion  with  the  above  quotation  the  the    stock,   pay   the    pledgee,    and 

court  refers  to  Revisers'  Notes.  3  hold  any  surplus  to  await  the  out- 

R   S   669   2d  ed  come    of    the     garnishment    suit. 

2  Under  the  Iowa  statute  the  lien  Kimbrough  v.  J.  K.  Orr  Shoe  Co.. 

of  the  plaintiff  attaches  as  of  the  98  Ga.  537,  25  S.  E.  576. 


G72  LAW   OF    RECEIVERS. 

ment  creditor  in  much  the  same  way  as  a  suit  in  equity 
of  the  sort  just  above  considered  assists  him.  Indeed 
these  proceedings  have  been  said  to  be  a  substitute  for 
such  suits.-  There  are  two  features  usually  provided  for 
in  these  statutes  which,  as  far  as  we  are  concerned,  create 
the  similarity  between  these  statutory  proceedings  and 
the  equit}"  suit,  to  wdt:  (1)  The  statutes  provide  for  the 
discovery  of  hidden  property  of  the  debtor  by  examina- 
tion of  the  debtor  himself  and  of  third  parties;  (2)  they 
provide  for  the  appointment  of  a  receiver  with  powers 
similar  to  those  of  the  equity  receivers.  These  proceed- 
ings are,  however,  purely  statutory.  They  are  not  de- 
claratory of  nor  a  development  of  any  equity  proceeding, 
except  in  so  far  as  they  have  been  perhaps  suggested 
by  the  course  of  proceeding  in  creditors '  equity  suits  and 
except  that,  in  some  instances  where  the  statutes  have 
been  silent  on  some  detail  of  procedure,  courts  have  fol- 
lowed the  analogy  of  the  equity  proceeding.  These  pro- 
ceedings are  usually  ancillary  to  and  a  continuation  of 
the  main  suit,  by  which  the  creditor's  claim  is  established. 
The  receiver  appointed  in  such  proceedings  has  no  power 
except  such  as  is  conferred  upon  him  by  statute.^  Greneral 
statutes  with  reference  to  the  powders  of  receivers  are  not 

Under  Judgment  Act,  13  and  14  sale  Ry.  Co.,  2  Ir.  Eq.  Rep.  (1868) 

Vict.,   C   29,  a  judgment  creditor,  417. 

by  registering  a  certain  affidavit,  2  McCullough   v.    Clark,    41    Cal. 
attained  the  status  of  a  mortgagee  298;     Pacific    Bank    v.    Robinson, 
of  the  debtor's   property,  and  en-  57  Cal.  520,  40  Am.  Rep.  120. 
titled  to  the  rents  and  profits;    if  3  Bates  v.  International   Co.,  84 
there  are  prior  encumbrances  he  Fed.   518;    Pacific  Bank  v.   Robin- 
may     institute     a     proceeding    in  son,  57  Cal.  520,  40  Am.  Rep.  120 
equity  or  an  accounting  and  have  McCullough  v.  Clark,  41  Cal.  298 
a  receiver  appointed;  such  a  judg-  Mason    v.    Weston,    29    Ind.    561 
ment  mortgagee  would  not  have  a  Ludes  v.  Hood,  29  Kan.  49;   Flint 
»  claim  to  the  rents  and  profits  prior  v.  Webb,  25  Minn.  263;    Miller  v. 
to  the  holders  of  mortgage  and  de-  Perkins,  154  Mo.  629,  55  S.  W.  874 
benture    bonds    w^hich    had    been  Becker  v.  Farrance,  31  N.  Y.  631 
issued  under  a  statute  making  the  Pope  v.  Cole,  64  Barb.  (N.  Y.)  406 
rents  and  profits  security  for  the  Levey  v.  Bull,  47  Hun  (N.  Y.)  350 
interest.    Holland  v.  Cork  &  Kin-  Coates   v.   Wilkes,    92   N.   C.   376 


PROCEEDINGS  IN   AID   OP   GENERAL   CREDITORS.  673 

usually  held  applicable  to  receivers  designated  in  these 
supplementary  proceedings  statutes  unless  expressly 
made  so.^ 

§  287.    Conditions  for  Appointment  of  Receiver. 

The  supplementary  proceedings,  we  are  discussing, 
are  usually  designed  to  assist  judgment  creditors  to 
obtain  satisfaction  of  their  claims  out  of  property  that 
can  not  be  reached  by  execution  either  because  (1)  it  is 
not  by  law  subject  to  execution,  (2)  or  is  hidden  and  has 
not  been  discovered  by  the  creditor,  or  (3)  it  has  been 
fraudulently  transferred  or  subjected  to  encumbrance  by 
the  debtor.  Accordingly  it  is  usual  to  ask  the  judgment 
creditor  demanding  a  receiver  to  show  that  he  has  ex- 
hausted his  legal  remedy  through  execution.  If  the 
statute  requires  such  a  showing  it  must,  of  course,  bo 
made.^  The  appointment  usually  follows  the  examination 
made  for  the  discovery  of  property  and  depends  upon 
the  outcome  of  the  examination;  and,  unless  otherwise 
provided  in  the  statute,  is  undoubtedly  subject  to  the  dis- 
cretion of  the  court  or  judge  by  whom,  under  the  statute, 
the  appointment  is  to  be  made.^    In  New  York,  when  the 

Hennesaw  Mills  Co.  v.  Walker,  19  condition  such  as  to  make  it  cer- 

S.  C.  104;  Graham  v.  La  Crosse  &  tain  that  a  receiver  can  not  be  of 

M.  R.  Co.,  10  Wis.  459;    Smith  v.  any    assistance    to    the    creditor. 

Weeks,  6o' Wis.  94,  18  N.  W.  778.  Tomlinson,  etc.,  Mfg.  Co.  v.  Shatto, 

•1  Stephens  v.   Meriden  Britania  34    Fed.    380;    Hall   v.    Senior,    54 

Co.,  160  N.  Y.  178,  73  Am.  St.  Rep.  Misc.  Rep.  463,  106  N.  Y.  Supp.  29. 

678   54  N.  E.  781.  A  receiver  will  not  be  appointed 

I'peck  V.  Dicken,  41  Misc.  Rep.  for  the  purpose  of  collecting  costs 

473,  84  N.  Y.  Supp.  1094;  DeVivier  in       supplementary       proceedings 

V.  Smyth,  6  N.  Y.  Civ.  Proc.  Rep.  which  have  not  been  awarded  or 

394,  1  How.  Pr.  (N.  S.)  48.  allowed,  where  the  judgment  cred- 

When  the  right  to  a  receiver  has  itor  has  without  the  knowledge  of 

once   attached    it   can   not   be    de-  his  attorney  settled  the  matter  in 

stroyed  by  any  act  other  than  the  full.    Peterson  Bros.  v.  Goorley,  14 

payment  of  the  judgment,  or  by  its  Misc.  Rep.  56,  35  N.  Y.  Supp.  297. 

becoming  barred  through  lapse  of  2  Bean  v.  Heron,  65  Minn.  64,  67 

time  under  the  statute,  or  by  the  N.  W.   805;    Flint  v.  Zimmerman, 

arising  of   some    circumstance   or  70  Minn.  346,  73  N.  W.  175. 
I  Rec— 43 


574  LAW    OF    RECEIVERS. 

return  of  an  execution  nulla  bona  was  not  expressly  re- 
quired by  the  statute,  most  of  the  judges  required  such 
a  sliowing.^  Probably  the  established  rule  is,  in  the 
absence  of  statutory  provision  covering  this  point,  to 
follow  the  analogy  of  the  equity  suit.  If  the  property 
sought  to  be  impounded  is  such  that  it  is  not  subject  to 
levy  and  sale  on  execution  or  other  process  the  creditor 
will  be  required  to  show  that  he  has  exhausted  his  legal 
remedy.  If  the  property  is  subject  to  levy  the  creditor 
will  ordinarily  be  required  to  proceed  by  execution,  thus 
preserving  to  the  debtor  any  right  that  he  might  have 
to  redeem  from  the  sale.^  If  the  property  has  been 
fraudulently  transferred  the  creditor  will  not  be  com- 
pelled to  run  the  risk  of  such  levy,  but  may  have  a 
receiver  appointed  to  test  the  fraud  in  a  proper  action.^^ 

§  288.    Necessity  for  Showing  Existence  of  Property  Subject  to 
Receivership. 

The  question  as  to  what  property  of  the  debtor  may 
be  brought  under  the  receivership  is,  like  every  other 
point  involved  in  the  proceedings,  dependent  upon  the 
provisions  of  the  statute  under  which  the  proceedings  are 
brought.  Decisions  in  the  different  states  and,  for  that 
matter,  in  any  state  at  different  dates,  must  be  read  in 
the  light  of  the  statutes  existing  at  the  times  the  deci- 
sions were  made.    The  statutes,  however,  are  all  alike  as 

3  Hanson    v.    Tripler,    3    Sandf.  v.    Turner,   22    Hun    (N.   Y.)    226; 

(N.  Y.)  733,  1  Code  R.  (N.  S.)  154;  Tinkey  v.   Langdon,    60   How.   Pr. 

Holbrook  v.  Orgler,  40  N.  Y.  Sup.  (N.  Y.)  180. 

Ct.  33,  49  How.  Pr.  289;  Andrews  5  Todd  v.   Crooke,   4   Sandf.    (N. 

V.   Glenville  Woolen   Co.,  11  Abb.  Y.)  694;  Heroy  v.  Gibson,  10  Bosw. 

Pr.  N.   S.    (N.  Y.)    78;    Darrow   v.  (X.  Y.)  591.   If  the  appointment  is 

Lee,    16    Abb.    Pr.     (N,    Y.)     215;  not    absolutely    void    because    of 

Contra  Union  Bank   v.    Sargeant,  some  violation  of  the  statute  and 

53  Barb.  (N.  Y.)  422,  35  How.  Pr.  is   simply  improvident  it  can  not 
87. 


be  collaterally  attacked  in  an  ac 
tion     brought     by 
Stiefel  V.  Berlin,  2 
Daly,  24  Hun  (N.  Y.)  526;  Ashley      51  N.  Y.  Supp.  147 


4  Mover  v.   Moyer,   7   App.   Div.      tion     brought     by     the     receiver. 
523,  40  N.  Y.  Supp.  258;   Bunn  v.      Stiefel  v.  Berlin,  28  App.  Div.  103, 


PROCEEDINGS  IN   AID   OF   GENERAL   CREDITORS.  675 

to  their  purpose  and  very  similar  in  the  general  char- 
acter of  the  provisions  made  for  accomplishing  this  pur- 
pose. Certain  statements  may  be  made  as  of  practically 
universal  application. 

The  appointment  of  a  receiver  is  largely  within  the 
discretion  of  the  court.  The  court  will  not  perform  an 
idle  act  and  will  not  appoint  a  receiver  unless  it  appears 
that  the  appointment  is  likely  to  be  of  some  advantage 
to  the  creditor.!  The  court  is  given  ample  power  to  dis- 
cover property  through  the  examination  of  the  debtor 
himself  and  any  other  parties  whom  the  creditor  may 
call  as  witnesses.2  The  denial  of  the  debtor  that  he  owns 
property  or  the  assertion  of  ownership  by  third  parties 
in  whose  possession  property  that  possibly  belongs  to  the 
debtor  or  in  which  he  possibly  has  some  interest  is  found 
will  not,  however,  avail  to  bar  the  appointment.^  All 
that  is  necessary  is  a  showing  to  the  effect  that  the 
debtor  probably  owns  property^  which  should  be  sub- 
jected to  the  statute. 

If  the  statute  does  not  permit  a  certain  kind  of  prop- 
erty, as  is  the  case,  for  instance,  in  some  states,  with 
reference  to  real  property,  the  creditor  can  not  reach  it 
and  must  resort  to  an  action  in  equity.^  It  may  be  stated, 
as  of  practically  universal  application,  that: 

1  Flint  V.  Webb,  25  Minn.  263;  3  Collins  v.  Angell,  72  Cal.  513, 
Knight  V.  Nash,  22  Minn.  152;  14  Pac  135;  Kimbrough  v.  J.  K. 
Adler  V.  Turnbull,  57  N.  J.  L.  62,  30      Orr  Shoe  Co.,  98  Ga^  537,  25  S.  K 

^  ,^  -r,-     1  ^1       576;    Dickinson  v.   Onderdonk,   18 

Atl.    319;    Colton    v.    B.gelow,    41      ^^^     ^^     ^^     ^^^^     ^^^^^^    ^ 

N-  J-  ^-  ^^^-  Henry,  17  N.  Y.  482. 

2  Bradley  v.  Burk,  81  Minn.  368,  4  punt  y  webb,  25  Minn.  263. 

84  N.  W.  123;  People  v.  Hanbury,  5  Skinnerv.  Terhune  (Terhune  v. 

162  App.  Div.  337,  147  N.  Y.  Supp.  Skinner),  45  N.  J.  Eq.  565,  19  Atl. 

851;  Price  v.  Creme  de  Mohr  Co.,  377;  In  re  Stoddard,  128  App.  Biv. 

78  Misc.  Rep.  42,  137  N.  Y.  Supp.  759,  113  N.  Y.  Supp.  157;   Hall  v. 

732;    Feinberg    v.    Kutcosky,    147  Senior,  54  Misc.  Rep.  463,  106  N.  Y. 

App.  Div.  393,  132  N.  Y.  Supp.  9;  Supp.  29;    Maples  v.  O'Brien,  116 

Becher  v.   Gerllch,   72   Misc.  Rep.  N.  Y.  Supp.  175;  Darners  v.  Stern- 

157,  129  N.  Y.  Supp.  614.  berger,  52  Misc.  Rep.  532,  102  N.  Y. 


676 


LAW    OF    RECEIVERS. 


(1)  Property  exempt  from  execution  can  not  be 
brought  under  the  receivership  f 

(2)  Property  subsequently  acquired  by  the  debtor  can 
not  be  reached  unless  the  proceeding  is  extended  to 
cover  it;^ 

(3)  The  proceeding  is  for  the  benefit  only  of  the  cred- 
itor who  institutes  it  and  the  property  seized  may  be  lim- 
ited in  amount  to  what  is  sufficient  to  satisfy  his  de- 
mands f 

(4)  So  far  as  permitted  by  the  statute  every  species 
of  property  which  the  debtor  owns  or  in  which  he  has 
an  interest  may  be  administered  in  some  appropriate 
way;^ 


Supp.  740;  Bartkowaik  v.  Samp- 
son, 73  Misc.  Rep.  446,  133  N.  Y. 
Supp.  401. 

6  Finnin  v.  Malloy,  33  N.  Y. 
Super.  Ct.  382;  Cooney  v.  Cooney, 
65  Barb.  (N.  Y.)  524;  Andrews  v. 
Rowan,  28  How.  Pr.  (N.  Y.)  126; 
Tillotson  V.  Wolcott,  48  N.  Y.  188. 

V  Guild  V.  Meyer,  56  N.  J.  Eq. 
183,  38  Atl.  959;  Howell  v.  Mc- 
Dowell, 47  N.  J.  L.  359,  1  Atl.  474; 
Willson  V.  Salmon,  45  N.  J.  Eq.  257, 
17  Atl.  815;  Graff  v.  Bonnett,  25 
How.  Pr.  (N.  Y.)  470;  Campbell  v. 
Foster,  16  How.  Pr.  (N.  Y.)  275; 
Du  Bois  V.  Cassidy,  75  N.  Y.  298; 
Murphy  v.  Cram,  157  App.  Div.  609, 
142  N.  Y.  Supp.  972;  People  ex  rel. 
Duvall  V.  Cocks,  162  App.  Div.  453, 
147  N.  Y.  Supp.  829;  Gibney  v. 
Reilly,  26  Misc.  Rep.  275,  56  N.  Y. 
Supp.  1055. 

On  this  theory  it  has  been 
held  that  if  exempt  property 
is  destroyed  by  fire  after  the  ap- 
pointment of  the  receiver,  he  Will 
not  be  entitled  to  insurance  col- 
lected thereon.  Sands  v.  Roberts, 
8  Abb.  Pr.  (N.  Y.)  343. 


8  John  Mulstein  Co.  v.  City  of 
New  York,  213  N.  Y.  308,  107  N.  E. 
651,  aflSrming  judgment  John  Mul- 
stein Co.  V.  Banzhaf,  160  App.  Div. 
890,  144  N.  Y.  Supp. 1122;  Boucker 
Contracting  Co.  v.  W.  H.  Callahan 
Contracting  Co.,  218  N.  Y.  321,  113 
N.  E.  257;  Hubbard  v.  J.  P.  Lewis 
Co.,  128  App.  Div.  416,  112  N.  Y. 
Supp.  1050. 

9  Moak  V.  Coats,  33  Barb.  (N.  Y.) 
498;  Chautauqua  County  Bank  v, 
Risley,  19  N.  Y.  369,  75  Am.  Dec. 
347;  Barnes  v.  Morgan,  3  Hun 
(N.   Y.)    703,   705. 

Reversionary  legacy:  Macnicoll 
V.  Parnell,  36  W.  R.  773. 

Money  deposited  as  bail,  when 
debtor  is  entitled  to  return  there- 
of: Elite  Distributing  Co.  v. 
Schrul,  69  Misc.  Rep.  206,  126 
N.  Y.  Supp.  607. 

Money  due  on  a  public  contract: 
John  Mulstein  Co.  v.  City  of  New 
York,  213  N.  Y.  308,  107  N.  E.  651. 

Money  loaned  to  debtor  and  de- 
posited with  third  party  may  bo 
claimed  as  against  the  lender: 
Building  &  Loan  Assoc.  Harmonia 


PROCEEDINGS  IN  AID  OF  GENERAL  CREDITORS. 


677 


(5)  Whatever  projDerty  is  taken  is  taken  subject  to  all 
valid  prior  claims;  the  receiver  has  no  better  title  than 
the  debtor  had.^^ 

§  289.    Lien  Acquired  by  Creditor. 

By  the  proceedings  the  creditor  acquires  a  lien  upon 
such  property  of  the  debtor  as  may  be  properly  affected 
by  them.     The  rights  of  the  creditor  may  be  protected 

so  much  of  the  surrender  value  of 
this  insurance  policy  as  has  ac- 
crued to  the  judgment  debtor  as  of 
the  year  1912  [the  year  preceding 
the  first  year  for  which  the  wife 
had  paid  the  premium]  and  apply 
the  same  on  account  of  the  judg- 
ment in  the  present  proceeding." 
Clark  V.  Shaw,  91  Misc.  Rep.  245, 
154  N.  Y.  Supp.  1101. 

The  receiver  may  be  given  pos- 
session of  pledged  property  for  the 
purpose  of  determining  whether  or 
not  it  could  be  sold  for  sufficient  to 
pay  the  pledgee's  claim  and  leave 
a  balance  for  the  creditor;  the  re- 
sult of  his  investigation  to  deter- 
mine whether  he  should  sell  the 
property  or  redeliver  it  to  the 
pledgee.  Briggs  v.  Walker,  21  N. 
H.  72. 

10  Dann  Mfg.  Co.  v.  Parkhurst, 
125  Ind.  317,  25  N.  E.  347;  Willson 
V.  Salmon,  45  N.  J.  Eq.  257,  17 
Atl.  815. 

If  the  debtor  has  a  right  to  rents 
and  profits  pending  redemption 
from  an  execution  sale,  the  right 
to  redeem  both  of  these  rights 
may  pass  to  the  receiver.  Farn- 
ham  V.  Campbell,  10  Paige  (N.  Y.) 
598. 

The  receiver  may  redeem 
pledged  property.  Armstrong  v. 
McLean,  153  N.  Y.  490,  47  N.  E. 
912;  In  re  Flynn,  157  App.  Div. 
241,  141  N.  Y.  Supp.  807. 


V.  Wolfskeil,  85  N.  J.  Eq.  218,  96 
Atl.  89. 

An  equitable  interest  in  real  es- 
tate may  be  sold  by  the  receiver, 
if  such  course  can  be  followed 
without  conflict  with  the  legal 
title:  Kiser  v.  Sawyer,  4  Kan.  503. 

A  seat  in  the  stock  exchange: 
Habenicht  v.  Lissak,  78  Cal.  351, 
12  Am.  St.  Rep.  63,  5  L.  R.  A.  713, 
20  Pac.  874. 

Patent  right:  Pacific  Bank  v. 
Robinson,  57  Cal.  520,  40  Am.  Rep. 
120. 

Rents  due  to  a  tenant  by  court- 
esy: Beamish  v.  Hoyt,  2  Robt. 
(N.  Y.)  307;  Ellsworth  v.  Cook, 
8  Paige  (N.  Y.)  643. 

Or  a  widow  entitled  to  dower: 
Payne  v.  Becker,  87  N.  Y.  153; 
Stewart  v.  McMartin,  5  Barb. 
(N.  Y.)  438. 

A  promissory  note  in  hands  of 
third  party;  and  receiver  may  be 
ordered  to  collect  the  note:  Hath- 
away V.  Brady,  26  Cal.  581. 

Where  a  policy  of  insurance  on 
the  life  of  the  debtor  named  the 
debtor's  wife  as  a  beneficiary,  but 
contained  a  clause  permitting  the 
insured  to  change  the  beneficiary, 
and  it  was  claimed  that  the  wire 
had  paid  certain  of  the  latest  an- 
nual premiums,  it  was  ordered  that 
the  "debtor  turn  over  to  the  re- 
ceiver the  policy    .    .    .    and  apply 


678 


LAW   OF    RECEIVERS. 


by  an  injunction  nntil  such  time  as  possession  may  be 
acquired  by  the  receiver.^  The  lien  attaches  as  of  the 
time  provided  in  the  statute;  and  if  it  attaches  prior  to 
the  receiver's  possession,  it  will  relate  back  to  the  ap- 
pointed time  upon  his  acquiring  possession.^  The  lien 
will  not  be  displaced  by  rights  accruing  after  it  has  once 


1  Tomlinson  &  Webster  Mfg.  Co. 
V.  Shatto,  34  Fed.  380;  Sullivan  v. 
United  States,  etc.,  Co.,  134  App. 
Dlv.  658,  119  N.  Y.  Supp.  532; 
Smith  V.  Weed,  75  Wash.  452,  134 
Pac.  1070. 

2  Tomlinson  &  Webster  Mfg.  Co. 
V.  Shatto,  34  Fed.  380;  Rose  v. 
Baker,  99  N.  C.  323,  5  S.  E.  919; 
Becker  v.  Torrance,  31  N.  Y.  631; 
Stewart  v.  Foster,  1  Hilt.  (N.  Y.) 
505;  Campbell  v.  Genet,  2  Hilt. 
(N.  Y.)  290,  295;  Fillmore  v.  Hor- 
ton,  31  How.  Pr.  (N.  Y.)  424;  Rog- 
ers V.  Corning,  44  Barb.  (N.  Y.) 
229;  Conger  v.  Sands,  19  How.  Pr, 
(N.  Y.)  8;  Moyer  v.  Moyer,  7  App 
Div.  523,  40  N.  Y.  Supp.  258;  Fitz 
Patrick  v.  Moses,  34  App.  Div.  242 
54  N.  Y.  Supp.  426;  Murphy  v 
Cram,  157  App.  Div.  609,  142  N.  Y 
Supp.  972;  Frieder  v.  Adlermaa 
95  Misc.  Rep.  259,  59  N.  Y.  Supp 
120. 

In  the  absence  of  a  showing  as 
to  the  dates  of  preceding  steps  in 
the  proceeding,  the  date  of  the 
receiver's  appointment  will  be 
taken  as  the  commencement  of 
the  receiver's  claim  to  the  judg- 
ment debtor's  property.  Steinert 
V.  Van  Aken,  165  App.  Div.  206, 
150  N.  Y.  Supp.  525. 

The  receiver's  title,  or  claim, 
may  date  from  the  filing  of  a  certi- 
fied copy  of  the  order  appointing 
with  the  county  clerk.  Murphy  v. 
Cram,  157  App.  Div.  609,  142  N.  Y. 
Supp.  972;    Manning  v.  Evans,  19 


Hun  (N.  Y.)  500;  Smith  v.  Tozer, 
11  N.  Y.  Civil  Proc.  Rep.  349,  3 
N.  Y.  St.  Rep.  164;  Harrison  v. 
Maxwell,  44  N.  J.  L.  316. 

As  against  the  receiver,  claims 
to  the  property  are  to  be  deter- 
mined as  of  the  date  when  his 
claim,  or  title  attached.  Steinert 
V.  Van  Aken,  165  App.  Div.  206, 
150  N.  Y.  Supp.  525. 

In  regard  to  property  that  has 
been  fraudulently  conveyed  by  the 
debtor  it  may  be  that  a  lien  is  not 
acquired,  at  least  as  far  as  the 
rights  of  the  transferee  are  con- 
cerned, until  the  receiver  com- 
mences an  action  for  the  recovery 
of  the  property.  Field  v.  Sands,  8 
Bosw.  (N.  Y.)  685;  Ward  v.  Petrie, 
92  Hun  (N.  Y.)  605,  36  N.  Y.  Supp. 
940;  Mandeville  v.  Avery,  124  N.  Y. 
376,  21  Am.  St.  Rep.  678,  26  N.  E. 
951;  Stephens  v.  Perrine,  143 
N.  Y.  476,  39  N.  E.  11. 

Where  a  deed  was  intended  only 
as  a  mortgage  and  between  an  as- 
signment by  the  debtor  to  the  re- 
ceiver and  the  beginning  of  an 
action  by  the  receiver  against  the 
mortgagee,  the  latter  sold  the 
property  to  an  innocent  purchaser, 
the  receiver  could  not  pursue  the 
land  and  could  have  only  a  judg- 
ment against  the  mortgagee  for 
the  difference  between  the  mort- 
gagee's claims  against  the  debtor 
and  the  proceeds  of  the  sale. 
Maples  V.  O'Brien,  116  N,  Y.  Supp. 
175. 


PROCEEDINGS  IN  AID   OF   GENERAL  CREDITORS. 


679 


attached,^  altliougli  subsequent  rights,  subject  to  the  lien, 
may  be  acquired.^  Several  creditors,  pursuing  the  same 
property,  have  priorities  in  the  order  in  which  their 
respective  liens  attach.  The  lien  may  be  perfected  by  an 
assignment  from  the  debtor  to  the  receiver.  Such  an 
assignment  will  .be  ordered  if  necessary  ;5  but  if,  under 
the  statute,  the  title  of  the  receiver  is  sufficient  for  all 
the  purposes  of  the  proceeding  without  an  assignment, 
and  an  assignment  might  pass  such  rights  as  the  debtor 
still  retains  in  the  property,  an  order  directing  an  assign- 
ment would  be  erroneous.^    The  lien  may  lapse,  under  the 


3  The  title  of  a  qualified  receiver 
in  supplementary  proceedings 
starts  from  the  time  of  the  com- 
mencement of  the  proceedings  and 
is  superior  to  subsequent  liens. 
John  Mulstein  Co.  v.  City  of  New 
York,  213  N.  Y.  308,  107  N.  E.  651, 
affirming  judgment  John  Mulstein 
Co.  V.  Banzhaf,  160  App.  Div.  890, 
144  N.  Y.  Supp.  1122;  McCorkle  v. 
Herrman,  117  N.  Y.  297,  22  N.  E. 
948. 

The  receiver  w^as  entitled  to  re- 
cover from  bank,  a  bank  deposit 
belonging  to  the  debtor,  the  title 
to  which  was  vested  in  the  re- 
ceiver, and  which  was  paid  by  the 
bank  to  the  debtor's  wife  without 
regard  to  the  true  ownership  of 
the  fund.  O'Reilly  v.  Adams,  163 
App.  Div.  60,  148  N.  Y.  Supp.  441. 

After  notice  of  the  appointment 
of  a  receiver  over  the  assets  of  a 
l)artner,  a  partner  deals  with  the 
interest  of  the  judgment  debtor  at 
his  own  risk.  Guild  v.  Meyer,  56 
N.  J.  Eq.  183,  38  Atl.  959. 

4  St.  Louis  &  S.  Coal,  etc..  Co.  v. 
Sandoval  Coal,  etc,  Co.,  Ill  111.  32; 
Scott  V.  Elmore,  10  Hun  (N.  Y.) 
68;  Wilson  v.  Wilson,  1  Barb.  Ch. 


(N.  Y.)  592;  Chautauqua  County 
Bank  v.  Risley,  19  N.  Y.  369,  375, 
75  Am.  Dec.  347.  See  Porter  v. 
Williams,  9  N.  Y.  142,  59  Am.  Dec. 
519;  Faneuil  Hall  Nat.  Bank  v. 
Bussing,  147  N.  Y.  665,  42  N.  E. 
345. 

Any  part  of  the  debtor's  prop- 
erty which  is  not,  by  the  order  of 
the  court  included  in  the  receiver- 
ship, remains  at  the  disposal  of 
the  debtor.  Commercial  Nat.  Bank 
of  Salt  Lake  City  v.  Page  &  Brin- 
ton,  45  Utah  14,  142  Pac.  709. 

5  Newton  v.  Buck,  72  Fed.  777, 
Pacific  Bank  v.  Robinson,  59  Cal. 
520,  40  Am.  Rep.  120;  Habenicht 
V.  Lissak,  78  Cal.  351,  12  Am.  St. 
Rep.  63,  5  L.  R.  A.  713,  20  Pac.  874; 
Scott  V.  Elmore,  10  Hun  (N.  Y.) 
68;  Moak  v.  Coats,  33  Barb.  (N.  Y.) 
498;  Chautauqua  County  Bank  v. 
Risley,  19  N.  Y.  369,  75  Am.  Dec. 
347;  Fenner  v.  Sanborn,  37  Barb. 
(N.  Y.)  610. 

6  Graham  v.  Lawyers'  T.  I.  Co., 
20  App.  Div.  440,  46  N.  Y.  Supp. 
1055;  Ball  v.  Goodenough,  37  How. 
Pr.  (N.  Y.)  479;  Ten  Broeck  v. 
Sloo,  13  How.  Pr.  (N.  Y.)  28,  2 
Abb.  Pr.  234. 


680  LAW    OF    RECEIVERS. 

laws  relating  to  tlie  estates  of  decedents  if  the  debtor 
dies  before  a  receiver  is  appointed/ 

§  280.    Powers  of  Receiver  in  Supplementary  Proceedings. 

In  consonance  with  the  general  purposes  of  supple- 
mentary proceedings,  the  statutes  clothe  the  court  with 
authority  to  give  the  receiver  a  \\dde  range  of  power  to 
make  the  proceedings  effective.  The  receiver  is,  how- 
ever, an  officer  of  the  court ;  he  is  not  the  representative 
of  any  of  the  parties ;  in  all  of  his  acts  he  is  under  tlie 
direction  of  the  court  and  is  limited  to  such  authority 
as  is  expressed  in  the  court  orders  specifying  his  duties 
and  powers  or  as  is  necessarily  implied  in  these  orders. 
We  have  already  seen  some  of  the  ways  in  which  the 
receiver,  as  a  practical  proposition,  will  be  authorized  to 
proceed.^  Generally  speaking,  the  court  will  adopt,  or 
authorize  the  receiver  to  adopt,  any  course  that  gives 
promise  of  being  effectual.  A  few  of  the  restrictions 
placed  upon  the  court  and  the  receiver  are  to  be  noticed. 

In  the  proceedings  themselves — that  is,  the  examina- 
tions conducted  for  the  purpose  of  discovering  prop- 
erty— the  court  is  not  authorized  to  try  the  title  to 
property,  except  in  a  very  limited  number  of  circum- 
stances.^    The  court  can  not  disturb  the  possession  of 

7  Rankin  v.  Minor,  72  N.  C.  424.  icy,  having  a  covenant  permitting 

1  See  §  289,  note  9,  supra.  the  debtor  to  change  the  name  of 

2  In  some  states  the  court  may  the  beneficiary  to  be  placed  at  the 
determine  whether  or  not,  as  be-  disposal  of  the  receiver,  even 
tween  husband  and  wife,  property  though  the  debtor's  wife  has  been 
is  the  separate  property  of  the  named  as  beneficiary,  the  court  be- 
husband.  Smith  v.  Weed,  75  Wash.  lieving  that  "the  examination  of 
452,  134  Pac.  1070.  the    judgment    debtor    shows    the 

When  it  appears  that  the  debtor  usual    history    of   assignments    to 

has   kept  his   funds  in  his   wife's  the    wife     of    property     formerly 

name,  he  may  be  ordered   to   de-  owned  by  the  judgment  debtor  in 

liver  them  to  the  receiver.  Matter  an     effort    to     divest    himself    of 

of  Weld   (Weld  v.  Sage),  34  App.  property  subject  to  the  rights  of 

Div.  471,  54  N.  Y.  Supp.  253.  creditors.    Clark  v.  Shaw,  91  Misc. 

The  court  willorder  the  surren-  Rep.  245,  154  X.  Y.  Supp.  1101. 

der  value  of  a  life  insurance  pol-  The     evidence     supporting     the 


PROCEEDINGS   IN  AID   OF   GENERAL   CREDITORS. 


681 


any  tliird  party  rightly  in  possession  of  the  property  and 
having  a  valid  claim  against  it;  the  court  may,  however, 
authorize  the  receiver  to  satisfy  the  claim,  if  possible, 
and  take  possession,  or  to  sell  whatever  interest  the 
debtor  may  have  in  the  property.^  In  case  of  a  dispute 
as  to  the  ownership  of  property,  or  as  to  the  existence  of 
a  debt  claimed  to  be  due  the  judgment  debtor  from  a 
third  party,  or  as  to  whether  or  not  a  transfer  of  prop- 
erty by  the  debtor  was  fraudulent,  the  court  can  only 
authorize  the  receiver  to  seek  a  determination  of  the  dis- 
puted issue  by  a  proper  suit.^     The  court  may  refuse 


claim  of  a  third  person  to  prop- 
erty in  his  possession  may  be  so 
unsubstantial  as  to  warrant  the 
court  in  ordering  it  turned  over 
to  the  receiver.  Murphy  v.  Cram, 
157  App.  Div.  609,  142  N.  Y.  Supp. 
972. 

The  court  can  not  order  the  re- 
ceiver to  sell  land  held  by  the 
wife  as  being  the  property  of  the 
husband  and  apply  the  proceeds 
to  the  payment  of  the  judgment. 
McDowell  V.  Bell,  86  Cal.  615,  25 
Pac.  128. 

3  Voorhees  v  Seymour,  26  Barb. 
(N.  Y.)  569,  585;  Gardner  v.  Smith, 
29  Barb.  (N.  Y.)  68;  Campbell  v. 
Fish,  8  Daly  (N.  Y.)   162. 

Where  a  receivership  has  been 
established  in  a  suit  to  dissolve  a 
partnership,  and  there  is  no  claim 
of  intent  to  hinder  and  delay  cred- 
its through  this  proceeding,  the  re- 
ceiver will  not  be  ordered  to  turn 
over  the  property  to  a  supple- 
mentary proceeding  receiver  of 
the  partnership  subsequently  ap- 
pointed; but  the  latter  will  be 
protected  by  an  order  directing 
that  the  dissolution  proceeding 
shall  not  be  discontinued  nor  the 


receiver  discharged  without  due 
notice  to  the  second  receiver. 
Price  V.  Price,  21  App.  Div.  597,  47 
N.  Y.  Supp.  772. 

4  Olney  v.  Tanner,  10  Fed.  101; 
McDowell  V.  Bell,  86  Cal.  615,  25 
Pac.  128;   Union  Collection  Co.  v. 
Snell,  5  Cal.  App.  130,  89  Pac.  859; 
Thomas  v.  Van  Meter,  164  111.  304, 
45  N.  E.  405;   Knight  v.  Nash,  22 
Minn.    452;    Ward    v.    Petrie,    157 
N.  Y.  301,  68  Am.  St.  Rep.  790,  51 
N.  E.  1002;    Mandeville  v.  Avery, 
124  N.  Y.  376,  21  Am.  St.  Rep.  678, 
26  N.  E.  951;   Thompson  v.  Sage, 
47  Misc.  Rep.  357,  94  N.  Y.  Supp. 
31;    In   re  Becker,   36   Misc.   Rep. 
322,   73   N.  Y.    Supp.   577;    Under- 
wood   V.    Sutcliffe,    77    N.    Y.    58; 
Stiefel    V.    Berlin,    20    Misc.    Rep. 
194,  45  N.  Y.  Supp.  746;   Bostwick 
V.  Menck,  40  N.  Y.  383;   Kennedy 
V.  Thorp,  3  Abb.  Pr.,  N.  S.  (N.  Y.), 
131,  2  Daly  258;  Porter  v.  Williams, 
9  N.  Y.  142,  59  Am.  Dec.  519 ;  Wright 
V.  Nostrand,  94  N.  Y.  31;- Teller  v. 
Randall,  40  Barb.   (N.  Y.)    242,  26 
How.    Pr.    155;     Thompson,    etc., 
Mfg.  Co.  v.  Guenthner,  5  S.  D.  504, 
59  N.  W.  727;    Smith  v.  Weed,  75 
Wash.  452,  134  Pac.  1070;   Hamlin 
V.  Wright,  23  Wis.  491;  First  Nat. 


682 


LAW    OF    RECEIVERS. 


permission  for  the  receiver  to  sue  if  it  is  not  sufficiently 
convinced  that  there  is  a  probability  that  the  suit  will  be 
successful,  or  if,  without  the  suit,  sufficient  property  may 
be  obtained  to  satisfy  the  claims  which  he  represents  and 
for  the  satisfaction  of  which  alone  he  is  entitled  to  take 
property.^  If  the  court  acts,  or  threatens  to  act,  without 
jurisdiction  in  any  of  these  matters,  a  writ  of  prohibition 
will  lie.^ 

The  receiver  acquires  no  right  from  the  creditor  except 
the  right  to  enforce  satisfaction  of  the  judgment  upon 
which  the  proceedings  were  founded.'^    If  he  sues  to  set 


Bank  v.  Cook,  12  Wyo.  492,  2 
L.  R.  A.  (N.  S.)  1012,  76  Pac.  674, 
78  Pac.  1083. 

A  receiver,  in  proceedings  sup- 
plementary to  execution,  can  not 
maintain  an  action  at  law  for  the 
conversion  of  property  claimed  to 
have  been  fraudulently  trans- 
ferred, or  mortgaged  by  the 
debtor.  His  remedy  is  only  by  a 
suit  in  equity  to  have  the  transfer 
or  incumbrance  set  aside.  Ber- 
liner V.  Kuttner,  85  Misc.  Rep.  461, 
147  N.  Y.  Supp.  308;  Stephens  v. 
Meriden  Brittania  Co.,  160  N.  Y. 
178,  73  Am.  St.  Rep.  678,  54  N.  E. 
781. 

A  debtor's  claim  against  the  ad- 
ministratrix of  his  deceased  wife 
for  a  distributive  share  of  the  es- 
tate may  be  the  subject  of  a  suit 
by  his  receiver  in  supplementary 
proceedings  against  the  sureties 
on  the  administratrix's  bond,  sub- 
ject to  such  defenses  as  they 
might  have  against  the  debtor. 
Steinert  v.  Van  Aken,  165  App. 
Div.  206,  150  N.  Y.  Supp.  525. 

An  order  in  supplemental  pro- 
ceedings authorizing  the  payment 
of  the  receiver's  compensation  and 
expenses    in    suits    to    set    aside 


fraudulent  transfers  out  of  prop- 
erty received  from  other  sources, 
is  erroneous.  Smith  v.  Weed,  75 
Wash.  452,  134  Pac.  1070. 

5  Gifford  V.  Rising,  59  Hun  42, 
12  N.  Y.  Supp.  428;  Bostwick  v. 
Menck,  40  N.  Y.  383. 

For  a  set  of  facts  that  will  thor- 
oughly warrant  an  order  author- 
izing a  suit  to  set  aside  a  trans- 
fer, so  far  as  a  showing  of  fraud 
is  concerned,  see  McMahon  v. 
Shary,  62  Misc.  Rep.  236,  114  N.  Y. 
Supp.  852. 

6  McDowell  v.  Bell,  86  Cal.  615, 
25  Pac.  128. 

7  If  creditors,  at  whose  instance 
he  has  been  appointed,  have 
waived  the  frauds  by  an  affirm- 
ance of  the  contracts,  as  in  the 
case  of  a  suit  thereon,  the  receiver 
can  not  attack  the  transactions  as 
fraudulent.  Kennedy  v.  Thorp,  51 
N.  Y.  174  (reversing  2  Daly  [N.  Y.] 
258) ;  cf.  Parish  v.  Murphree,  54 
U.  S.  92,  99,  14  L.  Ed.  65,  67;  Sav- 
age V.  Murphy,  34  N.  Y,  508,  90 
Am.  Dec.  733. 

The  receiver  can  not  maintain 
a  suit  based  on  a  cause  of  action 
for  damages  that  the  creditor  may 
have  against  the  debtor  and  others 


PROCEEDINGS   IN   AID   OF   GENERAL   CREDITORS. 


6S3 


aside  a  fraudulent  conveyance  lie  must  show  in  his  com- 
plaint that  he  has  a  cause  of  action.^  Since  the  judgment 
is  still  the  property  of  the  creditor  he  can  not  levy  execu- 
tion upon  property  claimed  to  have  been  fraudulently 
transferred,  but  must  proceed  by  suit.^  As  far  as  prop- 
erty that  might  be  used  to  satisfy  the  judginent  is  con- 
cerned the  receiver  succeeds  to  any  cause  of  action  tliat 
the  debtor  had.^^'  The  receiver  may  be  sued  by  any  third 
party  claiming  a  superior  right  to  any  property  of  which 
he  acquires  possession.^^ 

The  receiver  is  virtually  a  trustee  for  all  of  the  inter- 
ested parties^2  ^•^^\  \^q  can  not  take  any  step  that  will 


caused  by  a  conspiracy  to  hinder 
and  delay  the  collection  of  his 
claim.  Ward  v.  Petrie,  157  N.  Y. 
301,  68  Am.  St.  Rep.  790,  51  N.  E. 
1002. 

8  Tvedt  V.  Mackel,  67  Minn.  24, 
69  N.  W.  475.  But  see  also  Saw- 
yer V.  Harrison,  43  Minn.  297,  45 
N.  W.  434;  Pendleton  v.  Friedman, 
135  App.  Div.  420,  119  N.  Y.  Supp. 
994. 

9  Mich-Prescott  v.  Pfeiffer,  57 
Mich.  21,  23  N.  W.  477;  Minn 
Dunham  v.  Byrnes,  36  Minn.  106, 
30  N.  W.  402;  Bostwick  v.  Menck, 
40  N.  Y.  383,  384;  Metcalf  v.  Del 
Valle,  64  Hun  245,  19  N.  Y.  Supp. 
16;  Ward  v.  Petrie,  157  N.  Y.  301, 
68  Am.  St.  Rep.  790,  51  N.  E.  1002. 

If,  without  an  order  directing 
him  to  do  so,  the  receiver  takes 
property,  claimed  to  have  been 
fraudulently  transferred,  from  the 
transferee,  against  the. will  of  the 
latter,  he  does  so  at  his  own  risk. 
Tapscott  V.  Lyon,  103  Cal.  297,  37 
Pac.  225. 

It  might  be  that  the  right  to  sue 
to  avoid  a  fraudulent  transfer 
would    belong   to    an    assignee    in 


bankruptcy  rather  than  to  the  re- 
ceiver. This  question  would  de- 
pend upon  the  provisions  of  the 
bankruptcy  act  and  the  time  when 
the  lien  of  the  receiver's  creditor 
attached  to  the  property  as  com- 
pared to  the  time  when  the  as- 
signee was  appointed.  Olney  v. 
Tanner,  18  Fed.  636,  21  Blatchf. 
540;   Glenny  v.  Langdon,  98  U.  S. 

20,  25  L.  Ed.  43;  Trimble  v.  Wood- 
head,  102  U.  S.  647,  26  L.  Ed.  290; 
Moyer  v.  Dewey,  103  U.  S.  301,  26 
L.  Ed.  394;  Judd  v.  Bankers',  etc., 
Tel.  Co.,  31  Fed.  182,  24  Blatchf. 
420;   Skip  v.  Harwood,  3  Atk.  564. 

10  Prescott  v.  Pfeiffer,  57  Mich. 

21,  23  N.  W.  477;  Masten  v.  Amer- 
man,  20  Abb.  N.  C.  443;  Weill  v. 
Wilmington  First  Nat.  Bank,  106 
N.  C.  1,  11  S.  E.  277;  Ward  v. 
Petrie,  157  N.  Y.  301,  68  Am.  St. 
Rep.  790,  51  N.  E.  1002;  Armstrong 
V.  McLean,  153  N.  Y.  490,  47  N.  E. 
912. 

11  Frieder  v.  Adlerman,  95  Misc. 
Rep.  259,  159  N.  Y.  Supp.  120. 

12  Gumming  v.  Egerton,  9  Bosw. 
684;  Bostwick  v.  Beizer,  10  Abb. 
Pr.  (N.  Y.)  197;  Porter  v.  Wil- 
liams, 9  N.  Y.  142,  59  Am.  Dec.  519. 


684: 


LAW   OF   RECEIVERS. 


injure  the  beneficiaries  of  the  trust.  He  can  not  waive 
the  creditor's  right  to  attack  a  fraudulent  conveyance.^^ 
He  can  distribute  money  or  property  only  on  an  order  of 
court;  and  if  he  does  make  distribution  without  such 
order  he  will  be  held  personally  accountable  unless  he 
can  show  that  his  action  was  proper.^*  In  all  matters 
relating  to  the  procedure  under  statutes  of  this  char- 
acter resort  must  be  had  to  the  statute  and  the  decisions 
interpreting  its  provisions. ^^ 


13  Mumford  v.  Crouch,  8  App. 
Div.  529,  40  N.  Y.  Supp.  878. 

14  In  re  Hone,  153  N.  Y.  522,  47 
N.  E.  798. 

If  a  receiver  has  notice  of  an 
appeal  from  an  order  of  court 
directing  him  to  pay  money  to  the 
judgment  creditor  and  he  makes 
the  payment  pending  the  appeal, 
he  will,  on  a  final  reversal  of  the 
order,  have  to  look  to  the  judg- 
ment creditor  for  reimbursement. 
Johnson  v.  Joslyn,  47  Wash.  531, 
92  Pac.  413. 

15  Proceedings  supplementary  to 
execution  are  entirely  statutory 
and  decisions  concerning  them 
must  be  read  in  the  light  of  the 
statutes  under  which  they  were 
had.  A  few  citations  are  here 
added  to  illustrate  some  of  the 
miscellaneous  questions  that  may 
arise  in  connection  with  such  pro- 
ceedings: 

Appointment  of  Receiver — A  re- 
ceiver should  be  appointed  by  the 
same  judge  who  issued  the  order 
for  the  examination  of  the  debtor. 
Ball  V.  Goodenough,  37  How.  Pr. 
(N.  Y.)  479;  Smith  v.  Johnson,  7 
How.  Pr.  (N.  Y.)  39;  Corbin  v. 
Berry,  83  N.  C.  27;  Clark  v.  Berg- 
enthal,  52  Wis.  103,  8  N.  W.  865. 

Proceedings    by    Several    Credi- 


tors— When  separate  proceedings 
are  instituted  by  several  creditors 
against  the  same  debtor,  the  same 
person  should  be  appointed  re- 
ceiver in  all  the  cases.  Myrick  v. 
Selden,  36  Barb.  (N.  Y.)  15;  Bost- 
wick  V.  Menck,  40  N.  Y.  383;  An- 
drews V.  Glenville  Woolen  Co.,  11 
Abb.  Pr.  (N.  S.)  (N.  Y.)  78; 
Sparks  v.  Davis,  25  S.  C.  381. 

Opposition  to  Appointment- 
Lien  creditors  of  the  debtor,  who 
were  not  parties  to  the  main  ac- 
tion, are  not  entitled  to  object  to 
the  appointment.  Their  interests 
can  not  be  affected  by  any  action 
brought  by  the  receiver  to  which 
they  are  not  parties.  First  Nat. 
Bank  v.  Cook,  12  Wyo.  492,  2 
L.  R.  A.  (N.  S.)  1012,  76  Pac.  674, 
78  Pac.  1083. 

Notice — If  the  debtor  was  exam- 
ined before  a  referee  and  he  is 
not  without  the  state,  he  should 
be  given  notice  of  the  application 
for  a  receiver.  Wilhelm  v.  Hay- 
man,  126  N.  Y.  Supp.  374. 

When  the  statute  was  silent  on 
the  question  of  giving  notice  of 
the  application  for  a  receiver,  the 
courts  have  ruled  differently  as  to 
the  necessity  for  notice.  Ashley 
V.  Turner,  22  Hun  (N.  Y.)  226; 
Morgan  v.  Von  Kohnstamm,  9 
Daly  (N.  Y.)  355;  Terry  v.  Banges, 


PROCEEDINGS  IN   AID   OF   GENERAL   CREDITORS. 


685 


§  291.    Property  in  a  Foreign  Jurisdiction. 

It  is  generally  held  that  a  court  of  equity  has  not  au- 
thority to  appoint  a  receiver  in  a  judgment  creditor's 
action,  brought  under  the  general  equity  jurisdiction,  to 
sue  for  property  in  a  foreign  jurisdiction,  or  to  take  a 
conveyance  thereof  from  the  debtor.^     This  would  cer- 


9  N.  Y.  Supp.  311;  Whitney  v. 
Welch,  2  Abb.  (N.  C.)  (N.  Y.)  442. 
When  the  appointment  is  liable 
to  be  erroneous  for  want  of  notice, 
the  creditor  may  himself  have  the 
order  vacated  and  the  receiver's 
bond  cancelled,  at  least  prior  to 
the  time  that  the  receiver  takes 
possession  of  any  property.  Wil- 
helm  v.  Hayman,  126  N.  Y.  Supp. 
374. 

It  was  held  that  a  corporation 
had  actual  notice  of  a  motion  for 
leave  to  sue  when  it  appeared 
that  the  corporation  to  which  the 
debtor  had  fraudulently,  it  was 
claimed,  transferred  his  property, 
had  been  organized  by  the  debtor, 
that  it  consisted  solely  of  the 
debtor,  his  wife,  and  his  attorney, 
and  that  the  debtor  and  the  attor- 
ney, both  of  whom  were  officers 
of  the  corporation;  and  it  was 
held  that  no  other  notice  to  the 
corporation  was  necessary.  Mc- 
Mahon  v.  Shary,  62  Misc.  Rep.  236, 
114  N.  Y.  Supp.  852. 

Bond  of  Receiver — A  receiver 
who  has  not  filed  his  bond  in  the 
particular  office  expressly  desig- 
nated by  the  statute  is  not  "the 
duly  qualified"  receiver  required 
by  the  statute  and  does  not  take 
title  to  the  debtor's  property.  Mul- 
stein  Co.  v.  City  of  N.  Y.,  213  N.  Y. 
308,  107  N.  E.  651. 

Attorney  for  Receiver — The  re- 
ceiver may  employ  as  his  attorney 
the    attorney    of   the    creditor    at 


whose  instance  the  proceedings 
were  instituted.  McMahon  v. 
Shary,  62  Misc.  Rep.  236,  114  N.  Y. 
Supp.  852. 

Attorney's  Fees— A  judgment 
creditor  can  himself  institute  a 
suit  to  set  aside  a  fraudulent  con- 
veyance; therefore,  if  a  receiver 
is  appointed  at  the  instance  of  a 
single  creditor  and  this  receiver 
institutes  such  an  action,  he  is  not 
entitled  to  an  attorney's  fee  to  be 
taxed  as  costs.  In  this  case  the 
attorney  is  in  a  different  position 
from  the  attorney  of  a  receiver  of 
an  insolvent  concern,  which  re- 
ceiver represents  all  the  creditors. 
Small  V.  Anderson,  139  Minn.  292, 
166  N.  W.  340. 

Receiver's  Sales — One  who  buys 
property  at  a  receiver's  sale  is 
bound  to  know  whether  or  not  the 
court  had  jurisdiction  to  order 
the  sale.  Boswell  v.  First  Nat. 
Bank,  16  Wyo.  161,  92  Pac.  624,  93 
Pac.  661. 

A  receiver's  sale  may  be  ap- 
proved or  rejected  in  the  discre- 
tion of  the  court.  Hall  v.  Knott, 
69  Misc.  Rep.  543,  125  N.  Y.  Supp. 
299. 

For  a  somewhat  clear  and  full 
statement  of  the  practice  in  these 
proceedings,  see  Coates  v.  Wilkes, 
92  N.  C.  376;  cf.  Spencer  v.  Cuyler, 
9  Abb.  Pr.  (N.  Y.)  382;  People  ex 
rel.  Fitch  v.  Mead,  29  How.  Pr. 
(N.  Y.)    360. 

1  Amy    v.    Manning,    149    Mass. 


686  LAW    OF    RECEIVERS. 

tainly  be  true  if  the  property  was  of  such  a  character  or 
so  conditioned  that,  if  located  in  the  home  jurisdiction, 
the  creditor  would  not  be  entitled  to  a  receiver  because 
he  could  reach  it  by  legal  process.-  However,  in  pro- 
ceedings supplementary  to  execution,  if  the  statutes,  as 
they  frequently  do,  so  provide,  an  assignment  to  the 
receiver  of  property  situated  in  a  foreign  jurisdiction 
may  be  directed  and  he  may  pursue  said  property  by  suit 
or  otherwise,  although  the  court  would  refuse  this  author- 
ity in  the  case  of  property  over  w^hich  it  would  not  appoint 
a  receiver  if  it  were  located  at  home.^ 

5.   Receiverships  in  Respect  to  Bulk  Sales. 

§  292.    General  Discussion  of  Subject. 

Another  statutory  aid  that  has  been  devised  to  protect 
creditors  against  fraud  on  the  part  of  their  debtors  and 
to  give  them  the  assistance  of  receivers  in  attaining  satis- 
faction of  their  claims  is  the  law  commonly  known  as  the 
''Bulk  Sales  Law."  Such  statutes  have  been  enacted  in 
most  of  the  states.  They  are  practically  similar  and  have 
been  given  similar  force  and  effect  by  the  interpretation 
placed  upon  them  by  the  courts. 

In  general  they  provide  that  sales  of  merchandise  stock 
by  a  merchant,  in  bulk  and  in  a  manner  different  from 
the  ordinary  course  of  trade,  shall  .be  deemed  fraudulent 
as  to  creditors,  unless  certain  requirements,  designed  to 
give  notice  of  the  proposed  sale  to  creditors,  are  complied 
with;  that,  if  such  presumptively  fraudulent  sales  are 
made,  the  purchaser  shall  upon  application  of  any  of  the 
creditors  of  the  seller  become  a  receiver  and  be  held 
accountable  to  such  creditors  for  all  the  merchandise  that 
came  into  his  possession  as  a  result  of  the  sale. 

487,  21  N.  E.  943;   Filkins  v.  Nun-  3  Toune   v.    Campbell,    35   Minn, 

nemacher,  81  Wis.  91,  51  N.  W.  79.  231,  28  N.  W.  254;   Harris  v.  Hib- 

2  Heyl  V.  Taylor,  137  App.  Div.  bard  (N.  J.),  71  Atl.  737;  Smith  v. 

641,  122  N.  Y.  Supp.  279.  Tozer,  42  Hun   (N.  Y.)   22. 


PROCEEDINGS  IX   AID  OF   GENERAL   CREDITORS. 


G87 


The  purpose  of  these  statutes  has  been  stated  as  fol- 
lows: "The  object  of  the  act  was  to  suppress  a  wide- 
spread evil,  well  known  to  current  history  and  condemned 
by  repeated  adjudications  in  this  court  and  in  all  the 
leading  courts  of  the  state  from  time  out  of  mmd.  Tnat 
evil  is  the  tendencv  and  practice  of  merchants  who  are 
heavily  in  debt  to  make  secret  sales  of  their  merchandise 
in  bulk  for  the  purpose  of  defrauding  creditors."^ 

It  has  been  held  that  for  the  purpose  of  securing  the 
benefits  that  follow  to  creditors  from  having  a  sale  de- 
<3lared  fraudulent  the  statute  can  be  set  in  motion  only  by 
a  plenary  action  brought  by  any  creditor  on  behalf  of 
himself  and  all  other  creditors.- 

The  action  is  on  behalf  of  all  of  the  creditors  and  may 
be  instituted  by  any  creditor.  Mere  contract  creditors 
may  establish  their  claims  in  the  action,  and  participate 
in  its  benefits;  the  "judgment  creditor"  rule  does  not 
apply.  In  this  respect  the  suit  differs  from  the  equity 
suits  heretofore  in  this  chapter  considered.^ 

The  purpose  of  the  suit  is  not  to  set  aside  the  sale,  but 
to  impound  the  proceeds  for  the  benefit  of  the  creditors 
of  the  seller.  The  statute  in  declaring  the  purchaser  a 
''receiver"  does  not  use  that  term  in  the  ordinary  sense. 
It  simply  indicates  that  the  purchaser  is  a  trustee  for 
the  benefit  of  the  creditors  of  the  seller.    The  sale  is  void 

1  Wright  V.  Hart,  182  N.  Y.  330,  The  statute  does  not  apply  to 
3  Ann.  Cas.  263,  2  L.  R.  A.  (N.  S.)  sales  of  fixtures.  Saqui  v.  Wir- 
338,  75  N.  E.  404.  icks,  167  N.  Y.  Supp.  661. 

2  In  re  Perman,  172  App.  Div.  Creditors  may  proceed  notwith- 
14,  157  N.  Y.  Supp.  971;  Apex  g^^nding  the  death  of  an  insolvent 
Leasing  Co.  v.  Litke,  93  Misc.  Rep.  ^^^^^^  ^^^^^^  ^  Vanderkoll<, 
353,  158  N.  Y.  Supp.  21.  ^^  ^^^    ^04,  149  N.  W.  401. 

The  act  can  not  be  set  in  opera-  .„,    ,..  ,, 

tion    on    the    basis    of    testimony  3  Coffey  v.  McGahey,  181  Mich, 

alen    in    proceeding    supplemen-  225.     Ann.     Cas.     1916C      923      148 

tary     to     execution     against     the  N.  W.  356;   Touns  v.  Karantzahs. 

debtor      Kaphan   v.   Rogers,    etc.,  170  App.  Div.  42,  156  N.  Y.  Supp. 

Co     169   App    Div.   63,   154   N.   Y.  526;   Matter  of  P.  Partene  &  Co., 

supp.  753.       ■  156  N.  Y.  Supp.  524. 


688  LAW   OF   RECEIVERS. 

and  tlie  purchaser  holds  the  property  with  the  obligation 
of  accounting  for  it  and  its  proceeds.  The  creditors  may 
have,  at  the  institution  of  the  action,  an  injunction  for- 
bidding the  purchaser  from  disposing  of  the  goods  or  the 
proceeds  thereof.  On  proving  their  case,  a  receiver,  in 
the  ordinary  sense,  may  be  appointed  and  the  seller  will 
be  ordered  to  account  to  this  receiver  for  the  goods  and 
their  proceeds.^ 

4  Coffey  V.  McGahey,   181  Mich.  Supp.    21;    Toiiris    v.    Karantzalis, 

225,    Ann.     Cas.     1916C,     923,     148  170  App.  Div.  42,  156  N.  Y.   Supp. 

N.   W.   356;    Apex   Leasing   Co.   v.  526,  528;   Matter  of  P.  Pastene  & 

Litke,  93  Misc.  Rep.  353,  158  N.  Y.  Co.,  156  N.  Y.  Supp.  524. 


CHAPTER  XIII. 

PRIVATE  CORPORATIONS. 

1.  General  Rules  Respecting  Corporation  Receiverships. 
§  293.    General  Nature  of  Receiverships  of  Corporations. 

It  has  appeared,  from  many  of  the  authorities  cited  in 
preceding  chapters,  that  some  of  the  receiverships  therein 
considered  have  been  held  to  be  applicable  to  the  affairs 
of  a  corporation  equally  as  well  as  to  the  affairs  of  an 
individual.  A  corporation  may  be  a  mortgagor  or  a 
mortgagee,  a  lessor  or  a  lessee,  a  creditor  or  a  debtor, 
or  may  assume  any  of  the  numerous  relationships  caused 
by  business  transactions  between  individuals.  In  these 
relationships  a  corporation  has,  of  course,  the  same 
rights  and  liabilities  as  and  is  treated  as  an  individual. 
Such  receiverships  as  those  created  in  mortgage  fore- 
closure suits  and  in  suits  by  judgment  creditors  to  reach 
equitable  assets,  not  accessible  by  execution,  are  allowed 
without  reference  to  the  character  of  the  party  or  the 
nature  of  the  property  involved.^  In  such  cases  the  re- 
ceiver is  appointed  to  impound  property  for  a  ''specific" 
purpose,^  and  the  property  he  seizes  may  be  that  of  a 
corporation  as  well  as  that  of  an  individual.^ 

1  Decker  v.  Gardner,   124  N.  Y.  lating    specially    to    receivers    of 

334    11  L    R.  A.  480,  26  N.  E.  814.  corporations.     Decker  v.  Gardner, 

^  2'Equitable    Trust  Co.   V.   Great  124  N.  Y.  334,  11  L.  R.  A.  480,  26 

Shoshone,  etc.,  Co.,  245  Fed.  697,  N.    E.    814;    United    States    Trust 

158  C   C   A   99  ^o-  ^-  ^^^  York,  etc.,  R.  Co.,  101 

3  Where     the     defendant    in     a  N.  Y.  478,  5  N.  E.  316. 

mortgage  foreclosure  action  was  a  A  judgment  creditor  of  a  corpo- 

corporation  it   was  held   that  the  ration,  without  levying  execution, 

tees   of  the    receiver    were    to   be  commenced    suit   in   an   Arkansas 

determined    under   the    provisions  state  court,  alleging  among  other 

of  a  statute  relating  to  receivers  things,     that,     because    the    com- 

gcnerally  and  not  of  a  statute  re-  '^any's     properties     were     heavily 
I  Rec— 44                                                     (689) 


690 


LAW   OF    RECEIVERS. 


It  is  not  our  purpose  in  this  chapter  to  enlarge  upon 
the  consideration  that  has  formerly  been  given  to  these 


mortgaged  it  would  be  useless  to 
collect  his  judgment  by  execution 
and  that  the  company  was  using 
its  income  for  betterments,  In- 
stead of  paying  its  debts.  A  re- 
ceiver was  appointed  by  the  state 
court.  The  case  was  transferred 
to  a  federal  court  and  the  receiv- 
ership was  vacated  on  the  ground 
that  the  action  was  collusive. 
The  case  reached  the  U.  S.  Su- 
preme Court  on  a  question  con- 
nected with  distribution.  That 
court  held  that  the  state  court  had 
jurisdiction  to  appoint  a  receiver 
because  the  action  was  in  the  na- 
ture of  a  creditor's  suit  to  reach 
equitable  assets;  that  the  company 
had  waived  the  defense  that  there 
had  not  been  a  return  of  execution 
nulla  bona;  that  the  fact  that  the 
receivership  was  due  to  fraudu- 
lent collusion  between  the  plaintiff 
and  the  company  did  not  defeat  the 
former's  rights  on  distribution; 
and  that  he  was  entitled,  as  far  as 
the  earnings  of  the  property  in 
the  receiver's  hands  were  con- 
cerned, to  priority  over  the  mort- 
gagee on  the  ground  that,  al- 
though the  mortgage  expressly 
covered  earnings,  the  mortgagee 
was  not  entitled  to  them  until  he 
had  secured  a  lien  upon  them  by 
the  appointment  of  a  receiver,  at 
his  instance.  Sage  v.  Memphis, 
etc.,  R.  Co.,  125  U.  S.  361,  31 
L.  Ed.  694,  8  Sup.  Ct.  887. 

A  stockholder  of  a  corporation 
commenced  a  suit  against  another 
company  to  collect  money  due  the 
former.  A  receiver  was  appointed, 
"in  aid  of  a  judgment"  in  favor  of 
the  plaintiff,  to  receive  the  money 
and  pay  it  over  to  the  corporation, 


the  real  party  in  interest.  Fox  v. 
Hale  &  Norcross,  etc.,  Min.  Co. 
108  Cal.  475,  41  Pac.  328. 

In  a  mortgage  foreclosure  suit 
against  a  corporation  creditors  in- 
tervened. In  a  suit  by  the  re- 
ceiver over  a  disputed  claim  as  to 
the  ownership  of  certain  stock, 
the  question  of  jurisdiction  on  the 
ground  of  diversity  of  citizenship 
being  raised,  the  action  was  held 
to  be  ancillary  to  the  receivership 
proceedings,  on  the  ground  that 
the  receivership  was  "general," 
for  the  benefit  of  creditors,  and 
not  simply  "special,"  for  the  bene- 
fit of  bondholders.  Vallery  v.  Den- 
ver &  R.  G.  R.  Co.,  236  Fed.  176, 
177,  149  C.  C.  A.  366. 

Upon  the  favorable  outcome  of 
an  action  to  recover  stock  in  a 
corporation,  a  receiver,  "in  aid  of 
the  judgment,"  was  appointed  to 
see  that  the  stock  was  issued,  and 
a  referee  appointed  to  conduct  an 
election  of  directors.  King  v. 
Barnes,  113  N.  Y.  655,  21  N.  E.  184, 
affirming  51  Hun  550,  4  N.  Y.  Supp. 
247. 

Although  it  was  held  that  a  cer- 
tain creditor's  suit  based  upon 
liability  for  unpaid  stock  subscrip- 
tions of  stockholders  in  a  foreign 
corporation  could  not  be  main- 
tained under  a  certain  state  stat- 
ute, it  was  suggested  that,  by 
proper  amendment  as  to  parties, 
it  could  be  maintained  as  an  ac- 
tion to  reach  equitable  assets. 
Randall  Printing  Co.  v.  Sanitas 
Mineral  Water  Co.,  120  Minn.  268, 
43  L.  R.  A.  (N.  S.)  706,  139  N.  W. 
606. 

In  an  action  to  foreclose  a  cor- 
poration  mortgage,   on   the   inter- 


PRIVATE   CORPORATIONS. 


691 


special  receiverships.  We  are  liere  to  be  concerned  witli 
strictly  corporation  receiverships.  These  receiverships 
are  created  to  protect  rights  and  interests  that  develop 
because  the  business  engagements  concerned  are  con- 
ducted by  and  the  properties  are  owned  by  an  organiza- 
tion cast  in  corporate  form.  They  grow  out  of  the  rela- 
tion between  the  corporation  and  its  officers,  on  the  one 
hand,  and  either  its  stockholders  or  its  creditors  on  the 
other.  It  is  the  peculiar  characteristic  of  these  receiver- 
ships that  the  receiver  assumes  control  of  all  of  the  prop- 
erty and  the  business  of  the  corporation,  ''for  the  pro- 
tection and  preservation  of  all  rights  and  interests  therein 


vention  of  creditors,  the  court 
properly  extended  the  foreclosure 
receivership  into  a  "general"  re- 
ceivership and  attained  jurisdic- 
tion to  order  the  receiver  to  seize 
and  sell  all  of  the  corporate  prop- 
erty. Pilliod  V.  Angola  Ry.  & 
Power  Co.,  46  Ind.  App.  719,  91 
N.  E.  829. 

Two  corporations,  engaged  in 
publishing  newspapers,  entered 
into  an  agreement  under  which 
they  combined  their  properties 
and  published  a  single  paper.  Dis- 
sensions arose  between  the  two  in- 
terests and  an  action  was  com- 
menced in  which  a  receiver  was 
prayed  for.  It  was  held  that  the 
agreement  created  a  partnership 
between  the  two  corporations  and 
that  a  receiver  could  be  appointed 
under  principles  governing  such  a 
relationship.  News-Register  Co. 
V.  Rockingham  Pub.  Co.,  118  Va. 
140,  86  S.  E.  874. 

In  Bouker  Contracting  Co.  v. 
W.  H.  Callahan  Contracting  Co., 
218  N.  Y.  321,  113  N.  E.  257,  it 
was  held  that  the  statute  concern- 
ing  "supplementary    proceedings" 


was  not  applicable  to  a  corpora- 
tion debtor  because  of  the  exist- 
ence   of   a   statute    specially    con- 
cerning receivers  of  corporations. 
In    other   words    a   receiver   ap- 
pointed   for   a   corporation    under 
the  General  Corporation  Law  acts 
for    the    benefit    of    all    creditors, 
whereas  a  receiver  in  supplemen- 
tary  proceedings   represents   only 
the  creditor  who  procured  his  ap- 
pointment    together     with     such 
other  creditors  who  have  had  the 
receivership     extended     to    cover 
their  claims. 

In  Murray  v.  Keeley  Institute, 
etc.,  190  Mich.  295,  157  N.  W. 
87,  a  corporation  receiver  was 
prayed  for.  The  court  viewed  the 
action  as  a  contest  between  part- 
ners. A  receiver  was  appointed 
to  take  possession  of  and  sell  the 
stock  that  was  counted  to  be  the 
assets  of  the  partnership,  and  to 
protect  the  value  of  the  stock  pen- 
dente lite  the  corporation  was  en- 
joined from  disposing  of,  seques- 
tering, or  encumbering  its  assets. 
In  many  opinions  we  find  courts 
justifying  the  appointing  of  a  re- 
ceiver over  the  affairs  of  an  ordi- 


692  LAW   OF    RECEIVERS. 

existing  at  tlie  time  of  the  appointment. '  '^  In  connection 
with  these  corporation  receiverships  certain  peculiar 
points  arise  with  reference  to  the  powers  and  duties  of 
the  receiver  and  these  matters  will  be  presented  in  this 
chapter.  Certain  corporations,  such. as  railroads,  banks, 
and  the  various  public  utilities,  have  a  sort  of  public  char- 
acter and,  in  connection  with  receiverships  of  such  cor- 
porations, special  points  arise,  growing  out  of  the  fact 
that  the  general  public  has  a  certain  interest  in  the  con- 
duct and  continuance  of  their  business.  These  special 
points  will  be  considered  in  separate  chapters,  although 
cases  involving  such  corporations  are  here  used  as 
authority,  where  the  points  involved  are  applicable  to 
corporation  receivers  in  general.  Certain  matters  of 
application  to  all  classes  of  corporation  receiverships  are 
presented  in  this  opening  division  of  the  chapter. 

§  294.    Receiverships  at  the  Instance  of  a  Corporation  or  With 
Its  Consent. 

It  has  appeared  in  connection  vnth  the  special  receiver- 
ships heretofore  discussed  that  a  corporation  may  be  the 
successful  applicant  for  the  appointment  of  a  receiver. 
It  mil  also  appear  that  a  corporation  may  be  the  success- 
ful applicant  for  the  appointment  of  a  corporation  re- 
ceiver of  another  corporation.  Either  for  practical  rea- 
sons,^  or  from  the  nature  of  the  matter,  it  does   not 

nary  business  corporation  on  the  Shoshone,  etc.,  Co.,  245  Fed.  697, 
ground  of  an  analogy  between  158  C.  C.  A.  99. 
such  corporations  and  partner-  i  Creditor's  or  stockholder's  re- 
ships  and  on  the  ground  of  the  ceiver  actions  against  corporations 
well  recognized  jurisdiction  of  are  frequently  brought  by  pre- 
courts  to  appoint  receivers  over  arrangement  with  the  corporation 
partnership  affairs.  Benedict  v.  and,  unless  actual  fraud  is  in- 
Columbus  Construction  Co.,  49  volved,  such  an  arrangement  is 
N.  J.  Eq.  23,  23  Atl.  485;  Booth  v.  considered  legitimate.  The  ar- 
Summit  Coal  Min.  Co.,  55  Wash.  rangement  is  frequently  made  for 
167,  19  Ann.  Cas.  1255,  104  Pac.  the  purpose  of  bringing  the  action 
207.  within  the  jurisdiction  of  a  federal 
4  Equitable    Trust   Co.   v.   Great  court  on  the  grounds  of  diversity 


PRIVATE   CORPORATIONS. 


G93 


frequently  appear  that  a  corporation  has  applied  for  the 
appointment  of  a  corporation  receiver  of  its  own  affairs. 
It  has,  however,  been  held  that,  when  its  affairs  were  in 
such  shape  that  a  receiver  might  properly  be  appointed 
at  the  instance  of  a  creditor  or  a  stockholder,  the  corpo- 
ration might  itself  present  its  condition  to  a  court  and 
have  a  receiver  appointed  to  handle  its  own  affairs. - 

Doubtless  in  many  instances  a  corporation  which  is  in 
failing  financial  circumstances  has  sought  the  instrumen- 
tality of  a  creditor  in  instituting  proceedings  against  it, 
which  will  result  in  the  appointment  of  a  receiver  over 
its  affairs,  for  the  purpose  of  preserving  them  for  the 
benefit  of  all  creditors.  In  such  circumstances  the  cor- 
poration generally  admits  the  receivership  facts.  It  is 
the  duty  of  the  court  where  such  a  procedure  takes  place 
to  be  astute  in  its  examination  of  the  facts  to  ascertain 


of  citizenship.  In  re  Reisenberg 
(Receivership  of  Metropolitan  St. 
Ry.  Co.),  208  U.  S.  90,  52  L.  Ed. 
403,  28  Sup.  Ct.  219. 

For  an  interesting  comment  on 
this  practice  from  the  point  of 
view  of  the  amount  of  worlt  it  has 
thrown  on  federal  courts,  see 
Quincy,  etc.,  R.  Co.  v.  Humphreys, 
145  U.  S.  82,  36  L.  Ed.  632,  12  Sup. 
Ct.  787. 

2  In  an  action  against  a  street 
railway  company,  which  was  the 
lessee  of  another  company  as  to 
most  of  the  lines  which  it  was 
operating,  and  in  which  a  receiver 
of  the  lessee  company  was  ap- 
pointed, the  lessor  company  inter- 
vened and,  on  the  ground  of  the 
complete  merging  of  its  affairs 
with  those  of  its  lessee,  had  the 
receivership  extended  to  its  own 
affairs.  In  re  Reisenberg  (Receiv- 
ership of  Metropolitan  St.  Ry. 
Co.),  208  U.  S.  90,  52  L,  Ed.  403, 
28  Sup.  Ct.  219. 


A  corporation,  making  a  bond- 
holder a  defendant,  having  asked 
lor  a  receiver,  the  bondholder  on 
cross-complaint  for  foreclosure, 
asked  for  a  receiver  and  the  ap- 
pointment was  made  regardless  of 
the  propriety  of  the  corporation's 
application.  Lewis'  Administrator 
V.  Bowling  Green  Ry.  Co.,  155  Ky. 
681,  160  S.  W.  242. 

It  has,  however,  been  held  that, 
in  the  absence  of  special  statutory 
authority,  a  corporation  can  not 
with  propriety  appeal  to  a  court 
of  equity  for  a  receiver  to  wind  up 
its  affairs.  White  v.  Davis,  134 
Ga.  274,  67  S.  E.  716. 

A  statute  that  denies  to  a  cor- 
poration the  right  to  apply  for  a 
receiver  over  its  own  affairs  pro- 
hibits its  directors  from  making 
such  an  application.  Floore  v. 
Morgan  (Tex.  Civ.  App.),  175 
S.  W.  737. 

A  corporation  suing  to  recover 
property  of  its  own  on  the  claim 


694 


LAW   OP    RECEIVERS, 


Avhetlier  tlie  appointment  of  the  receiver  will  operate  as  a 
hardship  upon  other  creditors  of  the  corporation.^^ 

The  practice,  however,  of  a  corporation  which,  though 
not  insolvent  in  a  bankrupt  sense  but  temporarily  em- 
barrassed financially,  admitting  receivership  facts  set 
forth  in  a  petition  asking  for  a  receiver  is  quite  universal 
and  is  looked  upon  by  the  courts  as  proper  and  com- 
mendable, where  no  improper  collusion  exists  and  where 
it  is  obvious  that  the  receivership  will  operate  as  a  pro- 
tection to  not  only  the  creditors  but  also  the  stockholders 
of  the  corporation  in  preserving  its  assets  from  loss  or 
waste  in  litigation  or  the  payment  of  judgments  obtained 
by  some  creditors  at  the  expense  of  other  creditors  w^iose 
claims  have  not  yet  matured.^ 


that  it  had  been  wrongfully  dis- 
posed of  by  its  officers  may  have 
a  receiver  of  the  property  ap- 
pointed. American  &  British  Mfg. 
Co.  V.  Hoadley,  97  Misc.  Rep.  200, 
162  N.  Y.  Supp.  836;  Leigh  v. 
National  Hollow,  etc.,  Co,,  224  111. 
76,   79  N.  E.   318. 

3  "Where  the  rights  of  others 
would  be  interfered  with  by  the 
appointment  of  a  receiver,  and  an 
insufficient  showing  for  a  receiver 
is  made  the  court  will  refuse  to 
make  the  appointment  even 
though  the  litigants  are  willing  to 
consent  to  the  court  making  it. 
Whelpley  v.  Erie  Ry.  Co.,  6 
Blatchf.  271,  Fed.  Cas.  No.  17,504. 

Inasmuch  as  the  application  for 
a  receiver  always  calls  for  the  ex- 
ercise of  judicial  discretion,  the 
chancellor  should  so  mold  his  or- 
der that  while  favoring  one  cred- 
itor, injustice  is  not  done  to 
another.  If  this  can  not  be  done 
the  application  should  ordinarily 
be  denied.  Fosdick  v.  Schall,  99 
U.  S.  235,  253,  25  L.  Ed.  339,  343. 
See,  also,  New  England  R.  Co.  v. 


Carnegie  Steel  Co.,  75  Fed.  54,  21 
C.  C.  A.  219. 

Even  though  the  directors  con- 
sent to  the  appointment  of  a  re- 
ceiver on  an  application  made  by 
a  stockholder  under  statutory  pro- 
visions, other  stockholders  may  in- 
tervene and  show  fraud  in  the  ap- 
pointment. Thayer  v.  Kinder,  45 
Ind.  App.  Ill,  89  N.  E.  408,  90 
N.  E.  323. 

■i  In  the  case  of  Durand  &  Co. 
v.  Howard  &  Co.,  216  Fed.  585, 
L.  R.  A.  1915B,  998,  132  C.  C.  A. 
589,  a  receiver  was  appointed 
upon  the  defendant  corporation's 
answer  admitting  the  truth  of 
plaintiffs  allegations  and  in  its 
prayer  joining  with  plaintiff  for 
the  appointment.  It  was  alleged 
that  the  corporation  had  about 
$140,000  of  debts  owing  to  a  large 
number  of  creditors  and  without 
sufficient  funds  to  meet  its  obliga- 
tions or  the  necessary  credit  with 
which  to  borrow  money  and  that 
unless  a  receiver  were  appointed 
its  stock  of  merchandise  would  be 
sold  at  the  instance  of  other  cred- 


PRIVATE   CORPORATIONS, 


695 


We  see  no  objection  to  a  corporation,  in  circumstances 
as  above  stated,  setting  forth  its  condition  by  way  of 
answer  in  a  suit  by  a  hostile  creditor  and  asking  for  the 


itors  at  judicial  sales  at  a  great 
loss.  The  case  was  one  illustra- 
tive of  the  losses  in  assets  which 
result  from  a  scramble  of  various 
creditors  for  a  preference  pay- 
ment of  claims  and  the  action  of 
the  corporation  in  admitting  the 
facts  was  for  the  purpose  of  pre- 
serving its  assets  for  the  benefit 
of  all  of  its  creditors  without  go- 
ing into  bankruptcy. 

A  receiver  was  appointed  upon 
the  answer  of  the  defendant  cor- 
poration admitting  the  allegations 
of  the  bill  in  the  case  of  Graselli 
Chemical  Co.  v.  Aetna  Explosives 
Co.,  252  Fed.  456,  164  C.  C.  A.  380. 
The  defendant  was  engaged  in 
manufacturing  explosives.  Its 
property  at  a  fair  valuation  was 
more  than  sufficient  to  pay  all  of 
its  debts,  but  it  had  a  large 
amount  of  bonded  indebtedness 
and  also  a  large  indebtedness  for 
supplies.  Its  credit,  however,  was 
impaired  and  it  was  unable  to  ob- 
tain money  with  which  to  meet  its 
obligations  as  they  matured  in 
the  ordinary  course  or  to  conduct 
its  business  in  an  efficient  man- 
ner. It  was  alleged  that  an  at- 
tempt by  the  complainant  to  en- 
force its  claim  at  law  as  a  general 
creditor  would  precipitate  some 
action  by  other  creditors  which 
would  lead  to  wasteful  strife  and 
controversy  which  could  be 
avoided  by  a  receivership.  The 
petition  for  a  receiver  was 
granted.  It  may  also  be  noted 
that  the  receivers  so  conducted 
the  affairs  of  the  company  that  it 
became  not  only  free  from  its  gen- 


eral debts  but  produced  dividends 
and  was  in  a  position  to  soon  re- 
tire its  bonded  indebtedness. 

The  case  of  Wood  v.  Todd,  251 
Fed.  530,  is  another  instance 
where  a  receivership  was  success- 
fully employed  in  making  a  profit- 
able business  out  of  one  which  was 
insolvent  at  the  time  of  being 
placed  under  a  receivership. 

In  American  Can  Co.  v.  Erie 
Preserving  Co.,  171  Fed.  540  (af- 
firmed in  183  Fed.  96,  105  C.  C.  A. 
388),  the  jurisdiction  of  the  court 
was  alleged  as  arising  from  a 
diversity  of  citizenship  of  the  par- 
ties, the  insolvency  of  the  defen- 
dant corporation  and  the  fact  that 
unless  a  receiver  was  appointed 
for  the  corporation  its  property 
would  be  sacrificed,  and  asked  for 
a  dissolution  of  the  corporation. 
The  corporation  answered  admit- 
ting the  allegations  and,  consent- 
ing that  a  receiver  be  appointed, 
a  receiver  was  appointed.  The 
complainants  were  contract  cred- 
itors. The  court  said:  "Ordinar- 
ily a  receiver  can  not  be  ap- 
pointed for  a  corporation  at  the 
instance  of  a  creditor  who  has  not 
recovered  judgment  upon  his 
claim  and  exhausted  his  legal 
remedy.  Yet  where  a  defendant 
who  is  confessedly  insolvent  has 
waived  the  objection  that  a  com- 
])lainant  is  not  a  judgment  cred- 
itor, there  is  no  longer  room  for 
doubting  the  jurisdiction  of  a  fed- 
eral court  of  equity  to  appoint  a 
receiver.  In  re  Reisenberg  (Met- 
ropolitan Railroad  Receivership), 
208  U.  S.  90,  52  L.  Ed.  403,  28  Sup. 


696 


LAW   OP    RECEIVERS. 


appointment  of  a  receiver  for  the  purpose  of  protecting 
all  of  its  creditors  and  preventing  an  improper  prefer- 
ence of  some  of  its  creditors.  It  seems  to  ns  that  such  is 


Ct.  219,  Cook  on  Corporations  (6th 
ed.),  §863;  Tompkins  Co.  v.  Ca- 
tawba Mills    (C.   C),  82   Fed.   780. 

The  allegations  in  the  bill  that 
the  defendant  could  not  pay  its 
current  obligations  as  they  ma- 
tured, and  that  it  was  unable  in 
the  ordinary  course  of  its  business 
to  pay  its  existing  and  enforce- 
able liabilities,  was  a  proper  and 
sufficient  allegation  of  insolvency. 
Brouwer  v.  Harbeck,  9  N.  Y.  589, 
593,  16  Am.  &  Eng.  Ency.  of  Law 
636;  Buchanan  v.  Smith,  16  Wall. 
277,  21  L.  Ed.  280;  Herrick  v. 
Borst,  4  Hill  (N.  Y.)  650,  652. 

Insolvency  as  the  term  is  used 
in  equity,  is  clearly  differentiated 
from  the  meaning  which  is  given 
to  it  in  the  bankruptcy  act." 

In  Dickerman  v.  Northern  Trust 
Co.,  176  U.  S.  181,  44  L.  Ed.  423, 
20  Sup.  Ct.  311,  a  receiver  was  ap- 
pointed with  the  consent  of  the 
defendant  in  a  suit  to  foreclose  a 
mortgage  securing  a  bond  issue. 
The  question  of  collusion  arose  in 
the  case. 

In  Brown  v.  Lake  Superior  Iron 
Co.,  134  U.  S.  530,  33  L.  Ed.  1021, 
10  Sup.  Ct.,  604,  the  bill  was  by 
several  creditors  for  the  appoint- 
ment of  a  receiver  to  take  charge 
of  the  property  of  defendant.  The 
defendant  corporation  on  the  same 
day  accepted  service  of  the  mo- 
tion and  entered  its  appearance. 
An  order  pro  confesso  was  subse- 
quently entered.  One  of  the  com- 
plainants held  claims  not  yet  due 
and  the  other  a  judgment.  The 
bill  showed  that  vexatious  litiga- 
tion had  been  commenced  against 


defendant  and  accompanied  by  at- 
tachments and  that  other  similar 
litigations  were  threatened  and 
that  such  attachments  and  seiz- 
ures will  give  to  those  creditors 
an  unfair  advantage  and  priority 
over  the  complainants  whose 
claims  are  not  yet  due  and  cause 
them  irreparable  injury  and  dam- 
age and  that  the  property  of  the 
defendant  will  be  to  a  great  ex- 
tent destroyed  and  their  long  es- 
tablished business  destroyed  to 
the  detriment  of  complainant  and 
other  creditors  unless  protected 
by  a  receiver.  The  defendant  cor- 
poration raised  no  objection  to  the 
appointment  of  a  receiver  until  a 
considerable  time  had  elapsed. 
The  equity  of  the  bill  was  insisted 
on  the  ground  that  upon  the  in- 
solvency of  a  corporation  its  prop- 
erties become  a  trust  fund  for  the 
benefit  of  its  creditors  which  can 
be  seized  and  disposed  of  by  a  re- 
ceiver in  equitable  proceedings 
and  that  the  vast  interests  and 
properties  of  the  corporation  were 
threatened  with  disintegration  by 
the  attachment  suits.  In  support 
of  these  propositions  counsel  cited 
Terry  v.  Anderson,  95  U.  S.  628, 
24  L.  Ed.  365;  Union  Trust  Co.  v. 
Illinois  Midland  Ry.  Co.,  117  U.  S. 
434,  29  L.  Ed.  963,  6  Sup.  Ct.  809; 
Sage  V.  Memphis,  etc.,  R.  R.  Co., 
125  U.  S.  361,  31  L.  Ed.  694,  8  Sup. 
Ct.  887;  Mellen  v.  Moline  M.  Iron 
Works,  131  U.  S.  352,  33  L.  Ed. 
178,  9  Sup.  Ct.  781;  Barbour  v. 
National  Exchange  Bank,  45  Ohio 
St.  133,  12  N.  E.  5,  and  Rouse  v. 
Merchants  Nat.  Bank,  46  Ohio  St. 


PRIVATE   CORPORATIONS. 


G9' 


the  spirit  of  tlie  decisions  in  wliicli  receivers  were  ap- 
pointed with  the  consent  of  the  corporation. 

In  so  far  as  very  large  corporations  are  concerned  and 
particularly  those  engaged  in  a  public  service  or  those 


493,  15  Am.  St.  Rep.  644,  5  L.  R.  A. 
378,  22  N.  E.  293. 

The  court,  while  not  conceding 
that  the   bill   was   defective,   held 
that  objection  came  too  late  after 
such  a  long  acquiescence  in  pro- 
ceedings    which     obviously     had 
been  taken  with  its   consent.     In 
justifying  the  appointment  of  the 
receiver,      the      court,      speaking 
through  Mr.  Justice  Brewer,  said: 
"The    corporation    was    insolvent. 
Its  extensive  and  scattered  prop- 
erties had  been  brought  into  sin- 
gle ownership,  and  so  operated  to- 
gether that  large  benefits  resulted 
in  preserving  the  unity  of  owner- 
ship   and    operation.      Disintegra- 
tion was  threatened  through  sep- 
arate   attacks,    by    different    cred- 
itors,    on     scattered     properties. 
The    preservation    of    this    unity, 
with  its  consequent  value,  and  the 
appropriation  of  the  properties  for 
the    benefit    of    all    the    creditors 
equally,    were    matters    deserving 
large  consideration  in  any  proper 
suit.     Certain  creditors,  acting  for 
all,    initiated   proceedings   looking 
towards    this    end.      In    such    pro- 
ceedings   the    corporation    acqui- 
esced.     Substantially    all    of    the 
creditors   came  into   the   proceed- 
ings.    After   months   had    passed, 
much    business    had    been    trans- 
acted   and    large    responsibilities 
assumed,  the  corporation,  for  the 
benefit  of  a  few  creditors  and  to 
destroy  the  equality  between  all, 
comes  in  with  the  technical  objec- 
tion  that   the   creditors    initiating 
the  proceedings  should  have  taken 


one  more  step  at  law  before  com- 
ing into  equity.     But  the  maxim, 
"He    who    seeks    equity    must    do 
equity,"   is  as   appropriate  to   the 
conduct    of    the    defendant    as    to 
that   of   the   complainant;    and    it 
would  be  strange  if  a  debtor,  to 
destroy    equality    and    accomplish 
partiality,    could    ignore    its    long 
acquiescence  and  plead  an  unsub- 
stantial technicality  to  overthrow 
protracted,    extensive    and    costly 
proceedings  carried  on  in  reliance 
upon  its  consent.     Surely  no  such 
imperfection  attends  the  adminis- 
tration of  a  court  of  equity.    Good 
faith  and  early  assertion  of  rights 
are  as  essential  on  the  part  of  the 
defendant  as  of  the  complainant. 
In  New  England  R.  Co.  v.  Car- 
negie   Steel    Co..    75    Fed.    54,    21 
C.  C.  A.  219,  the  complainant  was 
the  holder  of  a  few  first  mortgage 
bonds    and    a    few    shares    of   the 
capital    stock    of    the    defendant 
railroad    company.      The    bill    al- 
leged   that    defendant    was    insol- 
vent and  that  its   system  was   in 
danger   of   being   broken   up,    and 
asked  no  final  relief  and  no  relief 
except  the  appointment  of  receiv- 
ers to  hold  the  system  intact  and 
to  protect  it  against  its  creditors. 
The   receiver   was    appointed   and 
the   Circuit   Court  of   Appeals,    in 
commenting     upon     the     appoint- 
ment, said:    "It  was  one  of  those 
anomalous    proceedings,    so    com- 
mon in  such  cases,  which  the  Su- 
preme  Court  has   never   formally 
approved     or     disapproved,     and 
which   has   been  tolerated   on   ac- 


698 


LAW    OF    RECEIVERS. 


involving  rights  and  liabilities  of  many  persons  it  is 
admitted  by  the  courts  that  the  practical  effect  of  a 


count  of  the  public  and  general 
interests  involved,  for  which  legis- 
latures have  given  no  protection 
under  such  emergencies.  Occa- 
sional criticism  has  been  ex- 
pressed against  the  courts  for  re- 
taining proceedings  of  this  class; 
yet,  as  is  usual  under  such  cir- 
cumstances, no  formal  objections 
appear  to  have  been  brought  to 
the  attention  of  the  court  in  this 
case.  While,  therefore,  we  can 
justly  presume  that  the  appoint- 
ment of  receivers  was  found  to 
have  been  for  the  common  inter- 
est, yet  we  must  refer  to  the  state 
of  the  record  in  these  particulars 
for  the  purpose  of  explaining  that 
the  receivers,  at  that  stage,  stood 
practically  for  the  corporation  it- 
self, with  all  of  its  rights  and 
powers,  subject  to  such  limitations' 
and  directions  as  might  be  given 
by  the  court." 

In  this  connection  see,  also, 
Scott  V.  Farmers'  Loan  etc.  Co., 
69  Fed.  17,  16  C.  C.  A.  358. 

In  Burton  v.  R.  G.  Peters  Salt 
etc.  Co.,  190  Fed.  262,  a  receiver 
was  appointed  over  an  insolvent 
corporation  which  had  consented 
to  the  appointment. 

See,  also,  Moe  v.  Thomas  Mc- 
Nally  Co.,  138  App.  Div.  480,  123 
N.  Y.  Supp.  71;  Union  Trust  Co. 
V.  Southern  etc.  Lumber  Co.,  166 
Fed.  193,  92  C.  C.  A.  101;  Horn  v. 
Pere  Marquette  R.  Co.,  151  Fed. 
626;  Ex  parte  Equitable  Trust  Co., 
231  Fed.  571,  145  C.  C.  A.  457; 
In  re  Reisenbarg  (Metropolitan 
Railroad  Receivership),  208  U.  S. 
90,  52  L.  Ed.  403,  28  Sup.  Ct.  219. 

In  this  connection  see,  also,  sec- 
tion 20,  supra. 


As  to  whether  the  president  of 
the  corporation  may  consent  to 
the  appointment  of  a  receiver. 
See  Nesbit  v.  North  Georgia  etc. 
Co.,  156  Fed.  979. 

But  it  has  been  held  that  a  re- 
ceivership will  not  be  continued 
for  the  mere  purpose  of  giving  a 
corporation  an  opportunity  to 
finance  itself  in  order  to  pay  its 
debts.  Duncan  v.  George  C.  Tread- 
well  Co.,  82  Hun  376,  31  N.  Y. 
Supp.  340. 

And  where  it  is  not  claimed 
that  the  corporation  is  insolvent 
or  mismanaged,  a  receiver  will 
not  be  appointed  merely  because 
suits  against  it  are  threatened  and 
its  assets  for  that  reason  liable  to 
be  depreciated  and  wasted.  Nowell 
V.  International  Trust  Co.,  169 
Fed.  497,  94  C.  C.  A.  589. 

Upon  a  showing  that  the  re- 
ceiver was  appointed  at  the  in- 
stance of  the  corporation  to  tide 
it  over  difficulties,  he  may  be  dis- 
charged and  a  new  one  appointed. 
Phinizy  v.  Augusta  etc.  R.  Co.,  56 
Fed.  273. 

And  other  creditors  may  inter- 
vene where  the  corporation  has 
fostered  a  collusive  suit  for  its 
dissolution  and  the  appointment 
of  a  receiver.  Taber  v.  Royal  Ins. 
Co.,  124  Ala.  681,  26  So.  252. 

Where  the  corporation  is  sol- 
vent and  a  going  concern  a  re- 
ceiver should  not  be  appointed 
over  it  where  it  is  obvious  that 
the  only  purpose  of  the  appoint- 
ment is  to  prevent  creditors  from 
enforcing  their  claim  through  the 
ordinary  processes  of  the  law.  The 
object  of  a  receivership  should  be 
to  preserve  the  assets  for  the  ben- 


PRIVATE    CORPORATIONS.  G99 

receiversliip  in  sncli  cases  is  in  most  cases  an  instrument 
for  consummating  plans  of  reorganization.^ 

The  basic  principle  underlying  the  action  of  the  courts 
in  cases  of  this  kind  is  the  preservation  of  the  assets  of 
the  corporation  for  the  benefit  of  all  interested  parties  in 
the  face  of  a  threatened  loss  by  preferential  and  wasteful 
litigation.  Such  a  situation  very  frequently  arises  in 
respect  to  large  business  concerns  during  critical  finan- 
cial times.  The  elastic  powers  of  a  court  of  equity  in  such 
circumstances  was  very  aptly  expressed  by  Judge  Man- 
ton  of  the  Circuit  Court  of  Appeals  in  a  well  considered 
case*^  in  which  he  said:  "A  court  of  equity's  modes  of 
relief  are  not  fixed  and  rigid.  It  can  mold  its  remedies  to 
meet  the  conditions  with  wdiicli  it  has  to  deal.  The  juris- 
diction of  equity  is  the  whole  domain  of  conscience,  lim- 
ited only  by  legislative  enactment.  The  faculty  of  equity 
nmst  be  energetic,  productive,  and  progressive.  But  to 
exercise  this  right  of  the  court  of  equity  there  must  be 
some  show  of  an  injustice  attempted  or  about  to  be  per- 
petrated upon  the  petitioners.  ...  In  the  absence  of 
power  created  by  legislation  in  this  country,  the  federal 
judges,  sitting  in  courts  of  equity,  have  endeavored  to 
secure  the  rights  of  those  interested,  including  the  stock- 
holders at  the  time  of  readjustment  of  large  corporations, 
a  protection  to  meet  the  needs  of  the  occasion.  Changing 
times,  with  change  in  economic  needs,  require  the  courts 
of  equity  to  mold  remedies  to  meet  the  conditions  with 
which  they  have  to  deal." 

§  295.    Discretion  of  Court  in  Making  the  Appointment. 

The  general  rule,  that  the  appointment  of  a  receiver  is 
not  a  matter  of  right,  but  is  a  matter  to  be  decided  by  the 

efits  of  creditors.    Cronan  v.  Dis-  ingly    on    this    point    In    Graselli 

trict  Court,  15  Idaho  184,  96  Pac.  Chemical  Co.  v.  Aetna  Explosives 

768.  Co.,  252  Fed.  456,  164  C.  C.  A.  380. 

'o  Guaranty  Trust  Co.  v.  Missouri  f>  Graselli  Chemical  Co.  v.  Aetna 

Pac.   Ry.   Co.,   238   Fed.   812.    The  Explosives  Co.,  252  Fed.  456,  164 

above  case  was  also  cited  approv-  C.  C.  A.  380. 


700  LAW   OF   RECEIVERS. 

court  in  the  exercise  of  a  non-arbitrary,  judicial  discre- 
tion, applies  to  the  appointment  of  a  corporation  receiver 
as  well  as  to  the  appointment  of  other  classes  of  receiv- 
ers.^ Indeed,  it  is  probably  true  that  in  corporation  cases, 
even  though  the  propriety  of  an  appointment  might  go 
unquestioned,  the  necessity  for  the  appointment  requires 
greater  scrutiny  than  in  other  cases.  It  is  to  be  remem- 
bered that  a  corporation  receiver  generally  assumes  con- 
trol of  all  of  the  property  and  of  the  business  of  the 
corporation,  and  that  his  appointment  has  a  drastic 
effect  upon  the  right  of  creditors  to  collect  their  debts. 
From  a  purely  technical  point  of  view  it  is  to  be  consid- 
ered that  by  law  this  control  is  placed  in  certain  corporate 
officers  and  it  is  a  drastic  measure  to  deprive  them  of 
their  legal  authority.-  The  appointment,  when  without 
the  consent  of  the  corporation  itself,  is  likely  to  impair 
seriously  the  credit  of  the  corporation.  It  imposes  a 
heavy  burden  upon  the  court,  an  institution  not  well 
equipped  nor  disposed  to  carry  on  a  business.^  The  re- 
ceiver represents  not  the  applicant  alone  but  all  inter- 
ested parties ;  and  the  desire  of  the  applicant  deserves  no 
greater  consideration,  perhaps,  than  that  of  others  in  the 
same  relation  to  the  corporate  affairs.'*  In  the  case  of  a 
corporation  supplying  a  widely  used  commodity  or  ser- 
vice the  interests  of  the  public  may  be  properly  consid- 

1  Baltimore  Bargain  House  v.  "The  doctrine  which  justifies 
St.  Clair,  58  W.  Va.  565,  52  S.  E.  the  drastic  intervention  of  equity 
660.  courts  in  corporate  affairs     .     .     . 

2  Laurel  Springs  Land  Co.  v.  is  grounded  on  the  theory  that  the 
Fougeray,  50  N.  J.  Eq.  756,  26  Atl.  valuable  rights  of  minority  stock- 
886.  Fougeray  v.  Cord,  50  N.  J.  holders  can  be  rescued,  along  with 
Eq.  185,  24  Atl.  499.  those   of   a  recalcitrant   majority, 

3  Shera  v.  Carbon  Steel  Co.,  245  from  a  common  ruin.  It  does  not 
Fed.  589.  contemplate  the   infliction  of  any 

4  Heitkamp  v.  American  Pig-  loss  or  injury  upon  the  majority 
ment  &  Chemical  Co.,  158  111.  App.  stockholders  in  order  that  the 
587;  Frost  v.  Puget  Sound  Realty  minority  may  be  benefited.  To 
Associates,  57  Wash.  629,  107  Pac.  help  the  one  class  by  hurting  the 
1029.  other    would    be    an    indefensible 


PRIVATE    CORPORATIONS. 


701 


eretl.-^  In  tlie  case  of  stockholders  it  is  to  be  considered 
that  they  have  contracted  to  abide  by  the  decision  of  the 
majority  and,  for  the  most  part,  if  they  are  dissatisfied 
or  disappointed  they  are  privileged  to  sell  their  stock  and 

retire.^ 

Even  where  there  is  a  statute  authorizing  the  appoint- 
ment under  certain  conditions,  the  appointment  is  held 
to  be  discretionary  and  dependent  as  much  upon  its  neces- 
sity as  upon  its  propriety;'  except  in  the  case  of  a  statute 


wrong."  Phinizy  v.  Anniston  City 
Land  Co.,  195  Ala.  656,  71  So.  469. 
In  Aldrich  v.  Union  Bag  etc. 
Co.,  81  N.  J.  Eq.  244,  87  Atl.  65,  a 
receiver  was  sought  by  minority 
stockholders  on  the  ground  that 
the  board  of  directors  were  fraud- 
lilently  mismanaging  the  business 
by  means  of  commissions  and 
agency  contracts,  all  of  which  acts 
extended  over  a  period  of  years. 
The  court  refused  to  make  the 
appointment  pending  the  suit  on 
the  ground  that  no  irreparable  in- 
jury would  result  the  awaiting  of 
the  few  months  which  would 
elapse  until  the  final  hearing  on 
the  complaint. 

5  A  receiver  was  refused  over 
the  property  of  a  large  corpora- 
tion controlling  the  tobacco  in- 
dustry on  the  ground  of  not  only 
injury  to  the  general  public  but 
of  widespread  loss  to  innocent 
persons.  United  States  v.  Amer- 
ican Tobacco  Co.,  221  U.  S.  106, 
55  L.  Ed.  663,  31  Sup.  Ct.  632  (re- 
versing decree  in  164  Fed.  700). 

The  court  will  not  appoint  a 
receiver  upon  the  dissolution  of  a 
combination  in  violation  of  the 
Anti-Trust  Act  where  it  is  not 
necessary  to  accomplish  this  pur- 
pose. United  States  v.  Great 
Lakes  Towing  Co.,  217  Fed.  656. 


G  Metropolitan  Fire  Ins.  Co.  v. 
Middendorf,  171  Ky.  771,  188  S.  W. 
790;  Inscho  v.  Mid-Continent  De- 
velopment Co.,  94  Kan.  370,  Ann. 
Cas.  1917B,  546,  146  Pac.  1014. 

"The  Independent  Brewing 
Assoc,  was  a  prosperous,  solvent, 
going  concern,  and  the  evidence 
does  not  show  that  it  was  neces- 
sary for  the  preservation  of  the 
rights  of  appellants  (minority 
stockholders)  that  it  should  be 
taken  from  control  of  its  officers 
who  had  managed  it  successfully 
for  many  years  notwithstanding 
their  wrongful  conduct  in  the  pur- 
chase of  certain  property."  Klein 
V.  Independent  Brewing  Assn.,  231 
111.  594,  83  N.  E.  434. 

7  Thoroughgood  v.  Georgetown 
Water  Co.,  9  Del.  Ch.  84,  77  Atl. 
720;  McMullin  v.  McArthur  Elec- 
tric Mfg.  Co.,  73  N.  J.  Eq.  527,  68 
Atl.  97;  In  re  People's  Surety  Co. 
of  New  York,  82  Misc.  Rep.  518, 
144  N.  Y.  Supp.  131. 

If  there  be  doubt  as  to  the  proof 
of  the  insolvency  under  a  statute 
allowing  receivers  upon  a  showing 
of  insolvency  the  court  should  re- 
fuse to  make  the  appointment. 
Whitmer  v.  William  Whitmer  & 
Sons,  Inc.,  (Del.  Ch.),  99  Atl.  428. 
Where  a  corporation  is  in  a 
prosperous   condition  and   its  offi- 


702 


LAW   OF    RECEIVERS. 


providing  for  tlie  dissolution  of  a  corporation  and  leav- 
ing a  receivership  as  tlie  only  means  of  winding  up  its 
affairs  and  distributing  its  assets.^ 

The  appointment  will  not  be  made  if  the  applicant  has 
been  guilty  of  laches,  or  of  acquiescence  in  the  wrong- 
complained  of  ;^  when  the  expense,  or  other  disadvantage, 
mil  outweigh  the  advantage  ;^*^  when  some  other  remedial 
relief  is  open  to  plaintiff  ;^^  or  when  preventive  relief  will 


cers  in  a  position  to  respond  in 
damages,  the  court  should  refuse 
to  appoint  a  receiver  at  the  in- 
stance of  minority  stockholders 
who  claim  that  the  officers  are  vio- 
lating their  duties.  Metzger  v. 
Knox,  77  Misc.  Rep.  271,  136  N.  Y. 
Supp.  681  (affirmed  in  153  App. 
Div.  911,  137  N.  Y.  Supp.  1129). 

8  Conlan  v.  Oudin,  49  Wash.  240, 
94  Pac.  1074. 

9  Brookshire  v.  Farmers'  Alli- 
ance Exchange,  73  S.  C.  131,  52 
S.  E.  867;  Baltimore  Trust  Co.  v. 
George's  Creek  Coal  &  Iron  Co., 
119  Md.  21,  85  Atl.  949;  Ridpath 
V.  Sans  Foil  etc.  Transportation 
Co.,  26  V^ash.  427,  67  Pac.  229; 
Eggleston  v.  Pantages,  93  Wash. 
221,  160  Pac.  425;  Grant  v.  Monte- 
rey Gold  Mining  Co.,  93  Wash.  1, 
159  Pac.  895. 

Thus  where  there  has  been  no 
change  in  the  affairs  since  the 
plaintiff  was  president  of  a  cor- 
poration, a  receiver  will  not  be 
appointed  over  it  at  the  instance 
of  such  former  president  upon  his 
allegations  of  conspiracy  on  the 
part  of  certain  stockholders  to 
sell  its  property  at  less  than  its 
value  and  especially  after  the 
lapse  of  six  years.  Bergman  Clay 
Mfg.  Co.  V.  Bergman,  73  Wash. 
144,  131  Pac.  485. 

10  Feess     v.     Mechanics'     State 


Bank,  84  Kan.  828,  L.  R.  A.  1915A, 
606,  115  Pac.  563. 

Nor  will  a  receiver  be  appointed 
over  a  corporation  if  relief  from 
the  alleged  mismanagement  can 
be  had  by  injunction.  United  Elec- 
tric etc.  Co.  V.  Louisiana  Electric 
Light  Co.,  68  Fed.  673;  Common- 
wealth Title  Ins.  etc.  Co.  v.  Selt 
zer,  227  Pa.  410,  136  Am.  St.  Rep. 
896,  76  Atl.  77. 

11  Chilton  V.  Bell  County  Coke 
&  Improvement  Co.,  153  Ky.  775, 
156  S.  W.  889;  Hartnett  v.  St 
Louis  Min.  &  Mill.  Co.,  51  Mont. 
S95,  153  Pac.  437. 

A  lienholder  must  resort  to  his 
lien,  rather  than  to  receivership. 
Galvin  v.  McConnell,  53  Tex.  Civ. 
486,  117  S.  W.  211. 

Where  relief  other  than  by  re- 
ceivership could  be  had  for  dissi- 
pation cf  its  assets,  the  appoint- 
ment of  a  receiver  will  be  refused. 
Smith  v.  Chase  &  Baker  Piano 
Mfg.  Co.,  197  Fed.  466. 

The  fact  that  majority  stock- 
holders of  an  insolvent  corpora- 
tion increased  the  salary  of  one 
of  its  officers  at  a  time  when  busi- 
ness was  run  at  a  loss  is  not 
ground  for  the  appointment  of  a 
receiver  since  if  the  increase  of 
salary  is  illegal,  upon  a  proper 
showing  the  plaintiff  may  cause  an 
action  to  be  instituted  for  the  pur- 


PRIVATE    CORPORATIONS. 


703 


be  effective.i2  Altlioiigh  an  attempt  is  made  to  bring  a 
case  within  some  well  recognized  ground  of  appointment, 
a  receiver  will,  of  course,  be  denied  if  the  facts  stated  are 


pose  of  restraining  its  future  pay- 
ment, and  for  the  purpose  of  re- 
covering to  the  corporation  any 
illegal  salary  which  may  have 
been  previously  paid.  Curtiss  v. 
Dean  &  Curtiss,  85  Wash.  435,  148 
Pac.  581. 

See,  also,  Alabama  Coal  &  Coke 
Co.  V.  Schackelford,  137  Ala.  224, 
34  South.  833,  97  Am.  St.  Rep.  23; 
Schaffhauser  v.  Arnholt  &  S. 
Brewing  Co.,  218  Pa.  298,  67  Atl. 
417,  11  Ann.  Cas.  772. 

Where  the  offending  directors 
have  retired  from  office,  the  ap- 
pointment of  a  receiver  based 
upon  their  mismanagement  should 
be  refused.  Halpin  v.  Mutual 
Brewing  Co.,  91  Hun  220,  36  N.  Y. 
Supp.  151. 

A  receiver  should  not  be  ap- 
pointed because  of  irregularities 
or  misconduct  of  the  officers  of  the 
corporation  where  there  is  a  way 
to  correct  them  through  the  board 
of  directors  or  through  injunc- 
tional  orders.  Feess  v.  Mechanics' 
State  Bank,  84  Kan.  828,  L.  R.  A. 
1915A,  606,  115  Pac.  563. 

The  fact  that  the  officers  refuse 
to  allow  the  stockholders  access 
to  its  corporate  books  and  papers 
and  refuse  to  disclose  facts  con- 
cerning its  business  affairs,  is  not 
ground  for  the  appointment  of  a 
receiver.  Alabama  Coal  etc.  Co.  v. 
Shackelford,  137  Ala.  224,  97  Am. 
St.  Rep.  23,  34  So.  833. 

Mere  failure  of  the  secretary 
of  a  corporation  to  keep  its  min- 
utes properly  is  no  ground  for  the 
ajipointment  of  a  receiver,  espe- 
cially whei-e  it  has  not  been  shown 


that  any  harm  resulted  from  his 
actions.  Semple  v.  Frisco  Land 
Co.,  124  La.  663,  50  So.  619. 

Insolvency  would  be  insufficient 
ground  for  the  appointment  of  a 
receiver  where  the  remedy  under 
the  statute  is  the  liquidation  of 
the  corporate  affairs  by  commis- 
sioners. Hero  V.  Consumers'  Lum- 
ber Mfg.  &  Export  Co.,  123  La. 
359,  48  So.  989. 

Nor  is  a  receiver  needed  where 
the  creditor  may  enforce  his  de- 
mands by  means  of  attachment 
proceedings.  Gabbert  v.  Union 
Gas  &  Traction  Co.,  140  Mo.  App. 
6,  123  S.  W.  1024. 

In  a  suit  to  enforce  stockhold- 
ers' liability  to  creditors,  it  is  not 
necessary  to  appoint  a  receiver  to 
wind  up  its  affairs.  American 
Spirits  Mfg.  Co.  v.  Eldridge,  209 
Mass.  590,  95  N.  E.  942. 

See,  also,  Forsell  v.  Pittsburg 
etc.  Copper  Co.,  42  Mont.  412,  113 
Pac.  479. 

Thus  where  the  claim  of  the 
plaintiff  was  less  than  $2500  and 
defendant  corporation's  property 
was  worth  about  $40,000,  against 
which  liens  were  filed  to  the 
amount  of  about  $30,000  more  than 
a  year  before  the  commencement 
of  plaintiff's  action,  and  no  suits 
had  been  brought  to  enforce  such 
liens,  a  receiver  was  improperly 
appointed  since  the  plaintiff  could 
have  enforced  his  claim  by  legal 
process.  Prudential  Securities  Co. 
V.  Three  Forks,  etc.  Ry.  Co.,  49 
Mont.  567,  144  Pac.  158. 

12  Parrish    v.    Reese,    165    Ala. 
638,    51    So.    824;    Laurel    Springs 


104: 


LAW   OF   RECEIVERS. 


insufficient  to  warrant  the  appointment  or  if  tlie  stated 
facts  are  not  proved. ^^   The  appointment  may  be  denied 


Land  Co.  v.  Fongeray,  50  N.  J.  Eq. 
756,  26  Atl.  886;  Fougeray  v.  Cord, 
50  N.  J.  Eq.  185,  24  Atl.  499. 

Although  under  some  statutes  it 
has  been  held  a  receiver  could  be 
appointed  for  a  corporation  when- 
ever it  found  sufficient  cause  for 
injunction.  Van  Oss  v.  Premier 
Petroleum  Co.,  113  Me.  180,  93  Atl. 
72. 

13  Baker  v.  Backus'  Adm'r,  32 
111.  79;  First  Nat.  Bank  v.  Gage, 
79  111.  207;  Chicago  Mut.  Life  In- 
demnity Ass'n  v.  Hunt,  127  111. 
257,  274,  2  L.  R.  A.  549,  20  N.  E. 
55;  Heitkamp  v.  American  Pig- 
ment &  Chemical  Co.,  158  111.  App. 
587;  Manufacturers'  Land  &  I. 
Co.  v.  Cleary,  121  Ky.  403,  89  S.  W. 
248;  Felix  v.  Kenner  Canning  & 
Packing  Co.,  123  La.  188,  48  So. 
884;  Semple  v.  Frisco  Land  Co., 
124  La.  663,  50  So.  619;  Trahan  v. 
Broussard  Cotton  Oil  Co.,  125  La. 
785,  51  So.  898;  Fuller  v.  McCor- 
mick,  156  Mich.  518,  121  N.  W. 
280;  Nevada  Consol.  Min.  &  Mill 
Co.  V.  Lewis,  34  Nev.  500,  126  Pac. 
105;  Einstein  v.  Rosenfeld,  38 
N.  J.  Eq.  309;  Kean  v.  Colt,  5  N.  J. 
Eq.  365;  Blake  v.Blake&Knowles 
Steam  Pipe  Works,  84  N.  J.  Eq. 
363,  94  Atl.  419;  Forest  Oil  Co.  v. 
Wilson,  (Tex.  Civ.  App.)  178  S.  W. 
626;  Secord  v.  Wheeler  Gold  etc. 
Co.,  53  Wash.  620,  17  Ann.  Cas. 
914,  102  Pac.  654;  Curtiss  v.  Dean 
&  Curtiss,  85  Wash.  435,  148  Pac. 
581;  Carson  v.  Allegany  Window 
Glass  Co.,  189  Fed.  791. 

Where  a  cemetery  was  as  well 
maintained  as  others  in  the  vicin- 
ity and  the  officers  of  the  ceme- 
tery associations  were  performing 
their  duties  in  a  suitable  manner, 


a  receiver  will  not  be  appointed 
to  take  charge  of  the  cemetery  in 
a  suit  against  the  corporation  for 
an  accounting  and  disclosure  of 
the  names  of  its  officers.  Youn- 
gers  v.  Exeter  Cemetery  Ass'n,  85 
Neb.  314,  123  N.  W.  95. 

Irregular  acts  of  officers  in  the 
absence  of  fraud  will  not  justify 
the  appointment.  Hardee  v.  Sun- 
set Oil  Co.,  56  Fed.  51. 

Where  it  is  not  shown. that  the 
proceeds  from  the  sale  of  goods 
by  the  president  of  a  corporation 
in  the  name  of  another  corpora- 
tion were  fraudulently  diverted 
from  the  corporation,  it  will  not 
be  sufficient  ground  for  the  ap- 
pointment of  a  receiver.  Howeth 
V.  Colbourne  Bros.  Co.,  115  Md, 
107,  80  Atl.  916. 

Where  the  directors  of  a  cor- 
poration repudiated  the  unlawful 
acts  of  another  director  when  dis- 
covered, compelled  a  partial  res- 
toration by  him,  undertook  to  in- 
stitute criminal  proceedings 
against  him,  and  removed  him 
from  his  position  as  treasurer  and 
general  manager,  and  no  further 
waste  was  threatened,  and  the 
stockholders  appointed  a  commit- 
tee, not  composed  of  any  of  the 
directors,  to  preserve  the  assets, 
the  court,  in  a  representative  ac- 
tion by  a  stockholder,  a  receiver 
should  be  denied  and  especially 
when  the  good  faith  of  the  plain- 
tiff is  in  doubt.  Sedgwick  v.  Sew- 
ard Development  Co.,  144  App. 
Div.  455,  129  N.  Y.  Supp.  209  (re- 
hearing denied,  144  App.  Div.  935, 
129  N.  Y.   Supp.  1145). 

The  mere  fact  that  some  of  its 
stockholders  are  also  stockholders 


PRIVATE   CORPORATIONS. 


705 


on  condition^^  or  without  prejudice  to  a  later  applica- 
tion.^^ 

2.   Inherent  Jurisdiction  of  Courts  of  Equity  to  Appoint 
Corporation  Receivers. 

§  296.    Ground  of  Equity  Jurisdiction. 

There  are  numerous  cases  in  which  it  has  been  held, 
both  by  courts  of  England  and  by  federal  courts  of  the 
United  States  and  state  courts  in  many  of  the  states  of 
the  United  States,  that  courts  of  equity  have  jurisdiction 
in  the  exercise  of  their  inherent  powers,  and  without  the 
aid  of  statutes,  to  appoint  receivers  to  take  charge  of  the 
affairs  and  the  assets  of  corporations.  In  reviewing  a 
case  from  a  United  States  Circuit  Court,  in  which  the 
decree  expressly  stated  that  the  appointment  of  the  re- 
ceiver w^as  made  pursuant  to  the  provisions  of  a  New 
Jersey  statute  the  Circuit  Court  of  Appeals  struck  from 
the  decree  this  express  reason  for  making  the  appoint- 
ment.^   In  another  case,  a  federal  court  said:    ''It  can 


in  another  corporation  is  not  suf- 
ficient ground  for  a  receiver  upon 
a  theory  that  a  sale  of  property 
from  one  corporation  to  the  other 
would  be  in  fraud  of  the  stock- 
holders. Bergman  Clay  Mfg.  Co. 
V.  Bergman,  73  Wash.  144,  131 
Pac.  485. 

Where  a  corporation  was  in  the 
possession  of  large  assets  and 
during  the  past  year  its  income 
had  exceeded  its  expenses,  it  will 
not  be  dissolved  on  the  ground 
that  its  business  could  not  be  con- 
ducted with  profit.  Phinizy  v.  An- 
niston  City  Land  Co.,  195  Ala.  656, 
71  So.  469. 

In  an  action  against  a  corpora- 
tion and  its  officers  based  upon 
fraudulent  representations  of  such 
officers  to  purchasers  of  stock,  in 
the  absence  of  any  allegations  of 
I  Rec. — 45 


insolvency  or  that  the  plaintiffs 
are  likely  to  be  harmed,  it  is  im- 
proper to  appoint  a  receiver  for 
the  corporation.  Georgia  Portland 
Cement  etc.  Co.  v.  Jackson,  139 
Ga.  668,  77  S.  E.  1055. 

14  Shera  v.  Carbon  Steel  Co., 
245  Fed.  589. 

Where  a  corporation  has  large 
interests  which  may  be  jeopar- 
dized by  the  appointment  of  a  re- 
ceiver, it  is  proper  for  the  court  to 
allow  it,  on  an  application  for  a 
receiver  by  a  judgment  creditor,  to 
furnish  a  bond  or  other  security  in 
lieu  of  having  a  receiver  ap- 
pointed. Barclay  v.  Quicksilver 
Min.  Co.,  9  Ab.  Pr.  N.  S.  283. 

15  Hunnewell  v.  New  York  Cent. 
&  H.  R.  R.  Co.,  196  Fed.  543. 

1  United  States  Shipbuilding 
Co.   V.    Conklin,   126    Fed.    132,   60 


706 


LAW   OF    RECEIVERS. 


not  be  doubted  that  the  federal  court  in  the  exercise  of 
its  general  equity  jurisdiction  has  power  to  appoint  a 
receiver  on  a  stockholder's  bill,  determine  a  corporation's 
solvency,  and  distribute  its  assets,  and  that  no  state  stat- 
ute can  impair  or  destroy  that  power."-  The  general 
jurisdiction  of  the  courts  to  entertain  the  cases  is  referred 
to  the  jurisdiction  of  equity  when  the  wrong  complained 
of  is  due  to  fraud,  mistake,  accident,  or  some  other  sim- 
ilar equitable  consideration;  or  to  a  violation  of  some 
trust  obligation,  the  corporate  directors  or  majority 
stockholders  being  considered  trustees  for  stockholders 
and  creditors.  Fundamentally,  the  ground  upon  which 
the  special  jurisdiction  to  appoint  the  receiver  is  based 
is  the  broad  one  of  the  necessity  of  preserving  and  pro- 
tecting, pending  the  litigation,  and  for  the  benefit  of  all 
interests,  property  that  is  liable  to  be  lost,  removed,  or 
materially  injured.^ 


C.  C.  A.  680.  The  court  said: 
"Upon  the  whole  we  are  of  opin- 
ion that  the  bill  presented  a  case 
of  which  the  circuit  court  sitting 
in  equity  had  jurisdiction  and  that 
the  appointment  of  a  receiver  was 
within  the  authority  of  the  court." 
For  the  reference  to  the  statute, 
the  court  of  appeals  substituted: 
"The  receiver  to  be  subject  at  all 
times  to  the  orders  and  directions 
of  this  court."  The  higher  court 
also  added  the  provision:  "The 
foregoing  order  to  stand  until  the 
further  order  of  the  court." 

2  O'Neil  V.  Welch,  245  Fed.  261, 
157  C.  C.  A.  453;  Davis  v.  Gray,  16 
Wall.  (U.  S.)  203,  21  L.  Ed.  447; 
Miltenberger  v.  Logansport  etc. 
Ry.  Co.,  106  U.  S.  286,  27  L.  Ed. 
117,  1  Sup.  Ct.  140;  Sage  v.  Mem- 
phis etc.  Ry.  Co.,  125  U.  S.  361, 
31  L.  Ed.  694,  8  Sup.  Ct.  887;  Rol- 
lins v.  Brierfield  etc.  Iron  Co.,  150 
U.  S.  371,  382,  37   U   Ed.  1113,  14 


Sup.  Ct.  127;  Pilliod  v.  Angola  Ry. 
etc.  Co.,  46  Ind.  App.  719,  91  N.  E. 
829;  Thompson  v.  Greeley,  107 
Mo.  577,  589,  17  S.  W.  962. 

3  A  receiver  may  be  appointed 
for  the  purpose  of  preserving  its 
assets.  Mitchell  Min.  Co.  v.  Emig, 
35  App.  Cas.  (D.  C.)  527;  John  H. 
McGowan  Co.  v.  Ingalls,  60  Fla. 
116,  53  So.  932;  Van  Vleet  v.  Evan- 
geline Oil  Co.,  129  La.  406,  56  So. 
343;  Summit  Silk  Co.  v.  Kinston 
Spinning  Co.,  154  N.  C.  421,  Ann. 
Cas.  1912A,  897,  70   S.  E.  820. 

"The  property  must  be  pre- 
served pending  this  litigation  and 
the  conduct  of  the  president  and 
his  associates  in  the  direction  has 
been  such  that  they  can  not  be 
permitted  to  retain  control  of  the 
affairs  of  the  company."  Avery  v. 
Blees  Mfg.  Co.,  27  N.  J.  Eq.  412. 

"In  my  judgment  the  objections 
that  have  been  urged  against  this 
application  at  the  existing  stage  of 


PRIVATE    CORPORATIONS. 


707 


§  297.    Recognition  of  Equity  Powers  by  Statutory  Provisions. 

The  appointment  has  sometimes  been  based  upon  a 
statutory  provision  authorizing  a  receivership  in  cases  in 


the  cause  might  be  urged  with  as 
much  force  if  this  were  an  appli- 
cation to  restrain  the  felling  of 
timber  or  the  destruction  of  a 
house.  It  is  a  case  of  waste  partly 
accomplished  and  i  m  m  i  n  e  n  t." 
Evans  v.  Coventry,  5  De  Gux,  M., 
&  G.,  911. 

The  receiver  is  appointed  "for 
the  sole  and  exclusive  purpose  of 
having  the  assets  and  property  of 
the  defendant  company  preserved 
for  the  best  interests  of  all  of  its 
creditors  and  stockholders."  Welch 
v.  Union  Casualty  Ins.  Co.,  238 
Fed.  968.  The  threatened  conduct 
of  the  defendant  "would  practi- 
cally destroy  the  business  of  the 
company  and  greatly  depreciate 
the  value  of  Its  property;  and 
under  such  circumstances  the 
court  was  authorized  to  appoint  a 
receiver.  Guthrie  v.  Arents,  109 
Fed.  1058,  48  C.  C.  A.  765.  A  re- 
ceiver will  be  appointed  to  pre- 
serve the  corporate  property  in 
danger  of  being  lost.  Pride  v. 
Pride  Lumber  Co.,  109  Me.  452, 
84  Atl.  989. 

"The  power  of  equity  (to  ap- 
point a  receiver)  is  within  its 
power  to  grant  relief  to  prevent 
injuries  to  property  rights."  Thor- 
oughgood  v.  Georgetown  Water 
Co.,  9  Del.  84,  77  Atl.  720. 

The  power  of  a  court  of  equity 
to  appoint  a  receiver  over  a  cor- 
poration under  the  exercise  of  its 
equitable  jurisdiction  in  receiver- 
ship facts  does  not  rest  upon  the 
character  of  the  parties  but  upon 
the  existence  of  the  equitable 
facts    necessary    for   its    exercise. 


United  States  Trust  Co.  v.  New 
York  etc.  R.  Co.,  101  N.  Y.  478, 
482,  5  N.  E.  316;  Decker  v.  Gard- 
ner, 124  N.  Y.  334,  11  L.  R.  A.  480, 
26  N.  E.  814. 

In  the  absence  of  statutory  au- 
thority enlarging  the  jurisdiction 
of  a  court  of  equity,  a  receiver 
will  not  be  appointed  by  a  court 
of  equity  over  a  corporation  ex- 
cept in  the  same  circumstances 
which  would  authorize  one  for  an 
individual.  Barber  v.  International 
Co.,  73  Conn.  587,  48  Atl.  758;  Vila 
V.  Grand  Island  etc.  Co.,  68  Neb. 
222,  110  Am.  St.  Rep.  400,  4  Ann. 
Cas.  59,  63  L.  R.  A.  791,  797,  94 
N.  W.  136,  97  N.  W.  613. 

In  Union  State  Bank  v.  Mueller, 
(Okla.)  172  Pac.  650,  the  court 
said :  "A  court  of  equity  has  the  in- 
herent power  to  appoint  a  receiver 
for  the  property  of  a  corporation, 
and  to  require  the  officers  to  make 
an  accounting  therefor  upon  the 
petition  of  minority  stockholders. 
The  officers  of  a  corporation  in 
the  management  and  control  of 
its  assets  are  the  trustees  of  the 
stockholders,  and  are  charged 
with  the  faithful  management  of 
the  corporate  property  for  the  ac- 
complishment of  the  purposes  for 
which  the  corporation  was  char- 
tered; and,  under  a  state  of  cir- 
cumstances such  as  the  evidence 
tends  to  establish,  it  would 
amount  to  a  denial  of  justice  if 
courts  of  equity  were  unable  to 
afford  a  remedy  where  no  ade- 
quate remedy  could  be  had  at 
law.  If  the  foregoing  facts  are 
established  upon  final  trial,  there 


70S 


LAW   OF    RECEIVERS. 


which  such  an  appointment  would  be  in  accordance  with 
the  usag-e  and  practice  of  equity,^  or  when  in  the  discre- 
tion of  the  court  the  appointment  was  necessary  to  secure 
complete  justice  to  the  parties.^  A  statute  providing  for 
the  appointment  of  a  receiver  under  certain  specific  cir- 


will  be  shown  a  gross  mismanage- 
ment of  the  affairs  of  the  corpora- 
tion, which  has  resulted  in  wreck- 
ing its  business  and  wresting 
from  the  stockholders  its  prop- 
erty, and  the  court  was  justified 
in  reaching  out  its  arm  and  taking 
charge  of  the  property  and  plac- 
ing it  in  the  hands  of  a  receiver 
until  these  matters  could  be  in- 
vestigated upon  final  trial  and  the 
rights  of  the  minority  stockhold- 
ers could  be  determined  and  an 
accounting  had."  Exchange  Bank 
of  Wewoka  et  al.  v.  Bailey,  29 
Okla.  246,  116  Pac.  812,  39  L.  R.  A. 
(N.  S.)  1032. 

In  Kahle  v.  Industrial  Loan  etc. 
Co.,  103  Wash.  273,  174  Pac.  23, 
the  court  said:  "It  is  apparent 
upon  the  face  of  the  complaint 
and  upon  the  face  of  the  showing 
made  that  these  trustees  have  so 
mismanaged  the  company  since  it 
has  been  formed  that,  if  it  is  not 
now  insolvent,  there  is  no  ques- 
tion that  it  will  necessarily  short- 
ly become  so,  and  that  the  stock- 
holders who  have  purchased  stock 
and  paid  money  therefor  will  re- 
ceive nothing  from  the  corpora- 
tion unless  a  receiver  is  appointed 
and  immediately  takes  charge  of 
the  few  assets  remaining  belong- 
ing to  the  company.  The  statute, 
at  section  741,  Rem.  Code,  pro- 
vides: 

"  'A  receiver  may  be  appointed 
by  the  court:     .    .    . 


"  '2.  In  an  action  between  part- 
ners, or  other  persons  jointly  in- 
terested in  any  property  or  fund. 

"  '5.  When  a  corporation  has 
been  dissolved  or  is  insolvent,  or 
is  in  imminent  danger  of  insol- 
vency, or  has  forfeited  its  corpo- 
rate   rights.     .     .     .' 

"We  think  there  can  be  no  ques- 
tion in  this  case,  especially  under 
the  showing  made  at  the  hearing, 
that  this  corporation  is  in  immi- 
nent danger  of  insolvency  if  it  is 
not  so  at  this  time.  In  the  case  of 
Cameron  v.  Groveland  Imp.  Co., 
20  Wash.  169,  54  Pac.  1128,  72  Am. 
St.  Rep.  26,  we  held,  under  the 
statute  above  quoted,  that  where 
the  property  of  a  corporation  is 
being  mismanaged,  and  is  in  dan- 
ger of  being  lost  to  the  stockhold- 
ers and  creditors  through  the  col- 
lusion and  fraud  of  its  officers  and 
directors,  or  mismanagement  and 
waste,  courts  of  equity  have  in- 
herent power  to  appoint  receivers 
See,  also.  Van  Horn  v.  New  West 
ern  Shingle  Co.,  54  Wash.  117 
103  Pac.  42;  Kennedy  Drug  Co.  v 
Keyes,  60  Wash.  337,  111  Pac.  175 

"We  are  satisfied,  therefore 
that  the  trial  court  properly  ap 
pointed  a  receiver." 

1  Boyle  V.  Superior  Court,  176 
Cal.  671,  L.  R.  A.  1918D,  226,  170 
Pac.  1140. 

2  Boothe  V.  Summit  Coal  Mining 
Co.,  55  Wash.  167,  19  Ann.  Cas. 
1255,  104  Pac.  207. 


PRIVATE    CORPORATIONS.  709 

cumstances  "is  not  to  be  construed  to  mean  tliat  the  ordi- 
nary jurisdiction  to  apjDoint  a  receiver  has  thereby  been 
withdraAvn.  "2 

3.  Appointments  hy  Equity  Court  at  the  Instance  of 
Stockholders. 

§  298.    Circumstances  and  Conditions  Essential  to  Proceeding. 

In  order  that  a  plaintitf  may  maintain  an  action  as  a 
shareholder  of  a  corporation  it  is  essential  that  he  shall 
be  a  bona  fide  shareholder  and  acting  in  good  faith. ^  A 
stockholder's  suit,  however,  is  a  representative  one.  The 
stockholder  sues  on  behalf  of  himself  and  all  other  stock- 
holders. The  corporation  is  usually  a  defendant  and  the 
wrongs  complained  of  are  such  that  the  corporation  itself 
could  maintain  an  action  to  have  them  remedied.  The 
action  is,  therefore,  necessarily  in  equity  and  the  equi- 
table rule  is  that  one  who  commences  a  representative 
action  must  establish  his  capacity  to  sue  by  sliowing  why 
his  principal,  the  party  really  in  interest,  is  not  the  com- 
plainant. This  rule  would  apply  whether  the  share- 
holder asked  for  a  receiver  or  not.  '*  There  may  be  a 
great  many  wrongs  committed  in  a  company,  there  may 

3  Merrifleld  v.  Burrows,  153  111.  Van  Horn  v.  New  Western  Shingle 

App.  523;  Northwestern  Nat.  Bank  Co.,  54  Wash.  117,  103  Pac.  42. 

V.      Mickelson-Shapiro      Co.,      134  One    having    the    equitable, 

Minn.    422,    159    N.    W.    948.     See  though  not  the  legal  title,  to  stock, 

contra,    People   v.    District   Court,  may  be  permitted  to  maintain  the 

33  Colo.  293,  80  Pac.  908.  action,     especially     if     defendant 

In    this    connection    see,     also,  does  not  raise  the  question  until  a 

Morse  v.  Metropolitan  S.  S.  Co.,  88  late     stage     in     the     proceedings. 

N.  J.  Eq.  325,  102  Atl.  524.  Ashton    v.   Penfield,    233    Mo.    391, 

1  One  who  has  the  legal  title  to  135  s.  W.  938. 

stock  simply  to  qualify  him  to  act  See  Mitchell  v.  Anlander  Realty 

as  a  director  but  has  no  beneficial  Co.,  1C9  N.  C.  516,  86  S.  E.  358. 

interest  in  the  stock  is  not  entitled  One  who  receives  stock  simply 

to   sue.     Hoopes  v.  Basic   Co.,   72  tor  the  purpose  of  qualifying  him- 

N.  J.  Eq.  426;   65  Atl.  1118.  self  as  a  litigant  may  be  held  not 

The   answer   may   be   construed  entitled   to  sue.     Von   Schlemmer 

as  leaving  undenied  the  allegation  v.  Keystone,  etc.,  Ins.  Co.,  121  La. 

that    plaintiff    is    a    stockholder.  987,  46  So.  991. 


710 


LAW   OF   RECEIVERS. 


> 


be  claims  against  directors,  there  may  be  claims  against 
officers,  there  may  be  claims  against  debtors,  there  may 
be  a  variety  of  things  which  a  company  may  well  be  en- 
titled to  complain  of,  but  which,  as  a  matter  of  good 
sense,  they  do  not  think  it  right  to  make  the  subject  of 
litigation;  and  it  is  the  company,  as  a  company,  which 
has  to  take  steps  to  prevent  the  wrong  from  being- 
done."^  Accordingly,  if  the  stockholder,  in  the  absence 
of  corporate  action,  attempts,  himself,  to  act,  he  must 
show  that  he  has  first  made  every  effort  to  obtain  relief 
within  the  company  by  appealing  to  the  directors  and, 
if  time,  to  the  stockholders  as  well ;  \pr  he  must  show 
that  such  attempts  would  be  useless  or  that  for  some 
other  sufficient  cause  it  would  not  be  reasonable  to  re- 
quire them.^     It  is  an  objection  to  his  capacity  to  sue. 


Although  it  has  also  been  held 
that  the  fact  that  the  obligations, 
such  as  stocks  or  bonds  of  the 
corporation,  were  transferred  to 
the  plaintiff  for  the  purpose  of  the 
receivership  suit,  is  immaterial. 
Cole  V.  Philadelphia,  etc.,  Ry. 
Co.,  140  Fed.  944. 

2  MacDougall  v.  Gardiner,  1  Ch. 
D.  22. 

3  Hawes  v.  City  of  Oakland, 
et  al.,  104  U.  S.  450,  26  L.  Ed.  827. 
This  was  an  action  by  a  stock- 
holder to  enjoin  the  defendant 
cotapany  from  delivering  water 
free  to  the  City  of  Oakland.  In 
addition  to  setting  forth  the  rule 
as  above  stated,  the  court  pointed 
out  four  sets  of  circumstances 
under  which  a  stockholder's  rep- 
resentative suit  might  be  main- 
tained, assuming  that  the  stock- 
holder first  qualified  himself  to 
sue.  These  circumstances  are  as 
follows:  (1)  Some  action,  or 
threatened  action,  on  the  part  of 
the   directors   beyond   the  author- 


ity conferred  by  the  charter  or 
other  source  of  organization;  (2) 
Such  fraudulent  transaction,  or 
threatened  transaction,  by  the 
managers,  in  connection  with 
some  other  party,  or  among  them- 
selves, or  with  other  shareholders, 
as  will  result  in  serious  injury  to 
the  corporation  or  to  the  interests 
of  the  other  stockholders;  (3) 
Where  the  directors  or  the  majoi'- 
ity  stockholders  are  acting  for 
their  own  interests,  in  a  manner 
destructive  of  the  corporation  it- 
self or  of  the  rights  of  the  other 
shareholders;  (4)  Where  the  ma- 
jority stockholders  themselves  are 
oppressively  and  illegally  pursuing 
a  course  in  the  name  of  the  cor- 
poration which  is  in  violation  of 
the  rights  of  other  stockholders 
and  which  can  only  be  restrained 
by  the  aid  of  a  court  of  equity. 

Where  the  corporation  is  under 
the  control  of  the  wrongdoing  de- 
fendants, no  demand  on  them  is 
necessary.     Sage    v.    Culver,    147 


PRIVATE   CORPORATIONS.  ''^H 

based  upon  this  rule,  that  has  most  frequently  been 
raised  against  a  stockholder's  right  to  maintain  an  action 
for  a  receiver.^ 

Since  a  corporation  receiver  is  appointed  to  preserve 
the  property  for  the  benefit  of  all  stockholders  and 
creditors,  either  stockholders  or  creditors  may  intervene 
in  a  stockholder's  representative  suit.^ 

§299.     Necessity  for  Existence  of  an  Independent  Cause  of 
Action. 

It  has  been  pointed  out  in  our  earlier  chapters  that 
strictly  speaking  there  is  no  such  thing  as  an  action 
simply  and  solely  for  the  appointment  of  a  receiver.  A 
receivership  is  merely  an  ancillary  remedy  created  in  aid 
of  the  main  remedy  sought  by  the  action  itself.  Some- 
times it  happens  that  a  stockholder,  suing  in  his  repre- 
sentative capacity,  has  a  special  grievance  of  his  own, 
such  as  a  claim  for  stock  which  the  directors  or  officers 
refuse  to  issue ;  occasionally  the  action  seeks  the  redress 

N    Y    246    41  N    E    514;   Loftus  v.  4  Brewer     v.     Boston     Theater 
Farmers',' etc.,  Assn..  8  S.  D.  206,  Proprietors,  104  Mass.  378;   Miner 
65  N  W  1078-  Wenzel  v.  Palmetto  v.  Belle  Isle  Ice  Co.,  93  Mich.  97, 
Brewing  Co.,  48  S.  C.  83,  26  S.  E.  2;  112.  17  L.  R.  A.  412,  53  N.  W.  218. 
Boyd    V     Sims,    87    Tenn.    777,    11  See   Exchange   Bank   v.   Bailey. 
S    W    949-    Saunders  v.  Bank   of  29  Okla.  246,  39   L.   R.  A.    (N.  S.) 
Meckienberg,  113  Va.  661,  75  S.  E.  1032,  116  Pac.  812. 
ng  The    U.    S.    equity    court    rule 
A  demand  for  redress  from  the  which    specifies    the    manner    in 
corporation  as  a  preliminary  to  a  which  a  stockholder  must  justify 
suit  is  not  necessary  where  it  has  his    representative    action    is    not 
no    governing    body    upon    whom  applicable    to    an    action    brought 
such    a    request    could    be    made.  to   obtain  the  appointment  of  an 
Sheridan    etc.,   Works    v.    Marion  ancillary  receiver  to  assist  a  pn- 
Fruit  Co.,  157  Ind.   292,  61  N.  E.  mary  receiver  by  bringing  suit  m 
ggg             '  the    ancillary    jurisdiction.      Blue- 
Where  by  collusion  suits  direc-  fields  S.  S.  Co.  v.  Steele,  192  Fed. 
tors  are  seeking  to  wreck  the  cor-  23,  112  C.  C.  A.  411. 
poration.     application     by     stock-  5  Thayer  v.  Kinder,  45  Ind.  App. 
holders  to  the  corporation  is  un-  lU.   89   N.   E.   408,  90   N.   E.   323; 
necessary.   Excelsior  Pebble  Phos-  State  ex  rel.  Connors  v.  Shelton. 
phate  V.  Brown,  74  Fed.  323.  238  Mo.  281,  142  S.  W.  417. 


712  LAW    OF    RECEIVERS. 

of  a  corporate  wrong,  the  return,  for  instance,  to  the 
corporation  of  money  wrongfully  received  by  an  officer ; 
and  redress  may  be  adjudged  in  the  decree  by  which  the 
receiver  is  appointed. ^  For  the  most  part,  however,  the 
wrongs  complained  of  are  wrongs  to  the  corporation 
itself ;  the  remedies  sought  are  on  behalf  of  the  corpora- 
tion itself;  the  complete  remedy  requires  action,  either 
by  litigation  or  otherwise,  on  the  part  of  a  receiver ; 
redress  can  not  be  granted  in  the  decree  appointing  the 
receiver.  For  the  most  part  then  the  receiver  has  only 
a  sort  of  indirect  interest  in  the  ultimate  purpose  for 
which  the  action  is  brought  and  is  not  in  a  position  to 
pray  for  any  direct  relief  for  himself.  It  is  recognized, 
how^ever,  that  this  indirect  interest  of  the  stockholder  is 
sufficient  to  satisfy  the  requirements  of  the  rule  concern- 
ing an  independent  cause  of  action. 

§  300.     General  Rule  Respecting  Circumstances  Under  Which 
the  Appointment  is  Made. 

In  a  well  considered  case^  from  New  Jersey  in  which 
a  receiver  was  appointed  Vice-Chancellor  Lane  observed : 
''I  do  not  find  all  the  circumstances  under  which  the 
court  may  intervene  have  ever  been  definitely  deter- 
mined. In  the  nature  of  things  they  could  not  be. ' '  His 
statement  is  undoubtedly  correct.  The  particular  cir- 
cumstances which  form  the  basis  for  an  application  for 
a  receiver  are  naturally  varied  since  wdth  the  increasing 
complexity  of  business  transaction  the  opportunities  and 

1  Bates  V.  Werries,  198  Mo.  App.      wherever,  because  of  gross  abuse 

209    199  S.  W.  758.  of    trust,    because    of    dissensions 

1  Morse    v.    Metropolitan    S.    S.      ^^^^^^^  the  members  of  the  board 

Co..  87  N.  J.  Eq.  217,  100  Atl.  219.  ^'    ^^^^^^°/^    °^   *^^    stockholders, 

because  there  is  no  properly  con- 
The  Vice-chancellor  further  stituted  board,  or  because  the 
said:  "I  do  not  find  that  the  company  has  failed  of  its  purpose, 
courts  of  this  state  have  in  any  there  is  necessity  for  judicial  in- 
wise  limited  the  general  doctrine  tervention,  a  court  of  equity  may 
which  prevails  in  England  and  intervene  under  its  general  juris- 
throughout     this     country     that,  diction  and  appoint  a  receiver." 


PRIVATE   CORPORATIONS.  713 

devices  of  fraud  are  correspondingly  more  varied.  It  is 
the  duty,  however,  of  the  courts  of  equity  to  keep  abreast 
of  the  needs  of  society  in  the  way  of  furnishing  appro- 
priate remedies  for  all  character  of  injuries.  This  elastic 
function  of  courts  of  equity  was  well  expressed  by  Lord 
Cottenham,  as  follows:-  "I  think  it  is  the  duty  of  this 
court  to  adapt  its  practice  and  course  of  proceeding  to 
the  existing  state  of  society,  and  not,  by  too  strict  au 
adherence  to  rules  and  forms  established  under  differ- 
ent circumstances,  to  decline  to  administer  justice,  and 
to  enforce  rights  for  which  there  is  no  other  remedy." 

Inasmuch  as  the  decisions  of  the  United  States  Su-^ 
preme  Court  on  the  subject  of  receivers  have  always  been 
rendered  with  a  view  to  formulating  a  harmonious  body 
of  jurisprudence  upon  the  subject,  its  decisions  on  the 
subject  are  given  great  consideration.  Resort  is  fre- 
quently had  to  the  federal  courts  in  receiversliips  of 
great  magnitude  in  respect  to  corporations  on  account  of 
the  ease  with  which  a  suit  based  on  diversity  of  citizen- 
ship may  properly  be  brought  in  that  forum.  The  gen- 
eral principles  upon  which  receiverships  may  be  sought 
in  corporation  cases,  together  with  the  preliminary  pro- 
cedure, have  in  no  case,  which  we  have  observed,  been 
set  forth  with  greater  clearness  than  in  the  leading  case 
of  Hawes  v.  City  of  Oakland.^     In  that  case  the  court 

said : 

"We  understand  that  doctrine  to  be  that  to  enable  a 
stockholder  in  a  corporation  to  sustain  in  a  court  of 
equity  in  his  own  name,  a  suit  founded  on  a  right  of 
action  existing  in  the  corporation  itself,  and  in  which  the 
corporation  itself  is  the  appropriate  plaintiff,  there  must 
exist  as  the  foundation  of  the  suit — 

2  Wallwortli  V.  Holt,  4  Mylne  &  See  Wathen  v.  Jackson  Oil,  etc., 
Q    635  Co.,  235  U.   S.   635,  639,   59   L.   Ed. 

3  104   U.   S.   450,   26    L.    Ed.   827.  395,  397,  35   Sup.  Ct.  225;    Hyams 
The   principles  laid   down   in   the  v.    Calumet,    etc.,    Min.    Co.,    221 
above   case  have  been   frequently  Fed.  529,  542,  137  C.  0.  A.  239. 
reaffirmed   by   the   federal   courts. 


714  LAW   OP    RECEIVERS. 

''Some  action  or  threatened  action  of  the  managing 
board  of  directors  or  trustees  of  the  corporation  which 
is  beyond  the  authority  conferred  on  them  by  their  char- 
ter or  other  source  of  organization; 

''Or  such  a  fraudulent  transaction  completed  or  con- 
templated by  the  acting  managers,  in  connection  with 
some  other  party,  or  among  themselves,  or  with  other 
shareholders  as  will  result  in  serious  injury  to  the  cor- 
poration, or  to  the  interests  of  the  other  shareholders; 

"Or  where  the  board  of  directors,  or  a  majority  of 
them,  are  acting  for  their  own  interest,  in  a  manner  de- 
structive of  the  corporation  itself,  or  of  the  rights  of  the 
other  shareholders ; 

"Or  where  the  majority  of  shareholders  themselves  are 
oppressively  and  illegally  pursuing  a  course  in  the  name 
of  the  corporation,  which  is  in  violation  of  the  rights  of 
the  other  shareholders,  and  which  can  only  be  restrained 
by  the  aid  of  a  court  of  equity. 

"Possibly  other  cases  may  arise  in  which,  to  prevent 
irremedial  injury,  or  a  total  failure  of  justice,  the  court 
would  be  justified  in  exercising  its  powers,  but  the  fore- 
going may  be  regarded  as  an  outline  of  the  principles 
which  govern  this  class  of  cases. 

"But,  in  addition  to  the  existence  of  grievances  which 
call  for  this  kind  of  relief,  it  is  equally  important  that 
before  the  shareholder  is  permitted  in  his  own  name  to 
institute  and  conduct  a  litigation  which  usually  belongs 
to  the  corporation,  he  should  show  to  the  satisfaction  of 
the  court  that  he  has  exhausted  all  the  means  within  his 
reach  to  obtain,  within  the  corporation  itself,  the  redress 
of  his  grievances,  or  action  in  conformity  to  his  wishes. 
He  must  make  an  earnest,  not  a  simulated  effort,  with 
the  managing  body  of  the  corporation,  to  induce  remedial 
action  on  their  part,  and  this  must  be  made  apparent  to 
the  court.  If  time  permits  or  has  permitted,  he  must 
show,  if  he  fails  with  the  directors,  that  he  has  made  an 


PRIVATE    CORPORATIONS.  715 

honest  effort  to  obtain  action  by  tlie  stockliolders  as  a 
body,  in  the  matter  of  which  he  complains.  And  he  mnst 
show  a  case,  if  this  is  not  done,  where  it  coukl  not  be 
done,  or  it  was  not  reasonable  to  require  it. 

''The  efforts  to  induce  such  action  as  compUiinant 
desires  on  the  part  of  the  directors,  and  of  the  share- 
holders when  that  is  necessary,  and  the  cause  of  failure 
in  these  efforts  should  be  sv^ated  with  particularity,  and 
an  allegation  that  complainant  was  a  shareholder  at  the 
time  of  the  transactions  of  which  he  complains,  or  that 
his  shares  have  devolved  on  him  since  by  operation  of 
law,  and  that  the  suit  is  not  a  collusive  one  to  confer  on 
a  court  of  the  United  States  jurisdiction  in  a  case  of 
which  it  could  otherwise  have  no  cognizance,  should  be  in 
the  bill,  which  should  be  verified  by  affidavit." 

As  is  usual  in  matters  in  which  action  is  based  upon 
variant  facts  founded  upon  their  effect  upon  the  com- 
plainant, the  courts  frequently  express  themselves  to 
the  effect  that  the  decision  as  to  granting  or  denying  the 
prayer  for  a  receiver  must  be  determined  "with  refer- 
ence to  the  special  circumstances  of  each  case  as  it 
arises."-^  But  it  will  generally  be  found  that  whatever 
the  facts  may  be  found  to  be,  the  decision  of  the  court 
in  each  case  will  be  founded  upon  the  idea^  whether  those 
facts  are  considered  sufficient  or  insufficient  to  constitute 
what  may  be  well  described  as  receivership  facts  and 
which  are  of  a  nature  to  come  within  those  general  equi- 
table  principles   which  form  the   basis   of  receivership 

law.^ 

Aside  from  setting  forth  the  principles  which  will  jus- 
tify a  court  of  equity  to  appoint  a  receiver  to  protect 
and  preserve  property  pending  some  litigation,  it  is,  of 
course,  impossible  to   set  forth   the   particular   circum- 

4  Sage   V.   Memphis,   etc.,   R.   R.      Coal    Min.   Co.,   55  Wash.    167,    19 
Co.,  125  U.   S.  361,  31   L.   Ed.   694,       Ann.  Cas.  1255,  104  Pac.  207. 
8  Sup.  Ct.  887;  Boothe  v.  Summit  =  See  §296  supra. 


716  LAW   OP    RECEIVERS. 

stances  in  complete  detail  which  would  be  deemed  suffi- 
cient for  the  appointment  of  a  receiver. 

All  that  we  can  do  is  to  set  forth  some  of  the  sets  of 
circumstances  that  will  lead  to  the  appointment  of  a 
receiver  as  developed  from  some  of  the  decided  cases. 
It  may  be  remarked  that  it  seldom  happens  that  all  of 
the  matters  comj^lained  of  in  any  case  will  fall  under  one 
of  these  sets  of  cases;  and  it  frequently  happens  that 
they  will  belong  to  several  sets.  In  discussing  the  cases 
we  have  placed  them  according  to  our  judgment  as  to 
what  particular  circumstances  seemed  to  have  had  the 
most  weight  in  making  the  appointment.  We  mil  group 
the  circumstances  that  create  an  eifective  situation  to 
make  a  receivership  necessary  in  the  sections  immedi- 
ately following: 

§301.     Cessation  of  Corporate  Business  or  Failure  to  Main- 
tain Active  Officers. 

The  cessation  of  all  corporate  business  for  a  sufficient 
length  of  time  and  under  such  circumstances  as  to  show- 
that  it  will  probably  not  be  resumed  will  authorize  the 
appointment  of  a  receiver.^     This  situation  is  usually 

1  Zeckendorf     v.     Steinfeld,     12  power   to   wind   up   a   corporation 

Ariz.  245,  100  Pac.  784.  in  the  absence  of  a  statutory  au- 

Where  the  corporation  is  in-  thority,  still  where  the  corpora- 
solvent  and  without  assets,  and  tion  has  utterly  failed  to  attain 
the  officers  have  ceased  to  act.  the  purposes  of  its  creation,  one 
Ford  V.  Kansas  City  &  I.  Short  of  which  is  the  pecuniary  gain  of 
Line  R.  Co.,  52  Mo.  App.  439.  its  stockholders,  a  court  of  equity 

Where    one    of    the    only    two  will  intervene  where  such  failure 

stocldiolders  of  a  corporation  dies  is  the  result  of  the  fraudulent  acts 

and   his   administrator  takes   pos-  of     the      majority      stockholders, 

session  of  the  assets  of  the  cor-  Miner    v.    Belle    Isle    Ice    Co.,    93 

poration  as  if  it  belonged  to  the  Mich.  97,  17  L.  R.  A.  412,  53  N.  W. 

estate  of  the  decedent,  the  other  218. 

stockholder  may  have  a   receiver  If  it  has  become  impossible  for 

appointed.       Re     Belton,     47     La.  even  a  solvent  corporation  to  per- 

Ann.  1614,  30  L.  R.  A.  648,  18  So.  form  the  purposes  of  its  creation 

642.  and  it,  thus  fails  of  its  purposes,  a 

Although    the    general    rule    is  court  of  equity  under  its  general 

that    courts    of    equity    have    no  powers  aside  from  any   statutory 


PRIVATE   CORPORATIONS. 


717 


accompanied  by  the  fact  that  the  officers  have  abandoned 
the  business  or  that  there  are  no  officers  with  authority 
to  conduct  it.  Temporary  cessation  of  business,  adopted 
for  business  reasons  and  in  accordance  with  the  best 
judgment  of  those  in  authority,  will  not  warrant  the 
appointment  on  the  demand  of  a  minority  having  a  dif- 
ferent opinion  as  to  the  wisdom  of  the  policy.^ 

The  fact  that  the  officers  of  the  company  have  aban- 
doned its  business  and  property  or  that  the  majority  of 
stockholders  refuse  or  neglect  to  elect  officers  so  that 
there  are  no  officers  to  care  for  the  property  may  create 
a  situation  that  wdll  justify  the  appointment  of  a  re- 
ceiver.^ The  abandonment  may  consist  in  the  fact  that 
the  officers  place  themselves  entirely  under  the  control  of 
outsiders  who  develop  a  policy  exceedingly  injurious  to 


provisions  in  that  respect  would 
be  authorized  to  wind  up  its  busi- 
ness and  affairs  for  the  benefit  of 
its  creditors  and  stockholders,  al- 
though not  dissolving  or  terminat- 
ing its  corporate  franchise.  Car- 
son V.  Allegany  Window  Glass  Co., 
189  Fed.  791. 

A  receiver  was  appointed  in  a 
case  where  the  corporation  had 
ceased  doing  business  for  25  years, 
maintained  no  organization  and 
had  no  offices.  Greenleaf  v.  Land 
&  Lumber  Co.,  146  N.  C.  505,  60 
S.  E.  424. 

2  Bartow  Lumber  Co.  v.  En- 
wright,  131  Ga.  329,  62  S.  E.  233. 

Failure  to  elect  officers,  or  want 
of  sufficient  officers  occasioned  by 
death,  or  the  destruction  of  the 
corporate  property  by  fire  will  not 
of  themselves  work  a  dissolution. 
But  where  there  is  a  refusal  or 
neglect  to   replace   the   necessary 


officers,  and  the  administrator  of 
a  deceased  officer  takes  posses- 
sion of  the  corporate  property,  a 
receiver  may  be  appointed.  Re 
Belton,  47  La.  Ann.  1614,  30' 
L.  R.  A.  648,  18  So.  642. 

Merely  ceasing  to  do  business  is 
not  sufficient.  Murray  v.  Superior 
Court,  129  Cal.  628,  62  Pac.  191. 

3  Central  Land  Co.  v.  Sullivan, 
152  Ala.  360;  15  Ann.  Cas.  420,  44 
So.  644;  Baker  v.  Louisiana  Port- 
able R.  Co.,  34  La.  Ann.  754,  755; 
Pride  v.  Pride  Lumber  Co.,  109 
Me.  452,  84  Atl.  989;  Lawrence  v. 
Greenwich  Fire  Ins.  Co.,  1  Paige 
(N.  Y.)  587;  Williams  v.  United 
Wireless  Telegraph  Co.,  131  N.  Y. 
Supp.  41;  Dobson  v.  Simon  ton,  78 
N.  C.  63;  Tennessee  Mt.  P.  &  Min. 
Co.  V.  Ayers  (Tenn.)  43  S.  W. 
744;  Finney  v.  Bennett,  27  Graft, 
(Va.)  365;  Cramer  v.  Bird,  L.  R. 
6  Eq.  143. 


718  LAW    OF    RECEIVERS. 

the  corporation.*     The  fact  that  the  directors  are  non- 
residents does  not,  however,  constitute  a  lack  of  officeis.^ 

§  302.    Inability  to  Attain  the  Business  Purposes  of  the  Cor- 
poration. 

The  failure  of  the  corporation  to  attain  its  purpose  or 
the  impossibility  of  its  attaining  its  purpose  presents  a 
situation  warranting  the  appointment  of  a  receiver. 
This  situation  may  be  brought  about  by  the  company's 
reaching  such  a  financial  condition  that  continuance  of 
a  profitable  business  is  impossible^  or  by  the  fact  that  it 
will  be  impossible  for  the  company  to  acquire  from  the 
state  permission  to  conduct  the  kind  of  business  for 
which  it  was  organized.-  In  commenting  on  the  rule  in 
this  particular  when  stated  to  be:  "If  it  is  clear  that  the 
business  can  not  be  profitably  continued  the  petition  of 
a  minority  for  a  dissolution  will  be  granted,"  Judge 
Somerville  of  the  Alabama  Supreme  Court  said:  "The 
chief  trouble  with  this  test  is  that  its  terms  require  fur- 

4  Ames  V.  Goldfield  Merger  The  mere  fact  that  the  business 
Mines  Co.,  227  Fed.  292.  of    a    corporation    has    not    been 

5  Hunnewell  v.  New  York  Cent.  prosperous  during  its  first  year  of 
&  H.  R.  R.  Co.,  196  Fed.  543.  business  is  not  ground  for  the  ap- 

1  Winona   Portland   Cement   Co.  p^intment  of  a  receiver  and  espe- 

V   Reese,  167  Ala.  485,  52  So.  523;  ...          ,            ^, 

V.  x.,cco  ,                         ,  cially     where     the     petitioner 
Decatur    Land    Co.    v.    Robinson, 
184  Ala.  322,  63  So.  522;    Ross  v. 
American    Banana    Cb.,    150    Ala. 

268,   43    So.   817;    Sellman  v.   Ger-  stone  Life  Ins.  Co.,  121  La.  987,  4S 

man  Union,  etc.,  Ins.  Co.,  184  Fed.  So.  991. 

977.  Where  the  insolvency  of  a  cor- 

Where   the  purposes   for   which  poration  is  alleged  as  ground  for 

a  corporation  was  formed  can  not  a  receiver,  the  appointment  should 

be  attained,  it  is  the  duty  of  the  jjg  refused  in  case  of  doubt  of  the 

company    to   wind    up    its    affairs.  insolvency.     Whitmer  v.    William 

The   ultimate   aim   of   every    ordi-  ^^^^^^^^   ^    g^^^^    ^^^^     ^^^    ^^ 
nary    trading    corporation    is    pe- 
cuniary  gain  to   its   stockholders. 

Miner    v.    Belle    Isle    Ice    Co.,    93  2  Metropolitan    Fire   Ins.    Co.   v. 

Mich.  97,  17  L.  R.  A.  412,  53  N.  W.  Middendorf,     171     Ky.      771,     188 

218.  S    W.  790. 


IS 

partially   responsible    for   its    con- 
dition.     Von    Schlemmer   v.    Kev- 


PRIVATE   CORPORATIONS.  719 

tlier  clefinition  since  even  the  wisest  men  may  differ  as 
to  what  is  a  'profitable'  business,  and  future  results  that 
may  appear  'questionable'  to  one  man  may  seem  uiKjues- 
tionable  to  another.  .  .  .  AVhile  it  is  proper  enough  to 
observe  the  past  history  of  the  respondent  corporation  as 
indicative  to  some  extent  of  its  future  tendencies,  it  nmst 
be  remembered  that  our  real  inquiry  is  as  to  the  impossi- 
bility of  its  future  success,  not  the  certainty  of  its  past 
failure.  .  .  .  The  respondent  is  a  'going  concern'  with 
unincumbered  assets  worth  $300,000  and  with  no  liabili- 
ties other  than  its  capital  stock,  ...  Its  future  success 
or  failure  is  a  simple  speculation,  just  as  it  was  twenty- 
five  years  ago,  and  we  can  not  justify  the  substitution  of 
our  judgment  on  that  question  for  the  judgment  of  its 
directors  and  majority  stockholders  by  a  judicial  affir- 
mance of  the  impossibility  of  a  comparatively  jirofitable 
issue  of  this  business."^ 

It  is  apparent  that  where  the  impossibility  of  conduct- 
ing its  business  in  a  profitable  manner  is  alleged  as  a 
ground  for  the  appointment  of  a  receiver  to  preserve  its 
assets  pending  a  dissolution,  a  very  strong  showing  on 
that  point  is  required  in  view  of  the  large  amount  of  dis- 
cretion allowed  to  the  directors  in  the  conduct  of  tlie 
business  and  the  wide  powers  given  to  the  majority  in 

3  Phinizy  v.  Anniston  City  Land  might  be   adopted,    and   the    busi- 

Co.,  195  Ala.  656,  71  So.  469.  ness   be  more  successful  if  other 

"Every  one  purchasing  or  sub-  methods  wei-e  pursued.  The  ma- 
sci'ibing  for  stock  in  a  corporation  jority  of  shares  of  its  stock,  or 
impliedly  agrees  that  he  will  be  the  agents  by  the  holders  thereof 
bound  by  the  acts  and  proceed-  lawfully  chosen,  must  be  permit- 
ings  done  or  sanctioned  by  a  ma-  ted  to  control  the  business  of  the 
jority  of  the  shareholders,  or  by  corporation  in  their  discretion, 
the  agents  of  the  corporation  duly  when  not  in  violation  of  its  char- 
chosen  by  such  majority,  within  ter,  or  some  public  law,  or  cor- 
the  scope  of  the  powers  conferred  ruptly  and  fraudulently  subversive 
Tjy  the  charter.  And  courts  of  of  the  rights  and  intent  of  the 
equity  will  not  undertake  to  con-  corporation  or  of  a  shareholder." 
trol  the  policy  or  business  meth-  Wheeler  v.  Pullman  Iron,  etc.,  Co., 
ods  of  a  corporation,  although  it  143  111.  197,  207,  17  L.  R.  A.  818, 
may  be  seen  that  a  wiser  policy  32  N.  E.  420. 


720  LAW    OF   RECEIVERS. 

interest  in  determining  by  their  choice  of  directors  the 
policy  of  the  corporation. 

§303.   Disastrous    Dissensions    or    Deadlock    Among    Officers 
*  or  Stockholders. 

Dissensions  among  the  stockholders  or  the  members 
of  the  board  of  directors  may  lead  to  the  appointment  of 
a  receiver.  Such  a  situation  can  exist  usually  only  when 
there  is  an  equal  or  nearly  equal  division  of  the  stock 
between  the  contending  parties  and  the  courts  in  appoint- 
ing receivers  in  this  situation  of  affairs  have  frequently 
relied  upon  what  they  characterize  to  be  an  analogy  be- 
tween business  corporations  and  partnerships.  To  war- 
rant the  appointment  of  a  receiver  the  dissensions  must 
have  been  of  such  a  serious  character  as  to  have  led  to  a 
practical  deadlock  in  the  management  of  the  business,  the 
cessation  of  the  business,  and  consequent  loss  and  injury 
to  the  property  and  good  will  of  the  corporation ;  and  it 
must  appear  that  the  wrongful  situation  will  continue 
unless  the  court  intervenes  to  straighten  out  the  muddle.^ 

1  Merrifield  v.  Burrows,  153  111.  of  directors  consisting  of  an  even 

App.  523;  Schmidt  v.  Mitchell,  101  number  are  at  a  deadlock  result- 

Ky.   570,  72  Am.  St.   Rep.   427,   41  ing  in  an  inability  to  do  business. 

S.  W.  929;  Miner  v.  Belle  Isle  Ice  Boyle    v.    Superior    Court,     176 

Co.,  93  Mich.  97,  17   L.  R.  A.  412,  Cal.   671,   L.   R.  A.  1918D,  226,  170 

53  N.  W.  218;   Sternberg  v.  Wolff,  Pac.  1140. 

56  N.  J.  Eq.  389,  67  Am.  St.   Rep.  A  receiver  in  the  case  of  dissen- 

494,  39   L.  R.  A.  762,  39  Atl.  397;  sions      amongst      the      governing 

Featherstone   v.    Cooke,   L.   R.    16  board  should  be  appointed  only  as 

Eq.  298.  far  as  necessary  to   preserve  the 

Where    the    dissensions    among  corporate  property  or  protect  the 

the  officers  of  the  corporation  are  rights  of  stockholders.     Howze  v. 

of  such  a  nature  that  it  is  appar-  Harrison,  165  Ala.  150,  51  So.  614. 

ent  that  they  can  not  be  removed.  Where    two    persons    each    own 

a  receiver  may  be  appointed  even  one-half  of  the  capital  stock  of  a 

though  the  corporation  is  not  in-  corporation,   but   one   has    control 

solvent.     Tompkins  Co.  v.  Cataw-  of  the  board  of  directors  and   at 

ba  Mills,  82  Fed.  780.  the   annual  stockholders'   meeting 

Under    the    statute    (Code    Civ.  a  deadlock  occurs  resulting  in  the 

Proc,    §  564,    subd.    6)    a    receiver  old  officers  holding  over,  and  they 

may  be  appointed  where  a  board  thereupon,  in  violation  of  an  agree- 


PRIVATE   CORPORATIONS. 


721 


It  tas  been,  however,  held  that  a  deadlock  in  the  affairs 
ol'  a  corporation  will  not  warrant  a  receivership  unless 


ment  of  the  controlling  stock- 
holder, increase  salaries,  and  there 
is  no  likelihood  of  a  reconciliation 
between  the  two  stockholders,  a 
receiver  is  properly  appointed. 
Boothe  V.  Summit  Coal  Mining  Co., 
55  Wash.  167,  104  Pac.  207,  19  Ann. 
Cas.  1255. 

In  Gibbs  v.  Morgan,  9  Idaho  100, 
72  Pac.  733,  the  business  of  the 
corporation  was  at  a  standstill 
owing  to  an  equal  holding  of  stock 
by  contending  factions  who  were 
unable  to  elect  a  new  board  of 
directors  and  the  court  ap_ioointed 
a  receiver,  under  the  authority  of 
the  statutory  clause  allowing  ap- 
pointments of  receivers  in  cases 
"where  receivers  have  heretofore 
been  appointed  by  the  usages  of 
courts  of  equity."  The  receiver 
was  directed  to  collect  the  insur- 
ance upon  the  mill  property  of  the 
company  which  had  been  burned, 
and  hold  it  until  further  order  of 
the  court. 

In  Powers  v.  Blue  Grass  Bldg., 
etc.,  Co.,  86  Fed.  705,  Judge  Lurton, 
then  Circuit  Judge,  held  that 
where  there  was  a  board  of  di- 
rectors and  another  board  irregu- 
larly and  illegally  elected  by  the 
stockholders  before  the  term  of 
the  old  board  had  expired,  and  the 
old  board  had  done  acts  which  for- 
feited the  confidence  of  the  stock- 
holders, it  was  proper  that  the 
corporate  assets  should  go  into 
the  hands  of  a  receiver  until  there 
can  be  elected  a  directorate  which 
will  lawfully  represent  those  in- 
terested In  the  corporation. 

So  also  where  deen  rooted  dis- 
sensions existed  between  the  few 
I  Rec. — 46 


stockholders  who  owned  the  stock 
of  the  corporation,  and  the  busi- 
ness was  in  no  condition  to  be  con- 
ducted on  account  of  deadlock 
conditions,  it  was  held  proper  to 
dissolve  the  cori)oration,  under 
statutory  provisions,  and  appoint 
a  receiver  for  that  purpose.  Wey- 
mouth v.  Oudln,  56  Wash.  315,  105 
Pac.  1027;  State  v.  Oudin,  etc., 
Mfg.  Co.,  48  Wash.  196,  93  Pac.  219. 

Under  some  statutes  it  is  held 
that  it  is  ground  for  the  dissolution 
of  a  solvent. corporation  that  there 
was  a  condition  of  deadlock  among 
the  stockholders  as  to  election  of 
officers,  which  resulted  in  an  im- 
possiblity  to  transact  business,  and 
there  was  as  a  consequence  a  finan- 
cial loss,  and  especially  where  one 
of  the  stockholders  was  organizing 
a  competing  business  which  would 
materially  interfere  with  the  busi- 
ness of  the  corporation.  State  v. 
Oudin,  etc.,  Mfg.  Co.,  48  Wash.  196, 
93  Pac.  219. 

In  Archer  v.  Am.  Water  Works 
Co.,  50  N.  J.  Eq.  33,  24  Atl.  508, 
the  court  stated  that  it  would  ap- 
point a  receiver  if  the  state  of 
affairs  was  not  remedied  by  the 
contending  parties.  The  dissen- 
sions were  over  the  ownership  of 
certain  large  holdings  of  stock 
which  governed  the  selection  of 
the  directorate. 

But  even  where  the  court  feels 
that  it  should  interfere  it  will  do 
so  for  only  a  limited  time  and  to 
as  small  an  extent  as  possible. 
Trade  Auxiliary  Co.  v.  Vickers, 
L.  R.  16  Eq.  303. 

And    in    Jasper    Land    Co.    v. 


722 


LAW    OF   RECEIVERS. 


complainants  are  able  to   show  some  fraud  or  wrong- 
doing in  the  conduct  of  their  opponents. - 


Wallis,  123  Ala.  652,  26  So.  659, 
the  court  was  of  the  opinion  that 
where  such  a  deadlock  condition 
exists  a  receivership  should  be 
created  until  there  is  a  recognized 
board  of  directors  elected  which  is 
competent  to  faithfully  and  effi- 
ciently conserve  the  interests  of 
all  of  the  stockholders. 

In  Edison  v.  Edison  United 
Phonograph  Co.,  52  N.  J.  Eq.  620, 
29  Atl.  195,  the  court  though  re- 
fusing the  appointment  recognized 
the  power  to  do  so  but  stated 
that  the  power  should  be  exercised 
with  great  caution  and  only  for 
such  time  and  extent  as  was 
necessary  for  preservation  pur- 
poses. In  this  there  was  a  law- 
fully constituted  governing  body 
in  peaceable  possession  of  the  cor- 
porate property. 

2  Birmingham  Disinfectant  Co. 
v.  Smith  (Smith  v.  Birmingham 
Disinfectant  Co.),  174  Ala.  374,  56 
So.  721;  Wallace  v.  Pierce-Wallace 
Pub.  Co.,  101  Iowa  313,  63  Am.  St. 
Rep.  389,  38  L.  R.  A.  122,  70  N.  W. 
216;  Sternberg  v.  Wolff,  56  N.  J. 
Eq.  389,  67  Am.  St.  Rep.  494;  39 
L.   R.  A.  762,  39  Atl.  397. 

Where  the  board  of  directors 
consisted  of  three  members,  and 
upon  the  death  of  one,  the  other 
two  were  unable  to  agree  upon 
his  successor  or  upon  the  election 
of  any  one  to  be  president  of  the 
corporation  and  as  a  consequence 
the  business  of  the  corporation 
was  being  seriously  injured,  it  is 
proper  to  appoint  a  receiver  pend 
ing  the  settlement  of  the  affair 
by  the  courts.  Sheridan  Brick 
Works   V.   Marion   Trust   Co.,   157 


a 


Ind.  292,  87  Am.  St.  Rep.  207,  61 
N.  E.  666. 

See  Boyle  v.  Superior  Court 
176  Cal.  671,  L.  R.  A.  1918D,  226, 
170  Pac.  1140,  which,  however, 
was  a  case  arising  under  statu- 
tory provisions  where  a  receiver 
was  appointed  because  of  a  dead- 
lock among  the  board  of  directors. 

In  Little  Warrior  Coal  Co.  v. 
Hooper,  105  Ala.  665,  17  So.  118. 
the  stock  of  the  corporation  was 
owned  by  three  persons,  one  of 
whom  owned  one  half  of  it.  It  was 
solvent  and  owed  but  a  small 
amount.  No  fraud  was  alleged  but 
it  was  alleged  that  its  affairs  were 
mismanaged.  The  evident  purpose 
of  the  bill  was  to  stave  off  credi- 
tors. The  court  refused  to  appoint 
a  receiver.  It  was  also  alleged 
that  the  other  two  stockholders 
between  whom  one-half  of  the 
stock  was  equally  divided  would 
not  agree  with  complainant  in 
selecting  directors. 

In  Alabama  Coal,  etc.,  Co.  v. 
Shackelford,  137  Ala.  224,  97  Am. 
St.  Rep.  23,  34  So.  833,  the  court 
refused  to  appoint  a  receiver  on 
the  ground  of  a  deadlock  in  its 
affairs  because  the  board  of  di- 
rectors which  held  over  were  in 
undisputed  possession  of  the  prop- 
erty of  the  corporation,  but  the 
court  stated  that  if  the  corpora- 
tion had  no  directors  and  none 
could  be  elected,  or  if  there  were 
such  dissensions  among  them  that 
no  business  could  be  transacted,  a 
receiver  should  be  appointed. 

In  Einstein  v.  Rosenfeld,  38  N.  J. 
Eq.  209,  the  court  refused  to  ap- 
point a  receiver,  but  was  largely 


PRIVATE   CORPORATIONS. 


723 


§304.    Mismanagement  on  Part  of  Majority  Stockholders. 

The  circumstance  most  commonly  relied  upon  by 
minority  stockholders  as  a  basis  for  an  application  for  a 
receiver  is  mismanagement  of  the  corporate  affairs. 
Under  the  law  and  the  implied  contract  of  an  individual 


influenced  in  its  refusal  by  tlie 
fact  that  notwithstanding  the  dead- 
lock condition  as  to  the  election 
of  officers  the  business  of  the  cor- 
poration was  still  continued  in 
operation. 

In  Katz  V.  De  Wolf,  151  Wis.  337, 
Ann.   Cas.   1914B,   237,   138   N.   W. 
1013,  there  was  a  deadlock  in  the 
affairs  of  the  corporation  because 
of  an  equal  division  of  the  stock- 
holdings.  The  court  refused  to  ap- 
point   a    receiver    but    upon    the 
ground   that  there   was   no   immi- 
nent danger  threatened.  The  court, 
speaking    through    Judge    Timlin, 
said:     "The    development   of   cor- 
poration law  began  with  a  strict- 
ness of  analogy  between  munici- 
pal and  stock  corporations  which 
is  no  longer  fully  observed.    The 
change  from  the  ancient  mode  of 
creating    corporations    by    special 
act    to    permit    organizations    by 
public  declarations  or  contractual 
undertakings     acknowledged     and 
filed   in    a    public   office,    and   the 
great    multiplication    of    corpora- 
tions thereunder,  caused  some  fur- 
ther   change.      There    is    unques- 
tionably a  broad  power  of  equity 
applicable      wherever     wrong     is 
shown    of    such    a    nature    as    to 
arouse   the   equitable  jurisdiction. 
Whether  in  case  of  a  mere  dead- 
lock between  two  or  more  contend- 
ing groups  of  stockholders  a  court 
of   equity   would   by   final   decree 
appoint   a   receiver   and   decree   a 


sale  of  the  corporate  property  and 
a    distribution    among    the    share- 
holders is  not  before  us,  and  the 
disposition  of  this   motion   is   not 
to  be  taken  to  affect  that  question. 
But  where  there  is  no  imminent 
danger    of   loss    of   the    corporate 
property  or  of  any  other  injury  to 
the  moving  which  can  not  be  fully 
compensated   by  the  final  decree, 
the  courts  will  not,  upon  affidavits 
and  in  advance  of  a  trial  on  the 
merits,  by  placing  the  property  in 
the  hands  of  a  receiver,  wrest  the 
possession  of  the  corporate  prop- 
erty   from    the    corporation    and 
from  those  officers  who  are  duly 
elected  and   who  prima  facie  are 
entitled  to  administer  the  affairs 
of  the  corporation." 

The  court  in  the  above  case  laid 
considerable  stress  upon  the  fact 
that  the  complainant  had  not  made 
any  strenuous  efforts  to  agree  to 
the  election  of  any  controlling  di- 
rector and  that  the  defendant  had 
offered,  when  it  became  apparent 
that  his  choice  for  directors  could 
not  be  elected,  to  submit  a  list  of 
competent  and  unbiased  men  for 
selection,     but     we      think     that 
neither  faction  to  a  deadlock  need 
forfeit  their   rights   by    reason   of 
failing   to   compromise    the    situa- 
tion at  the  instance  of  the  other 
faction.     The    decision,    however, 
was  justified  upon  the  ground  of 
no  imminent  threatened  danger  to 
the  property  of  the  corporation. 


724  LAW   OF    RECEIVERS. 

when  he  becomes  the  owner  of  shares  of  stock  in  a  cor- 
poration, the  majority  shareholders  are  entitled  to  the 
control  and  management  of  the  corporate  affairs ;  this 
implied  contract  is  for  the  legal  life  of  the  organization. 
The  right  of  the  majority  will  not  be  lightly  interfered 
with  by  judicial  action.  Mere  differences  of  opinion  on 
questions  of  policy  will  not  lead  to  the  displacement  of 
majority  control  by  that  of  an  outsider.  Mistakes,  inad- 
vertence, or  bad  business  policy,  if  honestly  pursued,  will 
not  lead  to  ouster  of  this  legal  management;  nor  will 
mere  irregularities,  nor  minor  and  comparatively  trivial 
faults  of  commission  or  omission  on  the  part  of  the  legal 
managers;  nor  will  the  possibility  of  loss  or  injury  that 
is  not  so  imminent  but  that  it  may  possibly  be  prevented 
pending  other  action  by  the  court.  ^ 

When  all  has  been  said  that  may  be  said  along  this 
line  it  still  remains  a  fact,  according  to  numerous  deci- 
sions of  many  courts,  that  mismanagement  of  corporate 
affairs  by  the  majority  may  justify  a  demand  on  the  part 
of  a  minority  that  an  officer  of  the  court  be  placed  in 
control.    ^*A  majority  of  the  stockholders  of  a  corpora- 

1  Metcalfe   v.   Johnson,    151    Ky.  receiver  may  be  appointed.    Thor- 

823,    152    S.    W.    951;     Secord    v.  oughgood    v.    Georgetown    Water 

Wheeler     Gold     Mining     Co.,     53  Co,    9    Del.    Ch.    84,    77    Atl.    720; 

Wash.  620,  17  Ann.  Cas.  914,  102  Brent    v.    B.    E.    Brister    Sawmill 

Pac.    654;    Katz    v.    De    Wolf,    151  Co.,     103     Miss.     876,     Ann,     Cas. 

Wis.    337,    Ann.    Cas.    1914B,    237,  1915B,  576,  43  L.  R.  A.  (N.  S.)   720, 

138   N.   W.   1013.  60  So.  1018;  Cantwell  v.  Columbia 

The  fact  that  the  directors  of  a  Lead  Co.,  199  Mo.  1,  97  S.  W.  167; 

corporation  disagree  among  them-  Vila  v.  Grand.  Island,  etc.,  Co.,  68 

selves  as  to  whether  the  business  Neb.    222,    232,    110   Am.    St.    Rep. 

should    be    conducted    on    a    cash  400,   4   Ann.   Cas.   59,   63    L.   R.   A. 

basis    or  not   is    not   sufficient   to  791,  94  N.  W.  136,  97  N.  W.  613; 

warrant  the  appointment  of  a  re-  Fougeray    v.    Cord,    50    N.    J.    Eq. 

ceiver  at  the  suit  of  a  dissenting  185,  24  Atl.  499. 

stockholder.       Jacobs     v.     Jacobs  A  receiver  will  bo  appointed  at 

Mercantile   Co.,   37    Mont.   321,    96  the  instance  of  a  minority  stock- 

Pac.  723.  holder,    although    the    corporation 

In  a  suit  based  upon  fraud  or  is  not  insolvent,  where  the  major- 
mismanagement  on  the  part  of  ity  of  the  stockholders  are  at- 
the    officers    of    a    coi'poration,    a  tempting   to   divert  its    assets   to 


PRIVATE   CORPORATIONS. 


725 


tion,  no  matter  how  Large,  lias  no  right  to  divert  to  them- 
selves assets  of  the  company  to  the  detriment  of  its 
creditors  and  stockholders.  .  .  .  Although  the  major- 
ity of  the  stock  of  a  company  may  vote  and  vote  as 
self-interest  dictates  and  under  ordinary  circumstances 
the  relation  of  trustee  and  cestui  que  trust  does  not  exist 
and  the  ordinary  rules  in  respect  to  trusts  are  not  to  be 
applied,  yet  such  power  is  not  unlimited."- 

The  law  requires  of  the  majority  the  utmost  good  faith 
in  the  control  and  management  of  the  corporation  as  to 
the  minority.  It  is  the  essence  of  this  trust  that  it  shall 
be  so  managed  as  to  produce  for  each  stockholder  the 
best  possible  return  for  his  investment.^ 

To  warrant  the  appointment  of  a  receiver  the  misman- 
agement complained  of  must  be  of  a  gross  or  very  serious 


themselves.  Morse  v.  Metropoli- 
tan S.  S.  Co.,  87  N.  J.  Eq.  217, 
100  Atl.  219. 

A  receiver  will  not  be  appointed 
at  the  instance  of  a  minority 
stockholder  where  there  is  no  alle- 
gation of  mismanagement  of 
funds  and  merely  that  the  defen- 
dants induced  plaintiff  to  purchase 
stock  in  the  corporation  while 
not  paying  for  their  own  stock. 
Fuller  V.  McCormick,  156  Mich. 
518,  521,  121  N.  W.  280,  282. 

A  mere  difference  of  opinion 
among  stockholders  or  directors 
as  to  the  best  business  methods 
or  policy  of  the  corporation  is  not 
ground  for  the  appointment  of  a 
receiver.  Carson  v.  Allegany 
Window  Glass  Co.,  189  Fed.  791. 

2  Morse  v.  Metropolitan  S.  S. 
Co.,  87  N.  J.  Eq.  217,  100  Atl.  219. 

3  Miner  v.  Belle  Isle  Ice  Co.,  93 
Mich.  97,  17  L.  R.  A.  412,  53  N.  W. 
218. 

In  Ervin  v.  Oregon  Ry.,  etc., 
Co.,  27  Fed.  625,  23  Blatchf.   517, 


the  court  in  answer  to  the  conten- 
tion of  the  defendants  that  they 
as  a  majority  in  control  of  the 
corporation  had  a  right  to  con- 
trol its  affairs  according  to  their 
discretion  regardless  of  whether 
they  secured  personal  profit  to 
themselves,  said:  "They  err  if 
they  suppose  that  a  court  of  equity 
will  tolerate  a  discretion  which 
does  not  consult  the  interests  of 
the  minority. 

"Courts  interfere  seldom  to 
control  such  discretion  intra  vires 
the  corporation,  except  where  the 
directors  are  guilty  of  misconduct 
equivalent  to  a  breach  of  trust,  or 
where  they  stand  in  a  dual  rela- 
tion which  prevents  an  unpreju- 
diced exercise  of  judgment;  and, 
as  a  rule,  only  after  application 
to  the  stockholders,  unless  it  ap- 
pears that  there  was  no  oppor- 
tunity for  such  application,  that 
such  application  would  be  futile 
(as  where  the  wrongdoers  control 
the  corporation),  or  that  the  delay 
involved   would   defeat  recovery." 


726 


LAW    OF    RECEIVERS. 


character ;  it  must  be  due  to  fraud  in  law,  if  not  actual 
fraud,  or  to  extreme  incompetence;  it  must  have  caused 
and  threaten,  if  continued,  to  cause  serious  impairment 
of  the  stockholder's  investment  through  loss  of  dividends 
or  the  destruction  of  the  investment  through  insolvency.^ 


United  Copper  Securities  Co.  v. 
Amalgamated  Copper  Co.,  244 
U.  S.  261,  61  L.  Ed.  1119,  37  Sup. 
Ct.   509. 

4  Van  Vleet  v.  Evangeline  Oil 
Co.,  127  La.  919,  54  So.  286;  Brock 
V.  Automobile  Livery  &  Sales  Co., 
130  La.  414,  58  So.  25;  Sant  v. 
Perronville  Shingle  Co.,  179  Mich. 
42,  146  N.  W.  212;  Brent  v.  B.  E. 
Brister  Sawmill  Co.,  103  Miss.  876, 
Ann.  Cas.  1915B,  576,  43  L.  R.  A. 
(N.  S.)  720,  60  So.  1018;  State 
ex  rel.  Connors  v.  Shelton,  238 
Mo.  281,  142  S.  W.  417;  Bates 
V.  Werries,  198  Mo.  App.  209, 
199  S.  W.  758;  Exchange  Bank 
V.  Bailey,  29  Okla.  246,  39  L.  R.  A. 
(N.  S.)  1032,  116  Pac.  812;  Van 
Horn  V.  New  Western  Shingle 
Co.,  54  Wash.  117,  103  Pac.  42; 
Powers  V.  Blue  Grass  B.  &  L. 
Assn.,  86  Fed.  705,  707;  Welch  v. 
Union  Casualty  Ins.  Co.,  238  Fed. 
968. 

Where  the  policy  of  the  major- 
ity is  alleged  to  constitute  gross 
mismanagement  and  to  result  in 
insolvency,  it  is  not  necessary  to 
prove  that  the  corporation  is  al- 
ready insolvent.  Mitchell  v.  Au- 
lander  Realty  Co.,  169  N.  C.  516, 
86  S.  E.  358. 

A  receiver  may  be  appointed 
over  the  property  of  a  corporation 
to  prevent  it  being  wasted  and 
misappropriated  in  pursuance  of 
a  fraudulent  conspiracy.  State  v. 
Second  Judicial  District  Court,  15 
Mont.  324,  48  Am.  St.  Rep.  682,  27 
L.  R.  A.  392,  39  Pac.  316. 


A  receiver  will  not  be  appointed 
at  the  instance  of  a  minority 
stockholder  because  of  alleged 
misappi'opriation  of  funds  where 
there  is  no  showing  that  the  cor- 
poration will  not  protect  its  funds 
or  that  it  is  insolvent.  Howze  v. 
Harrison,  165  Ala.  150,  155,  51 
So.  614,  615. 

Where  the  officers  of  the  cor- 
poration are  prosperous  and  the 
officers  who  are  alleged  to  be  vio- 
lating their  trust  are  financially 
able  to  respond  in  damages,  a  re- 
ceiver will  not  be  appointed  at  the 
instance  of  a  minority  stockholder. 
Metzger  v.  Knox,  136  N.  Y.  Supp. 
681,  77  Misc.  Rep.  271;  order  af- 
firmed 137  N.  Y.  Supp.  1129,  153 
App.  Div.  911. 

In  Kennedy  Drug  Co.  v.  Keyes, 
60  Wash.  337,  111  Pac.  175,  the  de- 
fendant had  without  consideration 
appropriated  to  himself  more  than 
one-half  of  the  stock  of  the  cor- 
poration and  thereby  obtained 
control  over  it.  A  receiver  was 
appointed  over  the  company  on 
the  ground  that  the  defendant 
was  mismanaging  it  and  that  in- 
solvency was  imminent. 

Where  the  directors  allow  the 
president  to  handle  the  funds  of 
the  corporation  in  a  manner  not 
authorized  by  the  charter  and 
without  exacting  a  proper  ac- 
counting of  them,  a  receiver  may 
be  appointed.  In  re  Receivership 
of  Leidigh-Dalton  Lumber  Co.,  13G 
La.  39,  66  So.  390. 


PRIVATE   CORPORATIONS. 


727 


Directors  whose  conduct  is  complained  of  are  neces- 
sary parties  to  the  suit.^  The  acts  complained  of  must 
be  set  out  \\dtli  particularity,  definitely,  positively,  and 
not  in  the  form  of  conclusions;  and  must  be  strictly 
proved. '^  If  the  directors  complained  of  are  liable  for 
damages  or  for  return  of  property,  or  otherwise,  and  a 
recovery  from  them  would  furnish  a  substantial  relief, 
it  must  be  shown  that  they  could  not  be  made  to  respond 
to  a  judgment  against  them."  A  receiver  will  not  be 
appointed  at  the  instance  of  a  stockholder  who  was  a 
participant  in  the  wrongdoing  complained  of.^ 


Incompetency  to  properly  attend 
to  the  corporate  affairs  together 
with  allegations  of  a  conspiracy 
on  their  part  to  loot  it  of  its  profits 
and  drive  it  into  insolvency  may 
be  sufficient.  Hall  v.  Nieukirk,  12 
Idaho  33,  118  Am.  St.  Rep.  188,  85 
Pac.  485. 

Where  the  officers  of  the  cor- 
poration through  fraud  or  collu- 
sion with  third  persons  are  sacri- 
ficing or  about  to  sacrifice  the  in- 
terests of  the  corporation,  a 
stockholder  may  intervene  and 
bring  the  guilty  parties  to  an  ac- 
counting in  a  court  of  equity. 
Forbes  v.  Memphis,  etc.,  Ry.  Co., 
2  Woods  (U.  S.)  323,  Fed.  Cas. 
No.  4926. 

Where  the  majority  of  the 
stockholders  of  a  corporation,  who 
are  also  the  directors,  are  clearly 
violating  the  charter  rights  of  the 
minority,  as  by  diverting  all  the 
earnings  of  the  company  to  them- 
selves, either  directly  or  indi- 
rectly, a  court  of  equity  will  ap- 
point a  receiver  at  suit  of  a  minor- 
ity stockholder,  although  the  com- 
pany is  solvent;  there  being  no 
complete,  prompt,  and  efficient 
remedy  at  law.  Columbia  Nat. 
Sand     Dredging    Co.     v.     Washed 


Bar  Sand  Dredging  Co.,  136  Fed. 
710. 

An  assignment  of  creditors 
made  for  the  purpose  of  forcing 
certain  stockholders  to  concur 
with  a  certain  policy  may  be  suffi- 
cient. Collins  V.  Williamson,  229 
Fed.  59,  143  C.  C.  A.  653. 

A  stockholder  who  is  being  in- 
jured by  the  fraud  or  collusion  of 
the  officers  of  the  corporation 
with  third  persons  may  properly 
bring  the  guilty  parties  to  account 
in  a  court  of  equity.  Forbes  v. 
Memphis,  etc.,  Ry.  Co.,  2  Woods. 
323,  Fed.  Case  No.  4926. 

5  Bliss  V.  Linden  Cemetery 
Assn.,  81  N.  J.  Eq.  394,  87  Atl.  224. 

6  Carson  v.  Allegany  Window 
Glass  Co.,  189  Fed.  791;  Heitkamp 
V.  American  Pigment  &  Chemical 
C(t.,  158  111.  App.  587;  Curtiss  v. 
Dean  &  Curtiss,  85  Wash.  435,  148 
Pac.  581. 

7  Birmingham  Disinfectant  Co. 
V.  Smith  (Smith  v.  Birmingham 
Disinfectant  Co.),  174  Ala.  374,  56 
So.  721;  Howeth  v.  Colbourne 
Bros.  Co.,  115  Md.  107,  80  Atl.  916. 

s  Hyde  Park  Gas  Co.  v.  Kerber, 
5  111.  App.  132;  Alabama  Coal,  etc., 
Co.  V.  Shackelford,  137  Ala.  224, 
97  Am.  St.  Rep.  23,  34  So.  833, 


728  LAW    OF    RECEIVERS. 

§  305.     Insolvency  as  a  Ground  for  the  Appointment. 

The  appointment  of  a  receiver  at  the  instance  of  a 
stockholder  is  justified  under  the  various  circumstances 
above  mentioned  even  though  the  corporation  is  solvent. 
.Insolvency  is,  however,  often  the  controlling  circum- 
stance that  points  to  the  propriety  of  a  receivership. 
In  such  a  situation  there  is  usually  a  creditor  ready  or 
easily  persuaded  to  take  the  initiative  and  there  are  but 
few  instances  in  which  stockholders  have  asked  for  a 
receiver  on  this  ground.  If  a  receiver's  management  is 
likely  to  be  the  most  successful  method  of  handling  a 
corporation's  assets,  a  stockholder  is  entitled  to  this  rem- 
edy in  case  of  an  insolvent  corporation  both  for  the  pur- 
pose of  saving  as  much  as  possible  of  his  investment  or 
of  reducing  as  much  as  possible  his  liability  to  creditors 
on  unpaid  stock  subscriptions  or  under  the  pro\dsions  of 
a  double  liability  law.^ 

A.   Appointments  hy  Equity  Courts  at  the  Instance 
of  Creditors. 

§306.     What  Status  of  Creditor  is  a  Necessary  Condition. 

Corporation  receivers  may  be  appointed  at  the  instance 
of  creditors.  It  is  a  general  rule  in  equity  that  a  general 
creditor,  not  having  a  lien  upon  any  specific  property, 
can  not  successfully  apply  for  the  appointment  of  a 
receiver.!     A  defense  on  the  ground  that  the  plaintiff 

1  Towle  V.  American  Bldg.,  etc.,  states  himself  out  of  court  by  ask- 

Soc,   60   Fed.   131;    United   States  ing  for  a  receiver  on  the  ground 

Shipbuilding    Co.    v.    Conklin,    126  of  insolvency.     Rider  v.   John   G. 

Fed.  132,  60  C.  C.  A.  680;  State  ex  Delher  &  Sons  Co.,  145  Ky.  634. 
rel.   Connors   v.    Shelton,    238   Mo.  i  Etowah  Min.  Co.  v.  Wills,  etc., 

281,  142  S.  W.  417.  Mfg.  Co.,  106  Ala.  492,  17  So.'  522*^ 

Since,  on  the  distribution  of  the  Hobson  v.  Pacific  States,  etc.,  Co., 

assets   of  a  corporation    by   a   re-  5  Cal.  App.  94,  89  Pac.  866;  Smith 

ceiver,  creditors  are  preferred  to  v.  Superior  Court,  97  Cal.  348,  32 

stockholders,    a    preferred    stock  Pac.   322;    Atlanta  &  C.  R.   Co.  v. 

holder,  entitled  to  have  his  stock  Carolina  Portland  Cement  Co.,  140 

redeemed      by     the      corporation,  Ga.  650,  79  S.  E.  555;   Guilbert  v. 


PRIVATE    CORPORATIONS. 


729 


creditor  is  not  a  judgment  nor  a  lien  creditor  may  be 
waived  by  tlie  corporation  either  by  express  consent  or 
by  failure  to  raise  the  point  without  constituting  colhi- 
sion.-    A  consent  given  by  an  officer  not  duly  authorized 


Kessinger,  173  Mo.  App.  680,  160 
S.  W.  17;  Leary  v.  Columbia  River, 
etc.,  Nav.  Co.,  82  Fed.  775. 

The  general  rule  is  that  before 
a  receiver  will  be  appointed  for  an 
insolvent  corporation  at  the  in- 
stance of  a  creditor,  an  unsatisfied 
execution  issued  on  a  judgment  in 
favor  of  the  creditor  must  be  re- 
turned. Minkler  v.  United  States 
Sheep  Co.,  4  N.  D.  507,  33  L.  R.  A. 
546,   62   N.  W.   594. 

Where  the  corporation  is  sol- 
vent, a  simple  creditor  is  not  in  a 
position  to  ask  for  the  appoint- 
ment of  a  receiver  upon  the 
ground  of  mismanagement  of  its 
affairs.  Equitable  Life  Assur.  Soc. 
V.  Brown,  213  U.  S.  25,  53  L.  Ed. 
682,  29   Sup.  Ct.  404. 

The  judgment  may  have  been 
obtained  in  another  state.  Mer- 
chants Nat.  Bank  v.  Chattanooga 
Const.  Co.,  53  Fed.  314. 

See  also  §  271  et  seq.,  supra. 
2  Where  the  corporation  itself 
has  not  objected  to  the  appoint- 
ment of  a  receiver  at  the  instance 
of  a  judgment  creditor  on  the 
ground  that  he  did  not  have  an 
execution  returned  unsatisfied,  an- 
other creditor  is  not  in  a  position 
to  object.  Enos  v.  New  York,  etc., 
R.  Co.,  103  Fed.  47. 

Where  the  corporation  appears 
in  the  proceeding  and  admits  the 
debt  of  plaintiff  and  its  own  in- 
solvency, the  objection  that  only 
a  judgment  creditor  has  a  right  to 
institute  proceedings  resulting  in 
a  receivership  can  not  be  urged 
by  other  creditors  in  the  absence 


of  fraud  or  collusion.  Citizens 
Bank  &  Trust  Co.  v.  Union  Min- 
ing, etc.,  Co.,  106  Fed.  97;  Union 
Trust  Co.  V,  Southern  Sawmills 
&  Lumber  Co.,  166  Fed.  193,  92 
C.  C.  A.  101;  American  Can  Co.  v. 
Erie  Preserving  Co.,  171  Fed.  540; 
Burton  v.  R.  G.  Peters  Salt  & 
Lumber  Co.,  190  Fed.  262;  Equi- 
table Trust  Co.  V.  Great  Shoshone, 
etc.,  Power  Co.,  245  Fed.  697,  158 
C.  C.  A.  99;  In  re  Reisenberg 
(Metropolitan  Railway  Receiver- 
E,hip),  208  U.  S.  SO,  52  L.  Ed.  403, 
28  Sup.  Ct.  219;  Northwestern 
Nat.  Bank  of  Minneapolis  v.  Mick- 
elson-Shapiro  Co.,  134  Minn.  422, 
159  N.  W.  948. 

A  corporation  having  waived 
this  defense  in  one  district  can 
not  successfully  raise  it  in  a  suit 
in  another  district  when  the  sec- 
ond receivership  is  really  de- 
signed to  be  ancillary  to  the  first. 
Walker  v.  United  States  Light, 
etc.,  Co.,  220  Fed.  393. 

The  appointment  of  a  receiver 
for  a  corporation  was  not  subject 
to  collateral  attack,  even  if  er- 
roneous, because  no  judgment  in 
favor  of  plaintiff  had  been  ren- 
dered against  the  corporation  and 
execution  returned  unsatisfied. 
Guilbert  v.  Kessinger,  173  Mo. 
App.  680,  160  S.  W.  17. 

Consent  of  the  corporation  will 
not  give  jurisdiction  to  a  court 
that  is  otherwise  without  jurisdic- 
tion. Elliott  v.  Superior  Court, 
168  Cal.  727,  145  Pac.  101. 

Where  the  defendant  corporr.- 
tion  was  insolvent  at  the  time  of 


730  LAW    OF   RECEIVERS. 

to  give  it  is  voicl.^  The  right  to  proffer  this  defense  may, 
however,  be  lost  by  laches.^  A  creditor's  action  may  be 
maintained  even  though  the  debt  is  not  due.^  Stock- 
hoklers  may  intervene,*^  but  the  right  to  intervene  may 
be  lost  by  lachesJ 

§  307.     Circumstances  Necessary  to  Warrant  the  Appointment. 

Creditors,  generally  speaking,  have  as  much  right  to 
have  their  interests  protected  by  a  receiver  as  have  stock- 
holders.^ Since,  however,  it  usually  happens  that  minor- 
ity stockholders  are  ready  to  protect  their  interests  by 
commencing  suits  under  most  of  the  other  circumstances 
that,  as  above  shown,  will  warrant  the  appointment  of 
receivers,  and  since  the  rights  of  all  creditors  must  be 
protected  in  such  suits,  we  find  that  creditors'  actions 
are  usually  based  upon  the  fact  that  the  corporation  is 
insolvent.  Frequently,  however,  the  corporation's  in- 
solvency is  due  to  mismanagement  on  the  part  of  its 
officers,   or  to   the   abandonment  of  its   affairs  by   the 

the  filing  of  the  bill  in  which  the  5  Lively  v.  Picton,  218  Fed.  401, 

receiver  was  asked  and  the  cred-      134  C.  C.  A.  189. 

itor  bringing  the  suit  was  selected  «  Jones  v.  Ezell,  134  Ga.  553,  68 

by  one  of  the  officers  of  the  cor-      S-  ^-  ^0^- 

A  stockholder  held  not  entitled 
to  prevent  a  dismissal  of  credi- 
tor's suit  based  on  insolvency  and 
restoration  of  the  property  on  an 
that  the  corporation  admitted  the  agreement  between  the  creditors 
allegations  of  the  bill,  consented  ^^^^  ^^^  corporation.  Shaffer  v. 
to  the  appointment  of  the  re-  McCulloch,  192  Fed.  801,  113 
ceiver  and  agreed  as  to  the  person      c    C    A    535 

to  be  appointed   was   held   not  to         \  Hutchilson  v.  Philadelphia  & 
show   collusion.     Burton    v.   R.   G.       (.    g    g    ^^^  2I6  Fed    795 
Peters  Salt,  etc.,  Co.,  190  Fed.  262.  ,  ^^^^^  ^   Farmers'  Nat.  Bank, 

3  Pearson  v.  Levy  Carpet  Co.,  i67  Ky.  506,  180  S.  W.  807;  Dal- 
137  La.  223,  68  So.  421;  Nesbit  v.  gheimer  v.  Graphic  Arts  Co.,  86 
North  Georgia  Electric  Co.,  156  n  j.  Eq.  49,  97  Atl.  497;  Kelso  v. 
Fed.  979;  Bassettv.  Bickford  Bros.  American  Inv.  &  Imp.  Co.,  50 
Co.,  232  Fed.  895.  Wash.   381,  97  Pac.  294;    Rowland 

4  American  Can  Co.  v.  Erie,  etc.,  v.  Corn,  232  Fed.  35,  146  C.  C.  A. 
Co.,  171  Fed.  540.  227. 


poratlon  with  a  view  to  showing  a 
diversity  of  citizenship  in  order  to 
confer  federal  jurisdiction  the  fact 


PRIVATE    CORPORATIONS. 


731 


officers,  or  to  some  other  similar  cause,  and  allegations 
concerning  such  matters  are  embodied  in  the  complaints 
even  though  insolvency  may  be  the  controlling  circum- 
stance relied  upon  as  the  basis  for  the  request  for  a 
receiver. 

§308.     Insolvency  as  a  Controlling  Circumstance, 

In  this  connection  it  is  usually  held  that  insolvency 
is  shown  by  the  inability  of  the  corporation  to  pay  its 
current  obligations  as  they  mature  in  the  ordinary  course 
of  its  business ;  and  it  is  not  necessary  to  show  an  actual 
deficit  of  assets  as  compared  with  liabilities.^  The  in- 
solvency must,  however,  be  serious  in  extent  to  warrant 
a  receivership.  Mere  failure  or  inability  to  pay  a  few 
matured  claims  will  not  be  sufficient.-    It  is  to  be  remem- 


1  Equipment  Co.  v.  Deguan,  1S4 
Fed.  834,  107  C.  C.  A.  158. 

The  federal  courts  at  an  early 
date  took  the  theory  that  a  re- 
ceiver appointed  in  equity  could 
settle  the  affairs  of  insolvent  cor- 
porations in  the  same  manner  as 
was  contemplated  by  certain  state 
statutes  which  made  provision  for 
the  appointment  of  receivers  in 
such  circumstances.  Davis  v.  Gray, 
16  Wall  203,  21  L.  Ed.  447. 

In  cases  of  insolvency  the  ob- 
taining of  a  judgment  at  law  and 
return  of  an  unsatisfied  execution 
are  regarded  as  an  idle  ceremony 
and  one  sometimes  dispensed 
with  as  a  preliminary  to  the  ap- 
pointment of  a  receiver.  Chicago, 
etc.,  Ry.  Co.  v.  Kenney,  159  Ind. 
72,  62  N.  E.  26. 

2  Cassels  Mills  v.  First  Nat. 
Bank  of  Gadsden,  187  Ala.  325,  65 
So.  820;  Banta  v.  Hubbell,  167 
Mo.  App.  38,  150  S.  W.  1089. 

Mere  insolvency  not  sufficient 
where   no   fraud   alleged,     Galvin 


V.  McConnell  53  Tex.  Civ.  486,  117 
S.  W.  211;  Pond  v.  Framingham, 
etc.,  R.  Co.,  130  Mass.  194;  Law- 
rence Iron  Works  Co.  v.  Rock- 
bridge Co.,  47  Fed.  755. 

Insolvency  of  a  corporation 
combined  with  gross  mismanage- 
ment and  breach  of  trust  on  the 
part  of  the  officers  of  the  cor- 
poration will  constitute  sufficient 
ground  for  the  appointment. 
United  States  Shipbuilding  Co.  v. 
Conklin,  126  Fed.  132,  60  C.  C.  A. 
680. 

Where  the  assets  of  an  insol- 
vent corporation  are  scattered  in 
different  states  and  its  affairs  are 
mismanaged,  a  receiver  will  be 
appointed.  Towle  v.  American 
Bldg.,  etc.,  Soc,  60  Fed.  131. 

Where  the  concern  is  not  only 
insolvent  but  conducting  an  ille- 
gal business,  such  as  running  a 
bucket  shop,  a  receiver  may  be 
appointed  at  the  instance  of  a 
simple  creditor  to  wind  up  its 
affairs.  Weiss  v.  Haight,  etc.,  Co., 
148  Fed.  399. 


732  LAW    OF    RECEIVERS. 

bered  in  tliis  connection  that  a  creditor's  suit  for  a 
strictly  corporation  receiver  is  a  representative  action. 
The  creditor  sues  on  behalf  of  himself  and  all  other  cred- 
itors.^ Other  creditors  are  not  necessarily  expressly 
made  parties  because  they  are  represented  by  the  plain- 
tiff; and,  if  they  are  opposed  to  the  creation  of  a  receiver- 
ship, they  may  intervene  and  in  that  way  voice  their 
opposition  f  and,  since  the  receiver  acquires  full  charge 
of  the  affairs  of  the  corporation,  all  creditors  will  be 
given  notice  and  an  opportunity  to  present  their  claims. 
Accordingly  the  insolvency  that  furnishes  sufficient 
ground  for  the  appointment  of  a  receiver  is  a  very  serious 
embarrassment  that  has  already  caused  or  threatens  to 
cause  at  an  early  date  a  practically  complete  cessation  of 
its  business  and  a  wiping  out  of  its  assets.  If  the  com- 
plaint shows  the  existence  of  numerous  and  pressing  de- 
mands for  unpaid  claims  and  the  probability  of  harassing 
litigation  and  forced  sale  of  assets,  to  the  disadvantage 
of  most,  if  not  all,  of  the  creditors,  coupled  with  the  prob- 
ability that  an  impartial  management  by  an  ofiQcer  of  the 
court  wdll  produce  a  distribution  more  just  to  all  con- 
cerned, a  receiver  will  be  appointed ;  and  if  such  a  show- 

3  It  was  held  to  be  an  action  on  the    selling    company    refused    to 

behalf  of  all  creditors  based  upon  enforce.     The   assignee   of   a  for- 

an  equitable  claim  which  the  de-  eign    judgment    creditor    brought 

fendant  company  ought  to  enforce  g^jj^  f^j.  ^  receiver  of  the  selling 


company  in  a  Connecticut  state 
court.  The  action  was  held  not 
to    be    a    strictly    creditor's     bill 


and  which  it  refused  to  enforce. 
A  receiver  was  appointed  with 
power  to  sue  the  English  corpora- 
tion,  either  in   his   own   name   or 

that    of    the    defendant    company,  seeking    non-executionable    assets 

in     England     or     anywhere     else  foi'  the  reason  that,  under  a  stat- 

where     assets     could     be     found.  ute  such  an  action  could  he  based 

Barber    v.    International    Co.,    73  only  on  a  domestic  judgment;  nor 

Conn.  587,  48  Atl.  758.  was   it  a  "winding-up"   action  be- 

A  Connecticut  corporation  sold  cause  such  an  action  was  within 

all    of   its    assets    to    an    English  the    exclusive    jurisdiction    of    a 

corporation    for    a    consideration  bankruptcy  court, 

which     was     not    paid    and     pay-  -i  See  Carrington  v.   Thomas   C. 

luent    of    which    the    officers    of  Bassbor  Co.,  121  Md.  71,  88  Atl.  52. 


PRIVATE 'corporations.  733 

ing  is  accompanied  also  by  proof  that  the  embarrassed 
condition  of  the  company  is  due  to  mismanagement, 
amounting  to  fraud  or  gross  incompetency,  on  the  part 
of  those  in  control  of  its  affairs,  or  an  abandonment  of 
their  duties  and  obligations  by  such  persons,  and  tlie 
probable  enhancement  of  the  assets  by  recovery  of  mis- 
appropriated property  or  damages  for  negligence,  the 
appointment  of  a  receiver  will  be  regarded  as  an  abso- 
lute necessity.^ 

5.    Duration  and  Extent  of  Equity  Corporation 
Receiverships. 

§309.     General  Rule  Respecting  the  Matter. 

It  has  been  remarked  several  times  in  the  preceding 
sections  that  the  distinctive  characteristic  of  corporation 
receiverships  is  that  the  receiver  is  appointed  to  preserve 
the  property  involved  for  the  benefit  of  all  interests 
existing  at  the  time  of  the  appointment  and  that  for  this 
purpose  the  receiver  is  empowered  to  control  all  of  the 
assets  of  the  corporation  and  to  conduct  its  business. 

5  Excelsior  White  Lime  Co.  v.  give  the  latter  an  illegal  prefer- 
Rieff,  107  Ark.  554,  155  S.  W.  921;  ence  over  other  creditors,  a  re- 
American  Lumber  Co.  v.  Day  Brick  ceiver  of  the  corporation  is  proper. 
&  Lumber  Co.,  138  La.  1,  69  So.  ^^"^^  ^-  Plankinton  Bank,  87  Wis. 
853;   Barnard  Mfg.  Co.  v.  Ralston  ^^^'  ^^  ^- ^-  '^^^• 

Milling  Co.,  71  Wash.  659,  129  Pac.  ^^^'  ^^"°'  ^^'^'  ^^*^^  ""^^^'  P^^" 

ceding  section  and  following  sec- 
tion. 

Where  a  decree  adjudged  a  cor- 
v.  Erie  Preserving  Co.,  171  Fed.  poration  actually  insolvent,  and  ap- 
540;  Equitable  Trust  Co.  v.  Great  pointed  a  receiver,  it  can  not  be 
Shoshone,  etc..  Power  Co..  245  Fed.  n,odified  on  motion  so  as  to  place 
eg":",  158  C.  C.  a.  99;  Evans  v.  ^^g  appointment  of  the  receiver 
Coventry,  5  De  Gux  M.  &  G.  911.  on  another  ground,  particularly 
Where  property  is  sequestered  where  the  affidavits  in  support  of 
by  the  sheriff  upon  an  execution  the  motion  disclosed  that  the  cor- 
against  an  insolvent  corporation  as  poration's  liabilities  exceeded  its 
part  of  a  conspiracy  between  the  assets.  Karst  v.  Black  Diamond 
directors  of  the  corporation  and  Range  Co.,  82  N.  J.  Eq.  231,  88  Atl. 
tbe  execution  creditor  in  order  to      C92. 


389;  Weiss  v.  Haight  &  Freese  Co., 
148   Fed.   399;    American   Can   Co. 


734 


LAW   OF   RECEIVERS. 


There  may,  however,  be  instances  where  existing  circum- 
stances make  it  unnecessary  to  give  such  an  extensive 
scope  to  the  remedy.  It  may  be  that  the  purpose  of  the 
receivership  will  be  simply  to  recover,  for  the  corpora- 
tion and  the  consequent  benefit  of  its  creditors  and  stock- 
holders, property  that  has  been  illegally  disposed  of  or 
the  purchase  price  that  has  not  been  paid,  or  damages  for 
misconduct  or  negligence  on  the  part  of  officers,  or  money 
from  shareholders  on  liability  for  stock  subscriptions,  or 
some  other  purpose  not  requiring  the  usual  extensive 
powers.^ 

The  receiver  will  not  operate  the  business  of  the  cor- 
poration, or  any  particular  part  of  it,  as,  for  instance, 
the  carrying  out  of  any  executory  contract  of  the  com- 
pany, if  to  do  so  will  entail  loss.^  It  may  happen  that, 
pending  the  proceedings,  a  foreclosure  receivership  will 
be  created  that  will  terminate  the  general  receivership 


1  Barber  v.  International  Co.,  73 
Conn.  587.  48  Atl.  758;  Tatum  v. 
Leigh,  136  Ga.  791,  Ann.  Gas. 
1912D,  216,  72  S.  E.  236. 

Under  proper  circumstances,  the 
court  may  appoint  a  receiver  for 
the  purpose  of  instituting  suits  to 
enforce  the  stocldiolders  liability. 
Way  V.  Barney,  116  Minn.  285, 
Ann.  Cas.  1913A,  719,  38  L.  R.  A. 
(X.  S.)  648,  133  N.  W.  801. 

The  receiver  may  be  appointed 
to  seek  a  restitution  of  property 
improperly  appropriated  by  the 
directors  where  the  corporation 
itself  has  practically  gone  out  of 
business.  Hammar  v.  St.  Louis 
Motor  Carriage  Co.,  155  Mo.  App. 
441,  134  S.  W.  1060;  Latta  v. 
Catawba  Electric  Co.,  146  N.  C. 
285,  59  S.  E.  1028. 

The  remedy  of  receivership  is 
appropriate  where  the  corporation 
has  transferred  its  assets  to  an- 
other corporation  without  protect- 


ing its  creditors.  Dalsheimer  v. 
Graphic  Arts  Co.,  86  N.  J.  Eq.  49, 
97  Atl.  497. 

Where  suit  has  been  commenced 
on  a  note  and  mortgage  claimed  by 
certain  shareholders  to  have  been 
illegally  issued  by  the  corporation 
and  the  corporation  refuses  to  de- 
fend the  action,  shareholders  may 
have  a  receiver  appointed  for  the 
purpose.  Avery  v.  Blees  Mfg.  Co., 
27  N.  J.  Eq.  412. 

Since  shareholders  are  liable  to 
creditors  on  their  subscriptions 
only  in  case  of  a  deficiency  of 
assets  a  receiver  will  not  be  ap- 
pointed to  collect  unpaid  subscrip- 
tions until  such  a  deficit  is  made 
to  appear.  Bergman  Clay  Mfg.  Co. 
V.  Bergman,  73  Wash.  144,  131  Pac. 
485. 

2  Pennsylvania  Steel  Co.  v.  New 
York  City  Ry.  Co.,  198  Fed.  721, 
117  C.  C.  A.  503. 


PRIVATE    CORPORATIONS. 


735 


as  far  as  the  property  affected  by  the  lien  is  concerned. 
Though  circumstances  may  warrant  the  appointment  of 
a  receiver  on  a  preliminary  hearing,  a  sale  of  assets  will 
not  be  ordered  in  advance  of  a  hearing  on  the  merits, 
unless  the  peculiar  nature  of  the  property  necessitates 
an  earlier  sale.^ 

Just  how  long  the  receivership  will  be  continued  is  a 
matter  concerning  which  no  definite  general  rule  can  be 
stated.  It  is  recognized  that  a  court  is  not  an  agency 
well  adapted  to  conducting  a  business.^  The  decree 
usually  provides  that  it  shall  be  effective  until  further 
order  of  the  court  and  that  the  receiver  shall  at  all  times 
be  subject  to  the  control  and  orders  of  the  court.  The 
latter  provision  would  exist  even  if  not  expressly  set 
forth  in  the  decree.  The  receivership  may  be  vacated 
at  any  time  by  the  court.^  Rules  concerning  the  presenta- 
tion of  claims  have  been  adopted  with  reference  to  the 
necessity  for  expediting  the  closing  up  of  the  receiver- 
ship.'^  Just  how  long— that  is  to  what  point  in  the 
straightening  out  of  the  affairs  of  the  corporation— it 
will  be  continued  is  usually  a  question  that  can  not  be 
answered  by  the  court  at  the  time  of  making  the  appoint- 
ment.' It  may  be  stated  that  the  receivership  will  be 
terminated  whenever  the  court  can  feel  that  the  affairs 
of  the  corporation  can  be  restored  to  corporate  manage- 

3  California  Fruit  Growers'  Assn.  iana  Const.  Co.,  120  La.  356,  363, 
V    Superior  Court,  8  Cal.  App.  711,      45  So.  276,  278. 

97    Pac    769;    Carpenter   v.    Land-  o  Pennsylvania  Steel  Co.  v.  New 

,n«  A/r-  1,   :,AA   1^0  M  w   '?99-  York   City  Ry.   Co.    (Metropolitan 

man,  192  Mich.  544,  159  N.  W.  611,  \^       .         u-   ^     -lac    tt^  a 

'                                ^     ,    ,..   .  Railway    Receivership),    198    Fed. 

Boothe    V.    Summit    Coal    Mining  ^^^    117  c    C    A    503 

Co.,  63  Wash.  630,  116  Pac.  269.  TMerrifield  v."  Burrows,   153  111. 

4  In  re  Reisenberg  (Metropolitan  ^p^  523.  Morse  v.  Metropolitan 
Ry.  Receivership),  208  U.  S.  90,  g_  s.  Co.,  87  N.  J.  Eq.  217,  100  Atl. 
Ill,  52  L.  Ed.  403,  28  Sup.  Ct.  219.  219. 

5  If  the  receivership  proves  use-  The  general  subject  of  revok- 
less  for  the  purpose  in  mind  or  the  ing  the  appointment  and  discharg- 
situation  changes  the  appointment  ing  a  receiver  will  be  treated  in  a 
may  be  revoked.    Krotz  v.  Louis-  separate  chapter. 


736 


LAW   OF   RECEIVERS. 


ment  with  due  regard  to  the  safety  of  all  interests.^  Just 
what  sort  of  a  situation  will  justify  such  a  confideiice  on 


s  In  Featherstone  v.  Cooke,  L.  R. 
16  Eq.  298,  where  the  gravamen  of 
the  complaint  was  discussions 
among  the  directors,  the  receiver 
was  appointed  until  a  new  govern- 
ing body  could  be  elected. 

In  a  similar  case.  Trade  Auxil- 
iary Co.  V.  Vickers,  L.  R.  16  Eq. 
303,  it  was  said:  "In  such  a  case 
the  court  will  Interfere  but  only 
to  as  small  an  extent  as  possible." 
A  receiver  was  appointed  under  a 
prayer  "to  continue  the  business 
until  the  assets  could  be  applied  in 
satisfaction  of  the  company's 
debts,"  Wm.  Filene's  Sons  Co.  v. 
Weed,  245  U.  S.  597,  62  L.  Ed.  497, 
38  Sup.  Ct.  211. 

An  action  was  brought,  among 
other  things,  for  the  cancellation 
of  an  alleged  fraudulent  and  void 
assignment  for  the  benefit  of 
creditors  and  for  a  receiver.  On 
appeal  the  court  said:  "With  the 
deed  of  assignment  set  aside  and 
the  proceedings  thereunder  en- 
joined, there  seems  no  occasion,  so 
far  as  appears  from  the  record 
before  us,  for  winding  up  the  cor- 
poration or  withholding  from  the 
directors  the  control  of  its  assets, 
for  it  can  not  be  presumed  that  the 
directors  will  mismanage  the  cor- 
porate business  or  act  otherwise 
than  in  conformity  with  law. 
Should  the  retirement  of  the  com- 
pany's bonds  be  still  desired,  no 
obstacle  intervenes  to  prevent  an 
appropriate  action  to  accomplish 
that  result.  The  differences  be- 
tween the  stockholders  are  not 
such  as  reasonable  persons  may 
not  adjust.  .  .  .  But,  two  years 
have  elapsed  since  this  record  was' 
made  up,  and  it  is  possible  that 


something  may  be  presented  to  the 
court  below  justifying  a  temporary 
continuation  of  the  receivership. 
However,  we  can  not  now  do  as 
appellants  ask  and  make  a  per- 
emptory direction  that  it  be  ter- 
minated." Collins  v.  Williamson, 
229  Fed.  59,  143  C.  C.  A.  653. 

In  a  discussion  case,  involving 
questions  of  the  ownership  of 
stock  and  of  a  claim  against  one 
of  the  defendant  directors  in 
favor  of  the  corporation  for  the 
purchase  price  of  stock,  Justice 
Dibell  of  the  Illinois  Court  of  Ap- 
peal said:  "Upon  the  present 
appeal  it  must  be  taken  to  be  abso- 
lutely true  that  the  Burrows  broth- 
ers are  indebted  to  Mrs.  Merrifield 
and  to  the  company  in  the 
amounts  stated  and  it  must  be 
presumed  that  she  and  the  com- 
pany will  recover  judgments  there- 
for and,  there  being  no  other 
property  available  for  the  collec- 
tion of  those  judgments,  it  must 
be  assumed  that  Mrs.  Merrifield 
will  take  steps  to  cause  her  judg- 
ment to  be  made  out  of  the  stock 
pledged  to  her  and  that  the  com- 
pany will  levy  upon  those  shares 
of  stock  to  make  its  judgment  and 
that  the  Burrows  brothers  will 
either  find  other  means  to  pay  for 
their  stock  or  will  cease  to  be 
stockholders.  In  the  latter  case 
there  will  be  no  difficulty  in  dis- 
posing of  this  suit.  If  they  find 
means  to  pay  these  debts  and  be- 
come possessed  of  their  certifi- 
cates of  stock  and  no  change 
occurs  in  the  feeling  of  the  differ- 
ent parties  toward  each  other  a 
serious  question  will  arise  as  to 
what   shall   be   done   with  the   re- 


PRIVATE    CORPORATIONS. 


737 


the  part  of  tlie  court  can  be  told  only  by  a  consideration 
of  the  circumstances  of  each  case. 

The  extent  and  duration  of  a  corjjoration  receivership, 
as  distinguished  from  a  mere  receivership  of  corporate 
property,  brings  out  phases  of  one  of  the  questions  which 
we  have  already  discussed  relating  to  the  inherent  right  of 


ceivership;  but  meanwhile  the 
property  and  business  will  have 
been  preserved  for  the  just  and 
equal  benefit  of  all.  We  do  not 
thinli  it  necessary  to  solve  un- 
certain problems  now.  We  think 
it  was  the  duty  of  the  court  below 
to  preserve  this  valuable  property 
and  business  from  the  destruction 
which  was  impending  because  of 
the  equal  ownership  of  its  stock 
between  two  warring  factions." 
Merrifield  v.  Burrows,  153  111.  App. 
523. 

Speaking  of  a  dissensions  re- 
ceivership, a  New  Jersey  court 
said:  "As  soon  as  a  lawfully  con- 
stituted and  competent  governing 
body  comes  into  existence,  whether 
it  is  brought  into  existence  by  an 
adjustment  of  the  dissensions  or 
by  the  election  of  a  new  body  and 
such  body  is  ready  to  take  pos- 
session of  the  prpperty  of  the  cor- 
poration and  proceed  in  the  proper 
discharge  of  its  duties,  the  court 
must  lift  its  hands  and  retire." 
Edison  v.  Edison  United  Phono- 
graph Co.,  52  N.  J.  Eq.  620,  29 
Atl.  195. 

In  creating  a  fraudulent  man- 
agement receivership.  Vice  Chan- 
cellor  Lane  of  New  Jersey  said: 
"I  am  willing  to  say  that,  if  it  were 
necessary  to  sustain  the  jurisdic- 
tion of  this  court  upon  the  present 
bill.  I  would,  as  presently  advised, 
hold  that  this  court  may,  if  circum- 
stances indicate  that  the  corpora- 
I  Rec. — 47 


tion  can  not  properly  be  conducted 
by  reason  of  the  fact  that  no  com- 
petent, proper  board  of  directors 
can  ever  be  elected  under  its  gen- 
eral equity  power,  actually  wind 
up  the  corporation  and  divide  its 
assets."  Morse  v.  Metropolitan 
S.  S.  Co.,  87  N.  J.  Eq.  217,  100  Atl. 
219. 

A  mismanagement  receiver  was 
appointed  at  the  instance  of 
minority  stockholders.  A  ns.v 
board  of  directors  was  elected  and 
plaintiffs  moved  for  a  vacation  of 
the  receivership.  The  motion  was 
denied  on  a  showing  made  bv 
creditors,  who  had  intervened,  to 
the  effect  that  the  reorganization 
was  only  colorable  and  that  the 
new  board  was  entirely  under  the 
control  of  the  management  that 
had  been  ousted  by  the  receiver- 
ship. Adams  v.  Farmers'  National 
Bank,  167  Ky.  506,  180  S.  W.  807. 

After  having  decided  upon  the 
appointment  (mismanagement)  the 
court  should  move  with  due  care 
and  in  full  consideration  of  the  in- 
terests of  the  persons  concerned." 
Brent  v.  B.  E.  Brister  Sawmill  Co., 
103  Miss.  876,  Ann.  Cas.  1915B, 
576,  43  L.  R.  A.  (N.  S.)  720,  60  So. 
1018. 

"We  may  venture  to  assume 
that  it  (the  receivership)  will  not 
be  continued  any  longer  than 
necessary  to  enable  the  affairs  and 
conditions  of  the  corporation  to  be 
disentangled   and   understood   and 


738 


LAW   OF    RECEIVERS. 


a  court  of  equity  to  appoint  a  receiver  over  a  corporation. 
As  has  been  intimated  before,  there  are  courts  which  take 
the  position  that  a  court  of  eciuity  has  no  such  inherent 
powers  and  that  appointments  in  which  the  effect  has 
been  the  winding  up  of  the  affairs  of  the  corporation  are 
to  be  made  only  under  the  authority  to  be  found  in  some 
statute.'*    It  is,  of  course,  true  that  a  corporation  is  cre- 


the  conflicting  claims  of  the  differ- 
ent shareholders  (as  to  ownership 
of  stock)  to  be  properly  and  im- 
partially adjusted,  which  the  dis- 
ruption of  the  entente  cordiale 
that  should  exist  among  them  has 
heretofore  rendered  and  now  ren- 
ders wholly  impossible  except 
through  the  interposition  of  a 
court  of  equity."  Bates  v.  Werries, 
198  Mo.  App.  209,  199  S.  W.  758. 

9  Chancellor  Kent,  in  an  early 
New  York  decision  (Attorney 
General  v.  Utica  Ins.  Co.,  2  Johns. 
Ch.  [N.  Y.]  371),  raised,  unwit- 
tingly perhaps,  a  lot  of  trouble  for 
siate  courts  in  the  United  States. 
Ihe  federal  courts  seemingly 
were  not  affected  by  the  trouble, 
or,  it  they  were,  shook  it  off  at 
an  early  date. 

The  case  was  one  by  w-hich  the 
attorney  general  sought  to  have 
the  defendant  enjoined  from  con- 
tinuing to  exercise  certain  bank- 
ing functions  on  the  charge  that 
it  had  no  special  franchise  to  do  so 
and  that  it  was  violating  a  certain 
statute  that  forbade  corporations 
to  exercise  such  functions  without 
a  franchise  and  provided  a  penalty 
for  its  violation.  The  Chancellor 
ruled  that  "the  whole  question 
upon  the  merits  is  one  of  law  and 
not  of  equity."  The  troublesome 
statement  was  made  in  answering 
plaintiff's  contention  that  the  mat- 
ter   of    the    suit   was    within    the 


equity  court's  visitorial  powers 
over  corporations,  and  was  as  fol- 
lows: "At  the  same  time  I  admit 
that  the  persons  who  from,  time 
to  time  exercise  the  corporate 
powers  may  in  their  character  of 
trustees  be  accountable  to  this 
court  for  a  fraudulent  breach  of« 
trust  and  to  this  plain  and  ordi- 
nary head  of  equity  the  jurisdic- 
tion of  this  court  over  corpora- 
tions ought  to  be  confined." 

Two  remarks  may  be  made  in 
passing.  In  the  first  place,  courts 
that  have  relied  upon  this  ruling 
as  a  precedent  and  used  the  quo- 
tation as  a  guide  in  refusing  to 
create  corporation  receiverships, 
have  not  considered  it  proper  to 
quote  the  very  next  sentence  in 
the  opinion:  "Thus,  for  instance, 
if  the  directors  of  the  Utica  Ins. 
Co.  were  to  appropriate  the  funds 
or  capital  of  the  company  to  their 
own  private  emolument,  or  if,  dis- 
regarding the  business  of  insur- 
ance, they  were  to  divert  the 
funds  to  the  destruction  of  that 
object  by  making  roads  and  canals 
or  building  theatres  or  churches, 
I  have  no  doubt  this  court  would 
have  a  right  and  would  be  bound 
to  interfere  and  check  the  abuse." 
The  Chancellor  did  not  say  just 
how  equity  might  interfere  nor 
did  he  fortify  this  statement  by 
precedents  from  English  decisions, 
as  he  might  have  done,  and  as  he 


PRIVATE    CORPORATIONS. 


739 


atecl  by  statute  and  that  tlie 
corporate  entity  is  also  fixed 

did  do  in  connection  with  other 
statements  in  his  opinion.  The 
statement  was,  however,  hardly 
necessary  for  his  decision;  and 
perhaps  that  is  the  reason  why  our 
courts  have  not  used  the  state- 
ment in  considering  the  jurisdic- 
tion of  an  equity  court  to  create  a 
corporation  receivership. 

In  the  second   place  it  may  be 
stated    as    a    proposition    of    uni- 
versal acceptance  that  where  the 
question    at    issue    is    simply    and 
solely   whether  or  not  a  corpora- 
tion has  acted  in  such  a  way  as 
to  be  deserving  of  a  judgment  de- 
creeing   its    dissolution    or    a    for- 
feiture of  its  franchise  the  matter 
being  one  in  which  the  authority 
that  granted  the  charter  is  alone 
primarily  interested,  the  action  in 
which  the  matter  can  be  properly 
settled  is  one  at  law  and  not  in 
equity,   unless   jurisdiction   to  en- 
tertain   it    has    by    statute    been 
bestowed  upon  a  court  of  equity. 
But  the  same  facts  that  raise  the 
question  may,  as  Chancellor  Kent 
pointed  out,  in  the  second  quota- 
tion, be  looked  at  from  an  entirely 
different  point  of  view.    They  may 
be  considered  as  a  violation  of  the 
rights  of  some  individual  and  as 
giving  that  individual  a  cause  of 
action    based    upon    some    injury 
caused  him.   Gay  v.  Hudson  River 
Electric   Power   Co.,   187   Fed.   12, 
109  C.  C.  A.  66.    Chancellor  Kent 
returned  to  this  distinction  when 
he  completed  his  argument  by  say- 
ing:    "But  when  the  question  is, 
whether    a   corporation    has    for- 
feited its  charter,  or  has  usurped 
a  franchise,  or  has  broken  a  penal 
law,  the  case  is  widely  different. 


extent  of  its  existence  as  a 
by  statute.    But  an  exam- 

This     court    is     not    the     proper 
tribunal    to    sustain    the    prosecu- 
tion or  to  inflict  the  punishment." 
However,  it  is  certain  that  many 
of  our  state  courts,  following  the 
Utica    Insurance    Co.    case    as    a 
precedent,  either  directly  or  indi- 
rectly, through  precedents  that  are 
descendants  of  that  decision,  have 
refused  to  exercise  the  jurisdiction 
to    appoint    corporation    receivers 
unless  they  were  able  to  base  such 
action    upon    statutory    authority. 
They  have  taken  their  position  on 
the  ground  that  equity  courts  have 
not    authority    to    dissolve    a    cor- 
poration, or  to  decree  a  winding  up 
of  its  affairs  or  a  forfeiture  of  its 
franchise  and  that  a  receivership  ' 
is     tantamount     to     doing     these 
things  because  a  receiver  displaces 
the  corporate  management.   There 
is  undoubtedly  a  conflict  of  opin- 
ion   on    this    question.     It    is    not 
simply  that  different  courts  have 
taken    a    different    view    of    the 
weight  of  facts  presented  as  the 
basis  of  a  demand  for  a  receiver, 
assuming  that  it  would  be  possible 
to  make  a  case  sufllciently  strong 
to  warrant  an  appointment.    With 
facts   before   it,   that   would   prob- 
ably lead  a  court,  recognizing  the 
right  to  make  an  appointment  on 
a  proper  showing,  to  deny  the  re- 
ceivership for  the  reason  that  the 
showing  was  not  sufficient,  another 
court  has  refused  the  request  on 
the  express  ground  that  it  had  not 
jurisdiction.     We    find    courts    ex- 
pressly stating  that  there  is  a  con- 
flict  of   opinion   among   the    deci- 
sions  and   expressly   basing   their 
own  conclusions  on  what  they  con- 
ceived to  be  the  "weight  of  author- 


r40 


LAW    OF    RECEIVERS. 


ination  of  the  cases  in  wliicli  courts  of  equity  have  ap- 
pointed receivers  over  corporations  will  always  disclose 


ity."  In  many  cases  we  find 
divided  courts,  with  dissenting 
conclusions  and  opinions.  An  in- 
teresting instance  of  this  situation 
is  found  in  an  important  early  case 
before  the  United  States  Supreme 
Court.  Dodge  v.  Woolsey,  18  How. 
331,  341,  15  L.  Ed.  401,  405. 

The  point  at  issue  was  whether 
or  not  the  plaintiff,  a  stockholder 
in  a  corporation,  was  entitled  to 
maintain  the  action  in  a  repre- 
sentative capacity.  The  decision 
was  by  a  four  to  three  division 
of  the  court,  the  majority  uphold- 
ing the  plaintiff's  right  to  sue. 
In  a  later  case,  Hawes  v.  City  of 
Oakland,  et  al.,  104  U.  S.  450,  26 
L.  Ed.  827,  the  court  unanimously 
decided  that,  under  the  facts  of 
the  case,  the  representative  action 
could  not  be  maintained.  After  a 
somewhat  lengthy  review  of  the 
opinion  on  tht  Dodge  case,  it  is 
stated  that,  "on  principle,"  the 
majority  decision  there  was  not 
different  from  the  decision  to  be 
reached  in  the  case  then  before 
the  court.  It  may  be  noted,  how- 
ever, that  many  of  the  precedents 
employed  in  the  Hawes  case  in 
support  of  the  court's  conclusion 
were  used  in  the  dissenting  opin- 
ion in  the  earlier  case  to  support 
the  conclusion  of  the  minority. 
These  were  not  receivership  cases 
but  they  illustrate  a  certain  di- 
vergence of  opinion  that  has  arisen 
among  courts  as  to  the  inherent 
power  of  equity  courts  to  deal  with 
corporate  affairs,  a  divergence  of 
opinion  that  has  cropped  out  with 
reference  to  the  question  of  ap- 
pointing corporation  receivers,  as 
well   as    with   reference   to   other 


questions.  It  is  not  our  purpose  to 
attempt  to  solve  this  conflict;  nor 
do  we  think  that  we  know  exactly 
how  a  balance  is  to  be  struck  in 
order  to  determine  what  is  the 
"weight  of  authority."  Perhaps,  as 
judges  have  been  known  to  say 
unofficially,  just  how  the  judicial 
mind  will  lean  is  in  some  cases,  a 
matter  of  "temperament."  How- 
ever that  may  be,  we  have,  in  the 
text,  attempted  to  "echo"  (Have 
meyer  v.  Superior  Court,  84  Cal. 
327,  18  Am.  St.  Rep,  192,  10  L.  R.  A. 
627,  24  Pac.  121)  the  decisions  of 
courts  that  have  exercised  what 
they  thought  was  the  inherent 
power  of  courts  of  equity  to  ap- 
point corporation  receivers  and 
the  circumstances  under  which 
they  have  made  such  appoint- 
ments, without  reference  to  the 
fact  that  other  courts  have  ex- 
pressly disclaimed  jurisdiction  so 
to  act.  It  is  of  course  necessary 
to  call  attention  to  the  position 
that  has  been  taken  by  these  other 
courts  and  to  the  conflict  of  opin- 
ion. We  do  not  think  that  it  is 
correct  to  say  that  the  entire  con- 
flict of  opinion  on  this  question 
can  be  eliminated  on  the  theory 
that,  while  there  is  a  general  rule 
adverse  to  the  jurisdiction  of 
equity  to  make  the  appointment, 
except  on  the  basis  of  statutory 
authority  to  do  so,  there  are  "ex- 
ceptions" to  the  rule.  On  such  a 
theory  it  would  have  to  be  ad- 
mitted that  at  least  some  of  the 
exceptions  are  "as  broad  as  the 
rule  itself."  We  have  thought  it 
advisable,  in  order  to  avoid  con- 
fusion, to  set  forth  one  side  of  the 
matter  in  the  text,  and  the  other 


PRIVATE    CORPORATIONS. 


741 


some  condition  or  circumstance  which  appeals   to   the 
equitable  conscience  of  the  court  with  the  result  that 


in    a    note.     We    proceed    now    to 
mention   certain  interesting   facts 
concerning  this  conflict  of  opinion. 
We  believe  that  it  would  be  the 
unanimous  opinion  that  Chancellor 
Kent's    decision   in   the   Utica  In- 
surance   Company    case    was    cor- 
rect.    However,    we    believe    that 
there   is  not  in   the   decision   nor 
the  opinion  anything  to  show  that 
the    decisions    in   the    cases   cited 
as    authority    for   what    has    been 
stated   in    our   text   were    wrong. 
Certainly  the  courts  that  did  not 
base  their  decisions  expressly  on 
the   "exceptions"    theory,    did   not 
think  so.   It  may  be  remarked  that 
the  Utica  Ins.  Co.  case  was  an  in- 
junction case  and  not  a  receiver 
case.    However,  the  latter  is  much 
the  more  drastic  remedy,  and,  in 
fact,    is    usually    accompanied    by 
the  former,  so  that,  if  the  case  is 
authority  for  the  proposition  that 
the  remedy  of  injunction  is  never 
available  as  against  corporate  ac- 
tion,   it   is    also   authority    to    the 
effect  that  a  corporation  receiver- 
ship   is    never    proper.     We    find 
some   courts,   holding  that  equity 
courts  have  not  inherent  power  to 
appoint    receivers    over    corpora- 
tions,    admitting,     however,     that 
they  may  enjoin  certain  kinds  of 
corporate     action.      People's     Inv. 
Co.    V.    Crawford    (Tex.    Civ.),    45 
S.  W.  738. 

In  some  cases,  particularly 
minority  stockholders'  actions  on 
the  ground  of  mismanagement, 
courts,  disclaiming  any  power  in 
equity  to  make  the  appointment, 
have  also  rested  their  decisions 
on  the  ground  that  the  complaints 
presented  simply  a  case  for  a  re- 


ceiver and  not  an  independent 
cause  of  action,  with  a  receiver- 
ship necessary  as  auxiliary  relief. 
Forest  Oil  Co.  v.  Wilson,  (Tex. 
Civ.  App.),  178   S.  W.  626. 

In    California   there    is    quite    a 
long  line  of  cases  in  which  a  re- 
ceiver was  denied  on  the  express 
ground    that    equity    has    not    in- 
herent  power  to   appoint   one.    A 
very  early  case  was  Neall  v.  Hill, 
16  Cal.  145,  76  Am.  Dec.  508.    The 
lower  court  appointed  a  receiver, 
using  Evans  v.  Coventry,  5  De  G. 
M.  &  G.  911,  as  a  precedent.    The 
matter  was  taken  to  the  Supretae 
Court  on  certiorari  and  that  court 
decided  that  the  lower  court  was 
without  jurisdiction   to  make  the 
appointment.     The    action    was    a 
stockholder's   suit   on   the   ground 
of    mismanagement.     The    decree 
appointed  a  receiver  to  hold  the 
property  and  conduct  the  business 
until  further  orders  of  the  court. 
Perhaiis  the  showing  was  not  very 
strong    but    the     Supreme    Court 
based  its  ruling  entirely  on  juris- 
dictional grounds,  as  of  course  it 
had  to  do  in  a  certiorari  proceed- 
ing.   It  held  that  to  appoint  a  re- 
ceiver     of     a      corporation      was 
equivalent   to   granting  a   dissolu- 
tion  and    that   the    court  had   no 
power    to   do   that.     Some    of   the 
other  cases  in  this  line  are:    The 
French   Bank    Case,    53    Cal.    495: 
Elliott  V.  Superior  Court,  168  Cal. 
727,    145    Pac.    101;    State    Invest- 
ment, etc.,  Co.  V.  Superior  Court, 
101  Cal.  135,  35  Pac.  549. 

In  some  of  these  cases  we  think 
the  showing  was  equally  as  strong 
as  in  many  cases  in  which  re- 
ceivers   have    been   appointed    by 


742 


LAW   OF   RECEIVERS. 


equity  once  having  taken  the  matter  in  hand  will  finish 
the  litigation  with  a  view  to  doing  justice  to  all  concerned. 


courts  holding  that  they  had  in- 
herent power  to  do  so.  In  all  of 
them  it  was  held  that  a  court  of 
equity  had  no  inherent  power  to 
decree  dissolution,  or  "the  wind- 
ing up  of  the  affairs  of  a  corpora- 
tion," and  that  to  appoint  a  re- 
ceiver was  equivalent  to  making 
such  a  decree  because  the  receiver 
necessarily  "supersedes  the  cor- 
porate power."  However,  in  1917, 
the  Supreme  Court  of  the  state 
sustained  the  appointment  of  a 
receiver  by  a  lower  court,  the  ap- 
pointment having  been  made  on 
the  express  ground  that  there  "is 
now  and  ever  since  the  commence- 
ment of  this  action  has  been  a 
deadlock  in  the  board  of  directors 
of  said  corporation,  as  a  conse- 
quence of  which  the  business  of 
caid  corporation  is  not  carried 
on  and  the  mine  of  such  corpora- 
tion is  not  operated."  Boyle  v. 
Superior  Court,  etc.,  176  Cal.  671, 
L.  R.  A.  191SD,  226,  170  Pac.  1140. 
Plaintiffs  were  stockholders.  The 
court  said.  "It  is  declared  that 
under  the  decisions  of  this  court 
such  an  appointment,  based  upon 
the  stated  ground,  is  in  excess  of 
the  jurisdiction  of  the  court  and 
therefore  void.  With  this  conten- 
tion, however,  we  can  not  agree. 
The  Code  of  Civil  Procedure  de- 
clares that  a  receiver  may  be  ap- 
pointed by  the  court  'in  all  cases 
where  receivers  have  heretofore 
been  appointed  by  the  usages  of 
courts  of  equity.'  That  courts  of 
equity,  both  English  and  American, 
have  appointed  receivers  under 
precisely  the  situation  here  pre- 
sented is  beyond  all  controversy. 
These  receivers  are  not  appointed 


to  close  up  the  affairs  of  a  corpora- 
tion, to  work  its  dissolution,  but  to 
preserve  its  properties,  and,  where 
possible,  continue  its  corporate 
functions.  ...  In  California 
Fruit  Growers'  Assn.  v.  Superior 
Court,  8  Cal.  App.  711,  97  Pac.  769. 
where  a  receiver  was  asked  for  on 
the  ground  of  fraudulent  misman- 
agement, the  court  declared  that 
the  trial  court  had  jurisdiction  to 
appoint  a  receiver  under  the  alle- 
gations of  the  complaint,  and 
pointed  out  that  the  proceeding 
was  not  directed  toward  the  clos- 
ing of  the  affairs  of  the  corpora- 
tion or  toward  an  attempt  to  dis- 
solve it,  but  was  designed  merely 
to  place  the  assets  of  the  corpora- 
tion in  safe  hands.  .  .  .  They 
(California  cases  in  the  line  above 
referred  to)  were  cases  where  the 
receiver  was  appointed  to  wind  up 
the  affairs  of  the  corporation — in 
effect  to  dissolve  it  and  to  dis- 
tribute its  assets,  a  power  which 
under  our  laws  equity  does  not 
possess  and  a  power  which  equity 
in  the  case  at  bar  did  not  attempt 
to  exercise." 

It  may  be  noted  that  the  code 
section  referred  to  in  this  opinion 
was  in  force  when  all  of  the  cases 
in  the  line  adverse  to  the  appoint- 
ment were  decided,  except  the 
first.  It  may  be  noticed  also  that 
in  this  Boyle  case,  as  well  as  in 
the  Fruit  Growers'  Association 
case,  referred  to  in  the  opinion, 
there  was  either  pending  or  about 
to  be  begun  litigation  over  the 
ownership  of  stock  in  the  corpora- 
tion and  the  muddle  in  the  cor- 
porate affairs  might  be  straight- 
ened out  as  a  result  of  this  litiga- 


PRIVATE   CORPORATIONS. 


743 


A  winding  up  of  its  affairs  with  a  view  to  preserving  its 
assets  for  the  satisfaction  of  some  judgment  to  be  ren- 


tion,  on  which  event,  if  it  occurred, 
the  court  could  "lift  its  hand  and 
retire."  In  this  respect  the  Cali- 
fornia cases  are  similar  to  the 
Illinois  case  (Merrifield  v.  Bur- 
rows, 153  111.  App.  523),  from  which 
we  quoted  in  the  section  to  which 
this  note  is  appended. 

In  Missouri  there  are  a  number 
of  cases  in  which  corporation  re- 
ceivers were  ap]5ointed.  Two  cases 
from  that  jurisdiction,  however, 
are  of  interest.  In  a  case  entitled 
Watkins  v.  Donnell  Mfg.  Co.,  a  re- 
ceiver was  appointed  at  the  in- 
stance of  a  stockholder  on  the 
ground  of  mismanagement.  The 
lower  court  decreed  the  dissolution 
of  the  corporation  and  the  re- 
ceiver was  appointed  to  conduct 
the  business  and  to  liquidate.  The 
matter  was  taken  to  the  Supreme 
Court  in  prohibition  proceedings 
entitled  State  v.  Foster,  225  Mo. 
171,  125  S.  W.  184.  A  permanent 
writ  of  prohibition  was  ordered  as 
to  that  portion  of  the  decree  which 
ordered  dissolution  and  liquida- 
tion. The  court  said:  "That  the 
court,  upon  the  facts  as  disclosed 
by  tlie  record  in  that  proceeding, 
bad  full  power  to  appoint  a  re- 
ceiver to  take  charge  of  the  assets 
of  the  corporation  and  that  such 
receiver  may  recover  if  the  facts 
so  warrant  it  any  sum  of  money 
which  might  have  been  wrong- 
fully appropriated  by  John  W. 
Donnell  as  an  officer  or  manager 
of  such  corporation  is  clear.  .  .  . 
Our  conclusions  are  by  no  means 
to  be  construed  as  in  any  way 
affecting  the  power  of  the  courts 
in  the  exercise  of  their  well  recog- 


nized jurisdiction  to  control  and 
regulate  the  official  conduct  of 
trustees,  officers,  and  managers  of 
corporations  to  the  end  that  the 
minority  stockholders,  as  well  as 
the  creditors,  of  such  corpora- 
tions may  be  fully  protected. 
One  member.  Justice  Lamm,  dis- 
sented, holding  that  the  decree 
of  the  lower  court  was  correct. 
Shortly  afterwards  a  case  reached 
the  court  on  appeal  from  a  simi- 
lar decree.  Ashton  v.  Penfield, 
233  Mo.  391,  135  S.  W.  938.  The 
decision  was  by  four  members  of 
the  court,  with  three  dissenting. 
The  complaint  prayed  for  a  disso- 
lution of  the  corporation.  The 
majority  opinion  held  that  this 
part  of  the  prayer  could  be  re- 
garded as  surplusage  and  that  the 
action  could  be  considered  as  one 
for  a  receiver.  The  opinion  said: 
"The  rule  in  this  jurisdiction  is 
that  a  court  of  equity  is  without 
jurisdiction  in  any  extreme  case 
put  to  dissolve  a  corporation  and 
make  distribution  of  its  assets. 
.  .  .  Accordingly,  the  decree 
should  be  reversed  and  the  cause 
remanded  with  directions  that  the 
court  enter  a  decree  confirming 
the  appointment  of  a  receiver, 
overruling  the  motions  to  revoke 
the  order  appointing  him;  that  the 
receiver  should  be  kept  in  charge 
until  such  time  in  the  future  as 
the  court  may  find  full  equity  done 
and  that  it  should  then  lift  its 
hand  and  retire,  otherwise  pro- 
ceeding in  accordance  with  this 
opinion,  reserving  the  right  to  it- 
self in  said  decree  to  make  such 
further  and  other  orders  and  judg- 


74-i 


LAW    OF    RECEIVERS. 


dered,  if  a  winding  up  of  its  business  is  necessary  for 
the  purpose,  is  not  necessarily  a  legal  dissolution  of  the 


ments  from  time  to  time  as  equity 
and  good  practice  call  for."  The 
minority  opinion  held  that  the 
complaint  stated  a  cause  of  action 
simply  for  dissolution,  and,  be- 
cause of  the  want  of  power  in  the 
court  to  decree  dissolution,  the 
action   should   be   dismissed. 

In  a  case  earlier  than  either  of 
the  two  cases  above  mentioned, 
Cantwell  v.  Columbia  Lead  Co., 
199  Mo.  1,  97  S.  W.  167,  which 
decreed  the  dissolution  and  ap- 
pointed a  receiver,  and  which 
reached  the  Supreme  Court  on 
appeal  from  an  order  denying  a 
motion  to  revoke  the  order  ap- 
pointing a  receiver,  the  Supreme 
Court  unanimously  sustained  the 
lower  court.  Two  of  the  dissent- 
ing justices  in  the  Ashton  v.  Pen- 
field  case  were  members  of  the 
court  at  that  time.  In  the  dissent- 
ing opinion  in  the  Ashton  v.  Pen- 
field  case  it  was  said,  concerning 
the  Cantwell  case:  "While  it  is 
true  the  petition  for  the  appoint- 
ment of  a  receiver  did  pray  for 
the  dissolution  of  the  corporation, 
it  will  be  observed  that  that  case 
reached  this  court  by  appeal  from 
an  order  refusing  to  revoke  the 
appointment  of  a  receiver,  and  no 
conclusion  was  announced  in  the 
case  except  that  the  court  had  ju- 
risdiction to  appoint  a  receiver. 
The  proposition  of  the  power  of 
a  court  of  equity  to  dissolve  a 
corporation  was  not  in  judgment 
before  the  trial  court  in  the  Cant- 
well case." 

In  a  late  Missouri  case.  Bates  v. 
Werries,  198  Mo.  App.  209,  199 
S.  W,   758,  a   decree,   made   after 


a  full  hearing,  appointing  a  re- 
ceiver to  take  immediate  charge 
of  the  properties  of  said  mine  of 
every  kind  and  character,  to  take 
charge  of  all  its  records,  books, 
moneys,  and  evidences  of  debt  of 
every  kind;  to  proceed  immedi- 
ately to  collect,  sue  for,  and  re- 
cover all  moneys  and  property  due 
said  company;  to  continue  said 
mine  in  operation;  to  employ  such 
assistance  as  may  be  required;  to 
borrow  money  on  the  credit  of  the 
defendant  company  to  continue 
operations,  if  necessary;  to  ascer- 
tain as  soon  as  may  be  the  finan- 
cial condition  of  the  defendant 
company  and  to  report  the  same, 
together  with  a  report  of  the  ad- 
ministration of  this  trust,  to  the 
court  at  each  regular  term  thereof 
until  the  further  order  of  the  court 
was  held  to  create  a  receivership 
pendente  lite,  because  it  was  nec- 
essary that  the  business  of  the 
corporation  should  go  on  during 
the  litigation. 

In  Illinois  we  find  a  number  of 
cases  in  which  a  corporation  re- 
ceiver was  refused  on  the  ground 
that  equity  had  no  jurisdiction  to 
dissolve  a  corporation.  Of  these 
cases,  Heitkamp  v.  American  Pig- 
ment &  Chemical  Co.,  158  111.  App. 
587,  is  an  instance. 

However,  we  have  the  case  of 
Merrifield  v.  Burrows,  153  111.  App. 
523,  from  which  we  quoted  in  the 
text.  This  was  an  action  by  hold- 
ers of  one  half  of  the  stock  against 
those  holding  the  other  half,  on 
the  ground  of  dissensions.  Con- 
cerning an  Illinois  statute  specify- 
ing   certain    circumstances    under 


PRIVATE   CORPORATIONS. 


745 


corporate  entity.    If,  after  the  object  of  the  litigation  has 
been  accomplished,  it  still  has  assets  the  court  npon  ap- 


which  a  corporation  receiver 
might  be  appointed,  tlie  opinion 
says:  "The  statute  is  not  to  be 
construed  to  mean  that  the  ordi- 
nary jurisdiction  to  appoint  a  re- 
ceiver has  thereby  been  with- 
drawn." Also,  "The  object  of  the 
bill  is  to  preserve  the  property 
and  business  and  credit  of  the 
company  for  the  benefit  of  every 
shareholder  alike." 

In    speaking    of    certain    earlier 
cases,  in  which  receivers  had  been 
denied,    and    in    v/hich    the    court 
had  not  placed  its  decision  on  the 
express    ground    of    lack   of  juris- 
diction,   but    on    the    ground    that 
the  complaints  or  proofs  had  not 
shown  sufficient  injury  or  threat- 
ened   injury    through    fraud,    mis- 
management, or  otherwise  to  war- 
rant   a    receivership,    the    opinion 
speaks  of  them  as  implying  that 
a  receiver  might  be  appointed  un- 
der a  sufficient  showing.     A  later 
case  to  this  same  effect  is  Schmidt 
V.   Johnson,   163   111.   App.   622.     In 
Baker  v.  Backus,  Adm'r,  32  111.  79, 
where  the  decision  refusing  a  re- 
ceiver was   based  on  the   ground, 
in  part  at  least,  of  an  insufficient 
showing,  we  think  it  might  very 
well  have  been  held,  in  line  with 
the   case   of  Attorney    General   v. 
Utica  Insurance  Co.,  that  the  mat- 
ters   complained    of    were    viola- 
tions  of  the   company's   duties   to 
the  State  to  be  corrected  only  by 
the   State    or   some    one    duly   au- 
thorized by  statute  to  do  so.     (See 
Alabama  Coal,  etc.,  Co.  v.  Shackel- 
ford, 137  Ala.  224,  97  Am.  St.  Rep. 
23,  34  So.  833.) 

Other    cases    taking    a    position 


adverse  to  the  jurisdiction  to  ap-    • 
point  are: 

Vila  V.  Grand  Island,  etc..  Stor- 
age Co.,  68  Neb.  222,  110  Am.  St.  . 
Rep.  400,  4  Ann.  Cas.  59,  63  L.  R.  A. 
791,  94  N.  W.  136,  97  N.  W.  613; 
Wills  V.  Nehalem  Coal  Co.,  52  Or. 
70,  96  Pac.  528. 

A  court  has  no  power  to  appoint 
a  receiver  for  corporate  property 
upon  the  grounds  which  would  not 
authorize  such  appointment  if  the 
defendant  were  a  natural  person. 

The  jurisdiction  of  a  court  of 
equity  does  not  extend  to  the  dis- 
solution of  a  corporation  and  the 
appointment  of  a  receiver  to  wind 
up  its  affairs.  Town  v.  Duplex- 
Power  Car  Co.,  172  Mich.  519,  138 
N.  W.  338;  Stacy  v.  McNicholas, 
76  Or.  167,  144  Pac.  96,  148  Pac. 
67;  Union  Sav.  &  Invest.  Co.  v. 
District  Court,  44  Utah  397,  Ann. 
Cas.  1917A,  821,  140  Pac.  221. 

A  court  of  equity  is  limited  to 
preserving  the  property  of  a  cor- 
poration and  is  not  authorized  to 
carry  on  a  business  as  a  going 
concern  in  order  to  pay  off  the 
creditors.  Cronan  v.  District  Court 
of  Kootenai  County,  15  Idaho  184, 
96  Pac.  768. 

The  process  of  receivership  is 
an  ancillary  remedy  in  aid  of  the 
primary  object  of  the  litigation 
which  must  be  one  of  an  equitable 
character,  and  a  bill  can  not  be 
maintained  for  the  appointment  of 
a  receiver  apart  from  some  dis- 
tinct ground  of  equitable  jurisdic- 
tion. Cassells  Mills  v.  First  Nat. 
Bank  of  Gadsden,  187  Ala.  325, 
65  So.  820. 


746 


LAW    OF    RECEIVERS. 


plication  would  undoubtedly  discharge  the  receiver  and 
restore  the  property  to  the  corporation  for  such  further 


It  will  thus  be  seen  that  although 
in    some    cases,    where    the    com- 
plaint prayed  for  a  dissolution,  or 
something   equivalent  to   a   disso- 
lution, of  the  corporation,  the  de- 
nial of  a  receiver  was   placed  on 
the    ground    that    there    was    no 
cause   of    action    shown    to  which 
the    receivership    could    be    made 
ancillary,  the  real  ground   of  the 
jurisdictional  objection  to  making 
an   appointment  has   been   that  a 
receivership      would      necessarily 
lead   to  a   dissolution   or  a   wind- 
ing  up   of   the    corporate    affairs; 
and    that   a   court   having    no    au- 
thority directly  to  decree  such  a 
result  can  not  decree  it  indirectly 
through   a   receivership.      The   Ju- 
risdictional   objection,    then,    has 
centered    around    the    question   of 
the   "duration    and    extent   of   the 
receivership."      Some   courts,   like 
the     California    and     the     Illinois 
courts,    have    made    appointments 
only   when  they  saw,  in   the   cir- 
cumstances of  the  cases,  a  proba- 
bility that  the  receivership  would 
be    terminated    short    of    a    com- 
plete sale  of  the  corporate  assets. 
Others,   like   the   Missouri   courts, 
have  made  appointments  expressly 
disavowing  the  intention  to  bring 
about  dissolution,  but  not  foresee- 
ing just  how  far  the  receivership 
would    lead.      Some    courts    have 
held  that  a  managing  receivership 
is    always   intended    to   lead    to   a 
sale    of    the    assets    as    a    whole 
(Gutterson,  etc.,  v.  Lebanon  Iron, 
etc.,  Co.,  151  Fed.  72),  and  it  has 
been  said  that  such  a  winding  up 
of  the  corporate  affairs   does  not 
involve  a  dissolution  or  a  termina- 


tion of  the  corporate  franchise. 
Sellman  v.  German  Union  Fire  Ins. 
Co.,  184  Fed.  977.  From  this  point 
of  view  it  has  been  held  that  a 
corporation  receivership  would  not 
be  created  just  to  tide  a  corpora- 
tion over  a  period  of  financial 
stress.  Burton  v.  R.  G.  Peters 
Salt,  etc.,  Co.,  190  Fed.  262;  see 
Continental  Trust  Co.  v.  Brown 
(Tex.  Civ.),  179  S.  W.  939. 

It  has  been  stated  that  the  mere 
appointment  of  a  receiver  does  not 
ipso  facto  work  a  dissolution  of 
the  corporation,  because  the  mem- 
bers can  still  make  transfers  of 
stock  among  themselves  or  to 
strangers,  and  can  meet  to  trans- 
act business  that  does  not  inter- 
fere with  the  operations  of  the 
receivership.  Butler  v.  Beach,  82 
Conn.  417,  49  Atl.  748;  and  that, 
while  the  appointment  does  not 
necessarily  mean  dissolution,  the 
mere  possibility  that  such  might 
be  the  result  should  not  be  held 
as  a  reason  for  denying  the  re- 
ceivership in  a  proper  case.  Fal- 
furrias  Immigration  Co.  v.  Spiel- 
hagen,  61  Tex.  Civ.  Ill,  129  S.  W. 
164.  In  some  cases  it  has  been 
expressly  held  that  the  receiver- 
ship might,  if  necessary,  extend 
to  the  dissolution  of  the  corpora- 
tion or  "of  the  trust  relations." 
In  Green  v.  National  Advertising 
&  Amusement  Co.,  137  Minn.  65, 
162  N.  W.  1056,  it  was  said: 

"While  it  is  clear  that  the  court 
may,  as  a  necessary  step  in  the 
proceedings,  appoint  a  receiver 
to  take  charge  of  the  corporate 
business  and  affairs,  to  convert 
the     property     and     effects     into 


PRIVATE    CORPORATIONS. 


747 


action  as  its  stockholders  may  determine.    If,  after  sucli 
objects  have  been  accomplished,  it  has  no  assets  left,  it  is 


money,  the  question  whether  there 
should  be  a  final  dissolution  of 
the  company  should  not  be  left 
to  the  receiver  to  determine,  but 
should  be  definitely  declared  by 
the  court,  and  a  time  set  for  the 
sale  and  disposal  of  the  property 
and  a  distribution  of  the  proceeds 
among  the  stockholders.  There 
should  be  reasonably  prompt  ac- 
tion in  a  case  of  this  kind,  to  the 
avoidance  of  a  long-continued  op- 
eration of  the  business  of  the  com- 
pany under  the  guidance  and  su- 
pervision of  the  court.  If  within 
the  time  fixed  by  the  court  for  a 
sale  the  parties  come  to  some 
amicable  arrangement  which  will 
obviate  further  judicial  proceed- 
ings, matters  can  readily  be  ad- 
justed to  that  end." 

See  also  Miner  v.  Belle  Isle  Ice 
Co.,  93  Mich.  97,  17  L.  R.  A.  412, 
53  N.  W.  218;  Morse  v.  Metropoli- 
tan S.  S.  Co.,  87  N.  J.  Eq.  217. 
100   Atl.   219. 

In  Stokes  v.  Williams,  226  Fed. 
148,  141  C.  C.  A.  146,  it  was  held, 
concerning  the  confirmation  of  a 
receiver's  sale  of  the  entire  assets, 
upon  objection  by  certain  stock- 
holders on  the  ground  that  the 
sale  would  foreclose  the  possi- 
bility of  recovering  damages  from 
directors  for  mismanagement,  that 
the  sale  would  be  confirmed  unless 
the  objecting  stockholders  fur- 
nished a  bond  in  an  amount  prac- 
tically equal  to  the  proposed  sell- 
ing price,  to  protect  creditors  and 
stockholders  against  a  deficiency 
on  any  subsequent  sale,  and  the 
fact  that  the  opposing  stock- 
holders were  not  financially   able 


to  furnish  the  bond  was  not  evi- 
dence that  the  order  was  op- 
pressive  or   prohibitive. 

In  many  instances  we  find   the 
appointment    of   a    receiver    justi- 
fied on  the  ground  of  "keeping  up 
with   the   times"— that  there   has 
been  such  a  vast  development  in 
the  matter  of  casting  large  busi- 
ness   enterprises    into     corporate 
form  as  to  necessitate  the  release 
of     courts     of     equity     from     the 
shackles  of  narrow  and  technical 
objections   and   to   require   an   ex- 
tension of  their  methods  to  meet 
new  situations  to  the  end  that  jus- 
tice may  be  done.     It  is  true  we 
find  such  suggestions  in  cases  that 
can  hardly  be  called  recent.  Evans 
V.  Coventry   (1854),  5  De  Gux,  M. 
&    G.,    911;     Wallworth    v.     Holt 
(1841),  4  Myl.   &  Cr.  635.     Some- 
thing of   the   same   sort  is   found 
in  Davis  v.  Gray   (1872),  16  Wall. 
203,  21   L.   Ed.  447,  although  what 
is  said  there  about  "progress"  and 
"growth"  is  not  in  relation  to  the 
question     of    the    jurisdiction     of 
equity  to  appoint  a  receiver.     The 
suit    was    one    in    foreclosure,    in 
which  a  foreclosure  receiver  had 
been  appointed.     The  question  at 
issue   was   as   to   the   power  of  a 
receiver  to  prosecute  a  certain  ac- 
tion in  his  own  name,  instead  of 
in   the   name   of   the    corporation. 
The    action    was    justified    on   the 
ground  of  development  in  the  mat- 
ter of  allowing  power  to  receivers. 
In  Pennsylvania  Steel  Co.  v.  New 
York    City   Ry.    Co.    (receivership 
of     the     Metropolitan     St.     Ry.) 
(1912),        198       Fed.       721,        117 
C.     C.     A.     503,     we     find     some- 


748 


LAW   OP    RECEIVERS. 


apparent  that  a  mere  corporate  shell  only  remains,  which 
may,  however,  be  given  new  vitality  by  the  stockholders 
levying  an  assessment  upon  its  stock  if  they  desire  to  re- 


thing  about  the  development  of 
the  jurisdiction,  although  it  was 
said,  as  a  foundation  for  laying 
down  a  rule  for  the  presentation 
of  claims:  "Apart  from  statutes, 
moreover,  the  law  of  receivers  has 
gone  through  a  curious  course  of 
development  with  respect  to  cor- 
porations. The  rule  has  been  uni- 
formly stated  in  the  books  and 
is  still  insisted  upon  that  in  the 
absence  of  statutory  authority  a 
court  of  equity  has  no  power  to 
appoint  a  receiver,  even  of  an  in- 
solvent corporation.  It  is  said  that 
such  a  court  has  no  inherent 
lower  to  wind  up  a  corporation 
and  that  it  can  not  accomplish  by 
indirection  that  which  it  can  not 
do  directly.  •  And  it  is  perfectly 
true  that  the  administration  of  the 
affairs  of  a  corporation  by  a  re- 
ceiver and  the  distribution  of  its 
assets,  while  not  destroying  its 
corporate  existence,  does  leave  it 
a  mere  shell.  Nevertheless,  ex- 
ceptions to  the  rule  have  been 
evolved  which  are  in  some  as- 
pects as  broad  as  the  rule  it- 
self. One  of  these  exceptions 
is  in  the  case  of  creditors' 
bills.  In  these  suits  no  distinc- 
tions were  drawn  between  corpo- 
rations and  individuals,  and  out 
of  them  the  practice  has  grown 
up  and  become  established  of  per- 
mitting creditors  having  judg- 
ments to  apply  to  courts  of  equity 
to  take  possession  of  the  assets 
of  corporations  and  undertake 
through  receivers  their  general 
administration.  And  now  that 
which   was   formerly   regarded  as 


the  essential  thing — the  judgment 
— is  unnecessary  unless  the  cor- 
poration objects.  Thus  is  illus- 
trated anew  the  vainness  of  say- 
ing what  courts  of  equity  can  not 
do."  In  a  note  to  the  above  state- 
ment it  is  said:  "Whatever  doubts 
may  have  existed  as  to  the  broad 
authority  of  courts  of  equity  stated 
in  the  text  must  now  be  regarded 
as  settled  by  the  action  of  the  Su- 
preme Court  in  this  very  case." 
In  re  Reisenberg  (Receivership  of 
the  Metropolitan  Ry.  Co.),  208 
U.  S.  90,  52  L.  Ed.  403,  28  Sup.  Ct. 
219. 

Other  cases  in  which  we  find 
references  to  this  development 
theory,  "later  decisions,"  etc.,  are: 
Green  v.  National,  etc.,  Co.,  137 
Minn.  65,  162  N.  W.  1056;  Miner 
V.  Belle  Isle  Ice  Co.,  93  Mich.  97, 
17  L.  R.  A.  412,  53  N.  W.  218; 
Brent  v.  B.  E.  Brister  Sawmill  Co., 
103  Miss.  876,  Ann.  Cas.  1915B, 
576,  43  L.  R.  A.  (N.  S.)  720,  60 
South.  1018,  and  Morse  v.  Metro- 
politan S.  S.  Co.,  87  N.  J.  Eq.  217, 
100  Atl.  219.  Occasionally  we  find 
criticism  of  this  tendency.  Rob- 
erts V.  Washington  Nat.  Bank,  9 
Wash.  12,  37  Pac.  26;  and  see  dis- 
senting opinion  in  Ashton  v.  Pen- 
field,  233   Mo.   391,  135   S.  W.  938. 

In  view  of  what  some  courts 
have  said  about  the  lack  of  au- 
thority in  equity  to  dissolve  or 
wind  up  the  affairs  of  a  corpora- 
tion indirectly  through  a  receiver- 
ship, we  think  it  proper  to  refer 
to  what  frequently  happens  in 
foreclosure  suits.  Courts  of  equity 
have   never   doubted   their   power 


PRIVATE    CORPORATIONS. 


749 


engfige  in  business.  In  other  words,  it  is  not  necessary 
for  a  court  of  equity  to  interfere  with  the  legal  fetich 
raised  by  the  rule  against  the  dissolution  of  a  corporate 


to  appoint  foreclosure  receivers  of 
the  property  affected  by  the  mort- 
gage, on  a  proper  showing,  even 
though  the  mortgagor  is  a  corpo- 
ration. Large  corporation  mort- 
gages frequently  cover  all  of  the 
assets  of  the  company,  and  a  fore- 
closure sale  means  a  "winding  up 
of  its  affairs."  It  is  to  be  remem- 
bered that  insolvency  is  a  neces- 
sary condition  for  the  appointment 
of  a  receiver  in  a  foreclosure  suit. 
It  is  also  to  be  noticed  that  such 
a  receivership  necessitates  the 
managing  of  the  business  pen- 
dente lite  by  the  receiver,  in  or- 
der that  the  property  may  be  sold 
as  that  of  a  "going  concern."  In 
other  words,  we  have  all  the  con- 
ditions present  that  would  be 
found  in  a  corporation  receiver- 
ship. In  Title  Ins.  &  Trust  Co. 
v.  California  Development  Co.,  171 
Cal.  173,  152  Pac.  542,  which  was 
a  foreclosure  suit,  the  defendant 
company  had  created  and  was  op- 
erating a  very  extensive  irrigation 
proposition.  The  mortgage  cov- 
ered practically  all  of  the  property 
of  the  company,  both  real  and 
personal.  A  managing  receiver 
was  appointed  and  it  might  inci- 
dentally be  remarked  that  re- 
ceiver's certificates  to  the  amount 
of  more  than  $300,000  were  issued 
in  the  course  of  the  proceedings. 
The  property  was  sold  as  a  whole 
and  without  right  of  redemption. 
"Where  there  is  a  mortgage  cover- 
ing real  and  personal  property 
comprising  parts  of  a  single  work- 
ing plant  or  utility,  in  which  each 
part   is    necessary    to    give    value 


to  the  others  and  where  a  dis- 
memberment of  the  system  would 
destroy  or  greatly  impair  the  use- 
fulness or  value  of  its  component 
parts,  the  propriety  of  a  decree 
like  the  one  here  made  is  well 
settled.  The  statute  giving  a  right 
of  redemption  upon  execution 
sales  of  real  property  is  held  to 
have  no  application  to  such  cases." 
The  Court  cited  authority  to  show 
that  the  principle  of  this  quota- 
tion is  as  broad  as  stated  in  the 
quotation  and  is  not  confined  in 
its  application  to  a  railroad  or 
other  public  utility.  Thus  a  se- 
cured creditor  was  able  to  bring 
about  the  winding  up  or  practical, 
if  not  legal,  dissolution  of  a  cor- 
poration that  had  allowed  itself 
to  become  insolvent  and  unable 
to  pay  the  debt  when  it  became 
due.  A  receiver  was  appointed 
without  any  question  as  to  the 
power  of  equity  to  make  the 
appointment,  and  through  the  re- 
ceivership something  was  saved 
for  other  creditors. 

In  the  case  of  the  receivership 
of  the  Metropolitan  Street  Rail- 
way Company  the  proceedings 
were  commenced  by  contract 
creditors  (Pennsylvania  Steel  Co. 
V.  New  York  City  Ry.  Co.).  A 
showing  of  very  heavy  embarrass- 
ment was  made;  inability  to  pay 
maturing  debts,  numerous  secured 
and  unsecured  creditors  and  tort 
claimants  demanding  their  rights, 
etc.  A  managing  receiver  was 
appointed.  It  was  a  case  of  vari- 
ous large  properties  united  under 
one    management    by    leases.      In 


750 


LAW   OF   RECEIVEES. 


entity  by  a  court  of  equity.  As  is  shown  by  the  extended 
note  attached  to  this  section  much  of  the  conflict  of  au- 
thority on  this  subject  lias  arisen  from  a  blind  devotion 


the  course  of  the  proceedings  va- 
rious of  the  properties  were  seg- 
regated and  put  under  separate 
receiverships.  Eventually  the 
properties  of  the  Metropolitan,  by 
lar  the  greatest  portion  of  those 
originally  included  in  the  case, 
were  sold  as  a  whole  under  a  fore- 
closure decree.  Concerning  this 
receivership  the  United  States  Su- 
preme Court  said  (208  U.  S.  90, 
52  L.  Ed.  403,  28  Sup.  Ct.  219): 

"There  are  cases  where,  in  or- 
der to  preserve  the  property  for 
all  interests,  it  is  a  necessity  to 
resort  to  such  a  remedy.  A  re- 
fusal to  appoint  a  receiver  would 
have  led  in  this  instance  almost 
inevitably  to  a  very  large  and  use- 
less sacrifice  in  value  of  a  great 
property  operated  as  one  system 
through  the  various  streets  of  a 
populous  city,  and  such  a  refusal 
would  also  have  led  to  endless 
confusion  among  the  various  cred- 
itors in  their  efforts  to  enforce 
their  claims,  and  to  very  great 
inconvenience  to  the  many  thou- 
sands of  people  who  necessarily 
use  the  road  every  day  of  their 
lives.  The  orders  appointing  the 
receivers  and  giving  them  instruc- 
tions are  most  conservative  and 
well  calculated  to  bring  about  the 
earliest  possible  resumption  of 
normal  conditions,  when  those 
who  may  be  the  owners  of  the 
property  shall  be  in  possession  of 
and  operate  it."  "Who  may  be," 
not  who  are,  the  owners.  The 
Court  foresaw  that  a  reorganiza- 
tion was  the  necessary  purpose  of 
the  proceeding.    As  between  these 


two  cases  is  there  much  difference 
in  regard  to  what  equity  under- 
took to  do? 

As  a  unique  instance  of  what 
a  court  of  equity  has  done,  we 
cite  Arents  v.  Blackwell's  Durham 
Tobacco  Co.,  101  Fed.  338;  af- 
firmed in  Guthrie  v.  Arents,  109 
Fed.  1058,  48  C.  C.  A.  765.  All  of 
the  stockholders  except  the  owner 
of  one  share  desired  to  accept  an 
offer  for  the  entire  assets  and 
good  will  of  the  corporation.  The 
recalcitrant  member  threatened 
political  action  of  a  serious  char- 
acter against  the  corporation.  On 
the  petition  of  the  members  desir- 
ing to  sell,  and  on  the  ground  that 
the  threatened  action  of  the  non- 
assenting  member,  whether  suc- 
cessful or  not,  would  practically 
destroy  the  business  of  the  com- 
pany, a  receiver  was  appointed  to 
sell  the  property  of  the  corpora- 
tion for  the  benefit  of  its  stock- 
holders. 

We  think  it  proper  here  to  call 
attention  to  this  point.  Many  of 
the  statutes  authorizing  the  ap- 
pointment of  corporation  receivers 
are  very  meager  as  to  the  details 
that  follow  the  appointment,  while 
some  are  quite  full.  Manifestly 
it  is  practically  impossible  to 
cover  every  detail  that  may  arise. 
When  the  statutes  are  silent  as 
to  details,  resort  is  had  to  the 
practices  of  equity.  A  court  that 
appoints  a  receiver  under  statu- 
tory power  must  go  to  equity 
lules  to  know  what  to  do  with 
him  after  the  appointment,  if  the 


PRIVATE    CORPORATIONS. 


751 


to  precedent  instead  of  an  adherence  to  the  ehistic  and 
gro\ving  powers  of  a  court  of  equity  to  right  whatever 
wrongs  growing  society  may  find  to  exist  without  the 
necessity  of  statutory  authority  to  do  so. 

It  is  apparent  that  under  the  practice  followed  by 
courts  of  equity  a  receivership  is  discontinued  whenever 
the  objects  of  the  primary  litigation  are  accomplished  or 
the  necessity  for  a  continuance  of  the  receivership  has 
ceased. 


statute  does  not  give  instructions. 
(See  §  311,  infra.) 

We  close  tliis  note  witli  words 
of  Lord  Chancellor  Eldon  found 
in  a  case  that  antedates  the  At- 
torney General  v.  Utica  Insurance 
Co.  case  (Adley  v.  The  Whitstable 
Co.,  17  Vesey  Jr.  315,  1810).  Plain- 
tiff was  a  member  of  the  defen- 
dant corporation.  For  violation  of 
a  by-law  of  the  company  he  was 
deprived  of  his  share  of  the  divi- 
dends. He  sought  to  bring  the 
action  in  a  court  of  equity  for  an 
accounting  and  for  a  judgment 
awarding  him  the  amount  of 
money  he  would  have  received  as 
dividends,  claiming  that  the  by- 
law was  illegal.  After  a  full  con- 
sideration of  the  nature  of  the 
case  the  Lord  Chancellor  ruled 
that,  because  of  the  necessity  for 
an  accounting,  plaintiff's  only  rem- 
edy was  in  equity,  if  the  by-law 
was  illegal.  Answering  the  objec- 
tion that  equity  would  not  take 
cognizance  of  the  matter  because 
it  could  not  enforce  against  a  cor- 


poration any  decree  that  it  might 
make,  he  said:  "How  can  the  de- 
cree be  executed  against  the  cor- 
poration? The  course  against  a 
corporation  is  by  sequestration  or 
distringas.  I  do  not  conceive  it 
to  be  impossible  to  lay  hold  of 
their  property.  .  .  .  The  Courto 
must  deal  with  it  as  well  as  they 
can  to  prevent  a  failure  of  justice 
altogether,  and  if  by  resisting  the 
demands  of  justice  they  expose 
their  property  to  ruin,  the  mis- 
chievous consequence  must  be  at- 
tributed to  themselves  .  .  .  Tho 
effect  might  be  that  the  Court 
would  be  under  the  necessity  of 
carrying  on  the  business;  yet  that 
difficulty  would  not  prevent  the 
decree,  though  it  might  induce  the 
Court  to  modify  it,  so  as  to  do  as 
little  injury  as  possible.  ...  If 
a  court  of  law  will  inform  me  that 
this  is  not  a  good  by-law  ...  I 
shall  And  the  means  of  giving  to 
plaintiff  the  benefit  resulting  from 
his  title  in  this  concern." 


752  LAW   OF    RECEIVERS. 

6.   Appointment  of  Corporation  Receivers  Under 
Statutory  Authority. 

§  310.     General  Discussion  of  the  Subject, 

In  many,  if  not  all  of  the  states  of  the  United  States, 
statutes  have  been  enacted  conferring  upon  courts  the 
power  to  create  corporation  receiverships.  While  in 
many  instances  the  statutes  of  one  state  have  been  copied 
from  or  patterned  after  those  of  another  state,  still  they 
have  been  subjected  to  such  frequent  amendment  that  it 
may  be  said  that  in  regard  to  their  various  terms  the 
statutes  are  almost  as  varied  as  they  are  numerous.  It 
may  almost  be  said  that  there  is  not  much  greater  simi- 
larity among  them  than  is  contained  in  the  fact  that  they 
all  have  a  similar  purpose.  That  purpose  is  to  give 
courts  the  power  to  appoint  receivers  who  shall  take  pos- 
session of  all  of  the  assets  of  a  corporation  to  protect 
and  preserve  them  for  the  benefit  of  all  interested  par- 
ties, stockholders  and  creditors,  and  who,  as  incidental 
to  this  purpose,  are,  usually,  granted  authority  to  conduct 
the  business  of  the  corporation.  Of  course  it  is  necessary 
that  the  statutes  shall  designate  the  parties  at  whose 
instance  and  the  circumstances  under  which  receiverships 
may  be  created  and  in  regard  to  these  matters  there  is  a 
certain  broad  similarity  among  them.  The  right  to  apply 
for  a  receiver  is  usually  given  to  botli  stockholders  and 
creditors.  There  are,  however,  statutes  conferring  upon 
courts  the  power  to  create  receiverships,  in  actions  that 
can  not  strictly  be  called  quo  warranto  proceedings  at 
the  instance  of  the  attorney-general  of  the  state^  or, 
usually  in  regard  to  special  classes  of  corporations,  such 
as  banks,  insurance  companies,  and  the  like,  at  the 
instance  of  a  commissioner  or  other  state  officer.     In 

1  People  V.  Hasbrouck,  57  Misc.  N.  Y.  478,  5  N.  E.  316;   McKinney, 

Rep.  130,  107  N.  Y.  Supp.  257.    See  et  al.   v.   Landon   et  al.,   209   Fed. 

United    States   Trust  Co.   v.    New  300,  126  C.  C.  A.  226. 
York,    W.    S.    &    B.    Ry.    Co.,    101 


PRIVATE    CORPORATIONS.  '^^3 

regard  to  tlie  circumstances  under  wliicli  statutes  have 
provided  for  corporation  receivers,  it  lias  sometimes  been 
said  that  the  legislation  on  the  subject  has  been  prompted 
by  the  fact  that  some  courts  of  equity  have  disclaimed 
power  to  act  without  statutory  support  and  that  legisla- 
tures,   coming   to    the    assistance    of   the    courts,    have 
received    their   inspiration    from    requests    upon    which 
courts  have  refused  to  act  as  being  without  statutory 
authority."    However  this  may  be,  we  think  it  may  be  said 
that  there  is  no  single  circumstance  provided  by  any 
statute  as  a  reason  for  a  receivership  but  that  some  court 
has,  in  the  absence  of  statute,  refused  to  consider  it  a 
proper  basis  for  action,  while  some  other  court  has  con- 
cluded otherwise.     The  total  number  of  circumstances 
established  by  all  the  statutes  as  proper  reasons  for  this 
remedy  is  small.     The  differences  among  the  statutes  is 
due  to  the  fact  that  not  any  one  statute  includes  them  all 
and  the  various  statutes  do  not  include  the  same  ones. 
Because  of  the  differences  in  the  statutes  themselves; 
because  of  the  fact  that  it  has  generally  been  hekl  tb^t, 
in  regard  to  the  jurisdiction,  or  power,  to  appoint,  tlie 
statutes  are  held  to  be  strictly  construed  f  and  because  it 

2  United  States  Trust  Co.  v.  New  plaint  and  service  of  papers  saoi.l.' 
York,  W.  S.  &  B.  Ry.  Co.,  101  N.  Y.  be  strictly  followed.  Western 
478,  5  N.  E.  316;  Decker  v.  Gavd-  Electric  Co.  v.  National  Automatic 
ner,  124  N.  Y.  334,  11  L.  R.  A.  480,  Electrical  Supply  Co.,  135  La.  55S, 
26  N.  E.  814.  65  So.  741. 

3  Where  the  court  is  proceeding  Only  parties  mentioned  in  the 
to  make  the  appointment  of  the  statute  as  proper  applicants  can 
receiver  of  the  corporation  by  petition  for  the  appointment, 
virtue  of  the  statute,  it  proceeds  Arent  v.  Liquidating  Com'rs,  133 
in     strict     accordance     with     the  La.  134,  62  So.  602. 

statute.  Chamberlain  v.  Rochester,  Threatened    insolvency    is    not 

etc..   Vessel    Co.,    7    Hun    (N.    Y.)  sufficient  ground  under  a  statute 

557-    Cronan  v.  District  Court,  15  naming    insolvency    as    a   ground. 

Ida'  184    96  Pac.   768;    Mirabal  v.  Berryman  v.  Billings  Mut.  Heating 

Albuquerque  Wool,  etc..  Mills,  23  Co.,  44  Mont.  517,  121  Pac.  280. 

N    M    534,  170  Pac.  50.  That  the  charter  is  liable  to  be 

Statutory    requirements    in    re-  forfeited  is  not  sufficient  under  a 

pard  to  t>^e  verification  of  the  com-  statute   requiring  forfeiture.    Pru- 
I  Rec. — 48 


754  LAW   OF   RECEIVERS. 

has  also  generally  been  held  that,  even  under  the  statutes, 
the  appointment  is  not  a  matter  of  right  on  which  the 
applicant  can  insist  but  is  to  be  considered  with  reference 
to  a  certain  judicial  discretion,^  it  is  not  feasible  to  set 
forth  many  general  rules  or  principles  as  to  what  has 
been  done  or  may  be  done  under  statutory  authority. 
Mere  differences  in  phraseology^  or  context  often  lead  to 
divergent  judicial  interpretation;  indeed,  we  do  not 
always  find  members  of  the  same  court  agreeing  among 
themselves.  Decisions  under  statutory  authority,  even 
with  reference  to  the  mere  matter  of  the  appointment, 
are  not  to  be  taken  generally  as  precedents  and  must  be 
considered  with  reference  to  the  special  statutes  under 
which  they  were  rendered.  There  are  a  few  points,  how- 
ever, in  regard  to  which  it  may  be  said  there  has  been 
practically  a  unanimity  of  judicial  opinion  concerning 
the  effect  and  meaning  of  the  statutes. 

§  311.     Equity  Character  of  the  Statutory  Power. 

fSome  statutes  expressly  confer  the  powers  thereby 
created  u])on  courts  of  equity.^  In  many  it  is  provided 
that  in  so  far  as  the  statute  does  not  take  care  of  details, 
the  proceedings  shall  be  conducted  in  accordance  with 

dential    Securities    Co.    v.    Three  4  Western    Electric    Co.    v.    Na- 

Forks,  etc.,  R.  Co.,  49  Mont.  567,  tional  Automatic,  etc.,  Co.,  135  La. 

144  Pac.  158.  559,  65  So.  741. 

There  being  a  statute  providing  i  See  United  States  Trust  Co.  v. 

for  the  appointment  of  a  receiver  New  York,  W.     S.  &  B.  Rj'.  Co., 

and  another  providing  for  a  stock-  101  X.  Y.  478,  5  N.  E.  316;   Morse 

holders"  suit  against  directors  for  v.  Metropolitan  S.  S.  Co.,  88  N.  J. 

money     wrongfully     appropriated,  Eq.  325,  102  Atl.  524. 

the  two  causes  of  action  can  not  See  the  note  attached  to  section 

be  united  in  one  suit.    Nevins  v.  309     discussing     the     opinion     of 

Brooklyn  Citizen,  et  al.,  157  N.  Y.  Chancellor    Kent    in    the    case    of 

Supp.   96.  Attorney  General  v.  Utica  Ins.  Co., 

Plaintiff     must     bring     himself  2   Johns.   Ch.    (N.    Y.)    371,   which 

strictly    under    the    provisions    of  forms   the    basis    of   many   of  the 

the  statute,  the  statute  being  ex-  decisions   arising   in   the   state   of 

elusive.     Kokernot  v.  Roos    (Tex.  New  York  and  which  is  probably 

Civ.  App.),  189  S.  W.  505,  the  cause  of  the  statutory  provi- 


PRIVATE  CORPORATIONS.  "^^'^ 


the  principles  and  practices   of  equity.^     Even  in  the 
absence  of  such  expressions  in  the  statute  it  is  held  that, 
the  powers  conferred  on  the  court— the  rights  granted 
to  litigants— are  essentially  equitable  in  their  character, 
an<l  that,  in  regard  to  details  unprovided  for  in  the  stat- 
ute, resort  must  be  had  to  equity  to  discover  practical 
ways  of  conducting  corporation  receiverships.-^    In  fact, 
some  courts,  in  speaking  of  the  growth  and  development 
of  equity  power   and  practice,  to  keep  pace  with   the 
advance 'and  development  of  modern  business  methods, 
have  stated  that  this  movement  has  perhaps  been  great- 
est in  connection  with  the  handling  of  the  details  of  such 
receiverships,  as,  for  instance,  the  presentation  and  prov- 
ing of  claims  against  the  estate.^    In  the  nature  of  things 
statutes  can  not  provide  for  all  contingencies  that  may 
arise  in  matters  of  this  sort;  and  it  is  a  familiar  proposi- 
tion, rooted  in  the  very  foundation  of  equity,  that  having 
once  taken  jurisdiction,  equity  will  find  means  to  accom- 
plish any  purpose  that  it  is  called  upon  to  achieve.^ 

The  majority  of  statutes  concerning  the  appointment 
of  receivers,  after  setting  forth  various  circumstances 
in  which  a  receiver  may  be  appointed,  contain  a  clause 
allowing  receivers  to  be  appointed  "in  all  other  cases 
where  receivers  have  heretofore  been  appointed  by  the 
usages  of  courts  of  equity, "«  or  similar  language.  11 
is  obvious  that  such  an  omnibus  clause  does  not  in  any 

sions  in  that  state  upon  the  sub-  ^  Adley  v.   The  Whitetable  Co.. 

ject  of  corporation  receivers.  17  Vesey  Jr.  315. 

"See  Anthony  v.  Anthony  &  r.  Insofar  as  corporations  are 
Cowell  Co  40  R  I.  1,  99  Atl.  641.  concerned  section  564  Code  of 
In  this  action  the  court  speaks  of  Civil  Procedure  of  California  is 
its  "combination  of  inherent  and  perhaps  characteristic  of  the  pro- 
equitable  powers."  visions    found    in    other    statutes 

3  Jacobs  V.  Mexican   Sugar  Co..  wherein    it    provides    for    the    ap- 

130  Fed    589;    Thompson  v.  Gree-  pointment  of  a  receiver.         .    .    . 

ley   107  Mo    577,  17  S.  W.  962.  5.    In  the  cases  where  a  corpora- 

V  Pennsylvania  Steel  Co.  v.  New  tion  has  been  dissolved,  or  is  in- 

York  City  Ry    Co.,   198   Fed.   721,  solvent,  or  in  imminent  danger  ot 

117  C   C.  A.  503.  insolvency,  or  has  forfeited  its  cor- 


756  LAW    OP    RECEIVERS. 

manner  impair  tlie  powers  of  courts  of  equity.  As  has 
been  before  remarked,  many  of  the  statutory  provisions 
upon  the  subject  are  for  the  purpose  of  clarifying  any 
doubts  as  to  the  right  to  appoint  a  receiver  under  cer- 
tain specific  circumstances  or  conditions.  As  a  general 
rule  most  statutes  on  the  subject  of  receiverships  are 
mainly  declaratory  of  the  equitable  rules  on  the  subject 
and  do  not  impair  the  ordinary  jurisdiction  of  courts 
of  equity.'''  In  respect  to  receivers  for  corporations, 
statutory  provisions  have  generally  been  enacted  to  pro- 
vide a  safe  and  certain  rule  respecting  such  appointments 
on  account  of  the  hesitancy  and  in  some  cases  refusal 
of  courts  to  appoint  what  we  have  termed  a  corporation 
receiver  as  distinguished  from  a  receiver  appointed  over 
corporate  property  under  the  same  circumstances  where 
a  receiver  would  have  been  appointed  over  the  property 
of  an  individual. 

Although  it  would  be  impracticable  in  a  text  book  of 
this  character  to  attempt  to  discuss  the  various  statutes 
existing  in  the  different  states  of  the  Union,  it  may  be  said 
that  receivership  statutes  respecting  corporations  gener- 
ally make  provisions  for  receiverships  for  the  following 
general  purposes,  namely:  (1)  Preservation  of  the  cor- 
porate assets  pending  some  litigation ;  (2)  for  winding  up 
the  business  affairs  of  the  corporation  without  affecting  a 
dissolution  of  its  corporate  existence;  (3)  winding  up  its 

porate  rights;  6.  In  all  other  In  this  connection  see,  also,  sec- 
cases  where  receivers  have  hereto-  tions  21  and  22  supra,  where  the 
fore  been  appointed  by  the  usages  general  subject  respecting  such 
of  courts  of  equity."  clauses  is  discussed. 

See    Ward    v.    Inter-Ocean    Oil,  '  ^^^  existence  of  statutory  pro- 

etc,  Co.,  52  Okla.  490,  153  Pac.  115,      '!'^'''l^.  ^"  '^^^''^  .^^  circumstances 

in   which   a   receiver  may   be   ap- 

when     under     such     a     statutory      ^   ■„.  a       -n        ,.   x.  ^       ^    ^ 

pointed   will  not  be  construed   to 

clause  -;t  was  held  that  the  court  withdraw  the  ordinary  jurisdiction 

must    look    for    guidance    to    the  of  courts   of  equity  to   appoint  a 

established  usages  and  customs  of  receiver.     Merrifield    v.    Burrows, 

courts  of  equity.  153  111.  App.  523. 


PRIVATE    CORPORATIONS.  757 

affairs  in  dissolution  proceedings  ;  (4)  and  winding  up  its 
affairs  after  its  corporate  entity  has  been  dissolved  by 
operation  of  law  or  expiration  of  its  charter.  Some  con- 
fusion has  occurred  among  the  decisions  by  reason  of  not 
keeping  clearly  in  mind  the  purpose  and  particular  occa- 
sion of  the  receivership.  A  mere  conversion  of  the  assets 
of  a  corporation  into  money  does  not  necessarily  dissolve 
its  corporate  entity,  for  its  stockholders  may  re-embark 
into  business  of  the  same  character  at  some  other  place 
or  under  different  business  circumstances.  The  real  diffi- 
culty arises  generally  in  respect  to  statutes  which  pre- 
scribe the  manner  and  method  of  dissolving  a  corporation. 
A  court  of  equity  has  no  inherent  power"  to  dissolve  a 
corporation  where  a  statute  prescribes  the  circumstances 
in  which  it  may  be  dissolved  and  provides  the  method  of 
procedure,  although  when  the  jurisdiction  of  a  court  of 
equity  is  properly  brought  in  action  by  reason  of  one  of 
the  many  grounds  under  which  a  receiver  may  be  ap- 
pointed by  it,  we  do  not  apprehend  that  the  court  would 
not  have  the  power  to  wind  up  its  affairs  even  though  its 
actions  would  leave  a  mere  corporate  shell  of  corporate 
entity  in  existence. 

Under  the  provisions  of  some  statutes  the  receiver  is 
more  in  the  nature  of  a  mere  agent  than  that  of  a  court 
receiver  and  acts  as  an  administrative  officer  of  the  court'^ 
or  as  a  quasi  assignee  of  the  corporation. '^ 

8  In    some    circumstances    a   re-  tral  Ins.  Co.,  147  Ga.  492,  94  S.  E. 

ceiver  under  statutory  provisions  561. 

is     in     effect     an     administrative  "i  And  in  such  circumstances  he 

officer  of  the  court,  with   limited  may    maintain    without    the    terri- 

power;   and  the  restraint  of  such  torial  limits  of  jurisdiction  actions 

receiver  amounts  to  no  more  than  to     enforce     assessment     against 

direction  by  the  court  to  a  statu-  shareholders.    John  W.  Cooney  Co. 

tory  administrative  officer  of  that  v.  Arlington  Hotel  Co.  (Del.  Ch.), 

court.     Albright  v.  American  Can-  101  Atl.  879. 


758  LAW   OF    RECEIVERS. 

§  312.     Effect  of  State  Statutes  on  the  Jurisdiction  of  Federal 
Courts. 

While  federal  equity  courts  have  exercised  jurisdiction 
under  many  circumstances  to  appoint  corporation  receiv- 
ers on  the  ground  of  the  inherent  power  of  equity  to  do 
so,  it  has  been  held  that  a  state  statute  conferring  juris- 
diction to  make  such  an  appointment  on  a  court  under 
circumstances  under  which  equity  might  not  do  so  would 
enlarge  the  power  of  a  federal  court  having  jurisdiction 
within  the  state. ^  Such  would  not  be  the  effect  of  a 
statute,  however,  if  the  result  would  be  to  extend  the 
federal  court's  jurisdiction  contrary  to  some  constitu- 
tional restriction  upon  it.  For  instance,  a  state  statute 
providing  that  a  receiver  could  be  appointed  at  the  in- 
stance of  a  general  creditor  of  a  corporation  would  not 
give  that  power  to  a  federal  court  of  equity  because  to 
do  so  would  deprive  a  corporation  of  its  right  to  a  jury 
trial  of  the  issue  as  to  the  validity  and  amount  of  the 
creditor's  claim.-  A  state  statute  can  not,  however, 
restrict  the  jurisdiction  of  a  federal  equity  court. ^ 

§  313.     Constitutionality  of  Receivership  Statutes. 

Legislatures  that  have  the  power  to  create  corporations 
and  declare  the  conditions  and  terms  upon  which  they 
may  exercise  their  corporate  functions,  naturally  have 
the  power  also  to  determine  by  whom  and  under  what 
circumstances  corporate  conduct  may  be  reviewed,  even 

1  Land    Title    &    Trust    Co.    v.  2  Hollins  v.  Brierfield  Coal,  etc., 

Asphalt  Co.,  127  Fed.  1,  62  C.  C.  A.  Co.,  150  U.  S.  371,  37  L.  Ed.  1113, 

23;  McGraw  v.  Mott,  179  Fed.  646,  14  gup.  Ct.  127;  Jacobs  v.  Mexican 

103  C.  C.  A.  204.  Sugar    Co.,    130    Fed.     589.       See 

In  Maguire  v.  Mortgage  Co.,  203  Tompkins    Co.    v.    Catawba   Mills, 

Fed.  858,  122  C.  C.  A.  83,  the  court  00    t:.  -^     toa        1         s  0-70      * 

..    .T-   X    .^     .  /  .X  82    Fed.    780;    also,    §  372,   et   seq. 

recognized   that   if  state   statutes 

provide  for  the  liquidation  of  the  ^     ' 

affairs  of  corporations  through  re-  ^  Welch  v.  Union  Casualty  Ins. 

ceivers,  the  courts  within  the  ap-  Co.,  238  Fed.  968;  O'Neil  v.  Welch, 

propriate     jurisdictions     may     en-  245  Fed.  261,  157  C.  C.  A.  453. 
force  them. 


PRIVATE    CORPORATIONS. 


759 


to  tlie  extent  of  declaring  that  under  certain  circum- 
stances the  corporate  charter,  or  franchise,  may  be 
revoked.  In  general,  therefore,  statutes  providing  for 
the  appointment  of  receivers  over  corporations  by  courts 
are  not  unconstitutional.  However,  if  a  statute  pro\^des 
for  a  'Svinding-up  receivership,"  and  also  provides  that 
it  may  be  created  on  such  ''notice,  if  any,  as  the  court 
may  direct,"  to  hold  that  a  receiver  with  power  to  wind 
up  a  corporation  could  be  appointed  without  notice  and  to 
continue  in  power  beyond  a  day  certain,  at  which  the  cor- 
poration could  come  in  and  be  heard  on  a  motion  to  vacate 
the  order  appointing,  would  be  to  make  the  provision  as 
to  notice  unconstitutional,  because  such  action  would  be 
depriving  a  person  of  his  property  without  due  process 
of  law.^  Such  an  appointment  would  be  void.  Its  inva- 
lidity would  not  be  removed  by  the  making  of  a  motion 


1  Shaw  V.  Standard  Piano  Co.,  87 
N.  J.  Eq.  350,  100  Atl.  167;  Morse 
V.  Metropolitan  S.  S.  Co.,  88  N.  J. 
Eq.  325,  102  Atl.  524. 

One  who  is  a  stockholder  and  a 
director  in  a  corporation,  and  who 
is  the  administrator  of  an  estate 
that  owns  nearly  one-third  of  the 
stock  of  the  company,  is  benefi- 
cially interested  in  proceedings 
instituted  by  another  stockholder 
which  result  in  ex  parte  orders 
dissolving  the  company  and  ap- 
pointing a  receiver  and  hence  may 
bring  certiorari  to  review  such 
orders.  Hettel  v.  First  Judicial 
District  Court,  30  Nev.  382,  133 
Am.  St.  Rep.  731,  96  Pac.  1062. 

A  complaint  that  does  not  show 
any  liability  of  injury  or  loss 
through  delay  incident  to  giving 
notice  does  not  warrant  an  ap- 
pointment without  notice.  Con- 
tinental Clay  &  Mining  Co.  v.  Bry- 
son,  168  Ind.  485,  81  N.  E.  210. 


Under  certain  statutes  an  order 
appointing  a  receiver  of  an  insol- 
vent corporation  on  the  applica- 
tion of  the  corporation  and  with- 
out notice  to  creditors  is  void. 
Jones  V.  Schaff  Bros.  Co.,  187  Mo. 
App.  597,  174  S.  W.  177. 

Where  the  corporation  itself 
joined  as  a  plaintiff  in  the  suit  for 
the  appointment  of  a  receiver  its 
statutory  right  to  be  served  with 
10  days  notice  prior  to  the  hear- 
ing of  the  application  is  waived. 
Floore  v.  Morgan  (Tex.  Civ.),  175 
S.  W.  737;  Ripy  v.  Redwater  Lbr. 
Co.,  48  Tex.  Civ.  311,  106  S.  W.  474. 

In  a  proceeding  brought  under  a 
statute  that  permits  owners  of  25 
per  cent  of  the  stock  of  a  company 
to  bring  a  proceeding  looking 
toward  the  dissolution  of  the  com- 
pany, but  does  not  require  notice 
to  be  given  to  the  company,  a  re- 
ceiver is  not  proper.  Kokernot  v. 
Roos  (Tex.  Civ.  App.),  189  S.  W. 
505. 


160  LAW   OF    RECEIVERS. 

to  quasli  the  appointment,^  However,  if  sucli  an  appoint- 
ment was  made  and  a  motion  to  vacate  was  lieard  a 
renewal  of  the  appointment  after  the  hearing  would  be 
valid. ^  The  imeonstitutionality  of  the  provision  as  to 
notice  w^onld  not  affect  the  balance  of  the  statute  and  a 
court  could  make  an  appointment  under  its  provisions 
on  such  notice  as  might  be  considered  reasonable.'^  The 
legislature  can  not  direct  that  upon  dissolution  a  receiver 
be  appointed,  since  that  would  be  depriving  the  corpora- 
tion of  due  process  of  law.^ 

Under  the  provision  with  reference  to  the  paramount 
force  of  federal  statutes  regulating  proceedings  in  bank- 
ruptcy, it  has  been  held  that  a  statute  providing  for  the 
dissolution  of  a  corporation  on  the  ground  of  insolvency 
and  the  appointment  of  a  receiver,  being  practically  a 
bankruptcy  statute,  mil  remain  unenforceable  during  the 
existence  of  a  general  federal  bankruptcy  act  in  force  at 
the  time  the  state  statute  was  enacted.^  It  has,  however, 
been  held  that  proceedings  could  be  had  under  the  state 
statute  if  bankruptcy  proceedings  had  not  actually  been 
begun ;  but  if  such  proceedings  are  begun  pending  pro- 
ceedings under  the  state  statute,  exclusive  jurisdiction 
passes  to  the  bankruptcy  court.^ 

2  Hettel  V.  First  Judicial  District  v.  Redwater  Lumber  Co.,  48  Tex. 

Court,   30   Nev.    382,    133    Am.    St.  Civ.  311,  106  S.  W.  474.     See,  also. 

Rep.   731,  96   Pac.   1063;    State  ex  Shaw   v.    Standard   Piano    Co.,    87 

rel  Ridgely,  et  al.  v.  Superior  Ct.,  N.  J.  Eq.  350,  100  Atl.  167. 

86  Wash.  584,  150  Pac.  1153.  .  qt^ow   ,.    ctn^^„  ^    d-  r. 

4  bhaw   V.    Standard   Piano    Co., 

3  Joint  receivers  for  a  corpora-      g^  ^    j    j^q.  350,  100  Atl.  167. 
tion      were      appointed      without 

notice,  and  thereafter  its  directors  ""  ^^^P^^  ^-  O'Brien,  111  N.  Y.  1, 

entered      an      appearance,      after  '^  ^'^'  ^^-  ^^P-  ^^4,  2  L.  R.  A.  255, 

which   the    court   made   a    second  ^^   ^-   ^-   ^^^    (reversing,   45  Hun 

order  appointing  one  of  the  joint  ^l^). 

receivers  sole  receiver.    Held,  that  ^'  Moody  v.  Port  Clyde  Develop- 

such  appearance  before  the  second  i^ent  Co.,  102  Me.  365,  66  Atl.  967. 

order  cured  any  error  in  the  ap-  7  Shaw   v.    Standard    Piano   Co., 

pointment    without   notice.      Ripy  87  N.  J.  Eq.  350,  100  Atl.  167. 


PRIVATE    CORPORAT.^r'S- 


761 


We  append  a  note  showing  soi^a  of  the  questions  that 
most  commonly  arise  in  conueLjUon  with  the  appointment 
of  statutory  receivers,  anc^  decisions  concerning  them, 
with  the  reminder  that  these  decisions  have  value  only 
in  relation  to  the  statutcry  provisions  which  governed 
them.^ 


8  A  simple  contract  credi'.oi  ^nay 
apply  for  a  receiver.  Warren  v. 
Kilgroe,  176  Ala.  476,  58  So.  432; 
Sill  V.  Kentucky  Coal  &  Timber, 
etc.,  Co.  (Del.  Ch.),  97  All.  617. 

The  corporation  may  waive  the 
defense  that  the  applicant  is  not  a 
judgment  creditor  with  return  of 
execution  unsatisfied.  Moe  v. 
Thomas  McNally  Co.,  138  App.  Div. 
480,  123  N.  Y.  Supp.  71. 

The  corporation  is  the  only 
necessary  defendant.  The  com- 
plaint is  not  multifarious  nor  is 
their  a  misjoinder  of  parties,  how- 
ever, if  there  are  charges  of  mis- 
management against  certain  di- 
rectors named  as  defendants  if 
they  are  not  served  and  the  action 
is  stated  to  be  against  the  cor- 
poration. Hopper  V.  Fesler  Sales 
Co.  (Del.  Ch.),  99  Atl.  82. 

In  an  action  brought  by  a  stock- 
holder other  stockholders  have  a 
right  to  intervene  and  oppose  the 
appointment  and  a  delay  of  S^o 
months  in  doing  so  does  not 
necessarily  constitute  laches. 
Thayer  v.  Kinder,  45  Ind.  App.  Ill, 
89  N.  E.  408,  90  N.  B.  323. 

Only  the  corporation  is  a  neces- 
sary defendant  in  a  stockholder's 
action  on  the  ground  of  misman- 
agement, notwithstanding  persons 
not  members  are  charged  in  the 
complaint  to  have  conspired  with 
the  directors  to  defraud  the  com- 
pany. Van  Vleet  v.  Evangeline  Oil 
Co.,  127  La.  919,  54  So.  286. 


Directors  as  such  have  no 
authority  to  apply  for  a  receiver. 
Western  Electric  Co.  v.  National 
Automatic,  etc.,  Co.,  135  La.  559, 
65   So.   741. 

One  who  has  a  claim  against  a 
corporation  on  which  a  money 
judgment  might  be  based  is  a 
creditor;  a  company  bought  ma- 
chinery on  a  conditional  sale;  the 
company  failed  to  pay;  the  ven- 
dor was  entitled  to  the  return  of 
the  machinery,  for  its  reasonable 
rental  value,  and  for  damages  for 
injury  to  the  machinery  while  it 
was  in  the  company's  hands;  he 
was  a  creditor  under  the  statute 
and  entitled  to  a  general  receiver: 
he  was  not  restricted  to  a  special 
receiver  for  the  machinery.  Sum- 
mit Silk  Co.  V.  Kinston  Spinning 
Co.,  154  N.  C.  421,  Ann.  Gas.  1912A, 
897,  70  S.  E.  820. 

If  the  appointment  of  a  receiver 
is  binding  on  the  corporation  then 
no  one  else  can  question  it.  Whit- 
tlesey v.  Frantz,  74  N.  Y.  456; 
Peters  v.  Carr,  2  Dem.  Sur.  (N.  Y.) 
22;  Barnett  v.  Nelson,  54  Iowa  41, 
37  Am.  Rep.  183,  6  N.  W.  49; 
Thompson  v.  Greeley,  170  Mo.  577, 
17  S.  W.  962;  Elderkin  v.  Peter- 
son, 8  Wash.  674,  36  Pac.  1089. 

To  be  entitled  to  a  receiver  a 
stockholder  must  show  that  the 
appointment  is  imperatively 
necessary  to  protect  him  from 
threatened  loss.  Continental  Trust 


iG2 


LAW    OF    RECEIVERS. 


7.    Receiverships  on  Dissolution  of  a  Corporation, 
§  314.     General  Review  of  the  Subject. 

We  have  seen  in  preceding  sections  tbat  it  lias  been 
held,  in  numerous  cases,  that  courts  of  equity  have  inher- 


Co.    V.    Cowart    (Tex.    Civ.    App.), 
173  S.  W.  588. 

A  receiver  will  not  be  appointed 
on  a  showing  of  minor  irregulari- 
ties, or  even  wrong-doing  that  may- 
be remedied  in  some  other  way. 
Howeth  V.  Colbourne  Bros.  Co.  115 
Md.  107,  80  Atl.  916. 

Necessity  for  a  separate  cause 
of  action. — Since  a  receivership  is 
merely  ancillary  to  some  other 
action,  one  asking  for  a  I'eceiver 
over  a  corporation  alleged  to  be 
insolvent  must  state  a  cause  of 
action  based  on  some  claim 
against  the  corporation.  Hobson 
v.  Pacific  States,  etc.,  Co.,  5  Cal. 
App.  94,  89  Pac.  866. 

One  who  is  both  a  stockholder 
and  a  creditor  of  a  corporation 
need  not  base  his  claim  for  a  re- 
ceiver on  some  prior  judgment,  his 
interest  as  a  stockholder  being 
sufficient.  In  re  receivership  of 
Leidigh-Dalton  Lumber  Co.,  136 
La.  39,  66  So.  390.  See,  also.  Van 
Vleet  V.  Evangeline  Oil  Co.,  127 
La.  919,  54  So.  286;  Kerlin  v. 
Bryceland  Lumber  Co.,  134  La.  463, 
64  So.  289. 

It  is  otherwise  as  to  a  creditor — 
id.  A  creditor's  petition  need  not 
contain  a  specific  prayer  for  in- 
dependent relief.  Bellevue  Farms 
Co.  V.  Orleans  Kenner,  etc.,  R.  Co., 
141  La.  528,  75  So.  230. 

A  stockholder  to  be  entitled  to 
a  receiver  must  have  some  claim 
other  than  his  stockholder's  inter- 
est in  the  company,  though  not 
necessarily  a  judgment  or  a  lien; 


but  he  may  have  an  injunction 
against  wrongs  of  which  he  com- 
plains without  any  such  claim. 
Williams  v.  Watt  (Tex.  Civ.  App.), 
171  S.  W.  266;  People's  Invest.  Co. 
V.  Crawford  (Tex.  Civ.  App.),  45 
S.  W.  738;  Kokernot  v.  Roos  (Tex. 
Civ.  App.),  189  S.  W.  505. 

Likewise  a  creditor  can  not  have 
a  receiver  except  as  in  aid  of 
some  independent  cause  of  action 
against  the  company.  Continental 
Trust  Co.  v.  Brown  (Tex.  Civ. 
App.),  179  S.  W.  939;  Forest  Oil 
Co.  v.  Wilson  (Tex.  Civ.  App.), 
178  S.  W.  626;  Floore  v.  Morgan 
(Tex.  Civ.  App.),  175  S.  W.  737. 

Lender  statutes  providing  for  the 
appointment  of  a  receiver  if  no  de- 
fense is  made  against  the  showing 
made  by  the  applicant  for  a  re- 
ceiver, the  court  will  generally 
make  the  appointment.  State  v. 
Bank  of  New  England,  55  Minn. 
139,  56  N.  W.  575. 

A  statute  required  that  an  action 
against  a  corporation  should  be 
commenced  in  the  county  in  which 
it  had  its  main  office;  a  corpora- 
tion note  provided  that  it  was 
payable  in  a  certain  county  otheT 
than  where  it  had  its  main  office; 
suit  on  the  note  was  commenced 
in  the  latter  county  and  a  receiver 
asked  for,  without  objection  by 
the  company  to  the  venue;  since 
the  court  had  jurisdiction  of  the 
principal  subject  of  the  action  and 
the  receivership  was  simply  an- 
cillary to  that,  the  court  had  juris- 
diction to  appoint  a  receiver.  Ripy 


PRIVATE    CORPORATIONS, 


768 


ent  power,   for  the  protection  of  creditors   and   stock- 
holders, to  appoint  receivers  over  corporations ;  and  tliat 


V.  Redwater  Lumber  Co.,  48  Tex. 
Civ.  311,  106  S.  W.  474. 

Although  a  foreclosure  suit 
would  have  been  premature,  a 
bondholder  commenced  a  receiver- 
ship action  on  the  ground  of  in- 
solvency, waste,  mismanagement, 
etc.;  since  there  was  no  main 
cause  of  action,  the  suit  could  not 
be  maintained.  Houston  &  B.  V. 
Ry.  Co.  v.  Hughes  (Tex.  Civ. 
App.),  182  S.  W.  23. 

Circumstances  Warranting  Ap- 
pointment.— Insolvency  means  ex- 
cess of  liabilities  over  assets,  not 
mere  inability  to  pay  debts  in  the 
ordinary  course  of  business.  Ala- 
bama Cent.  Ry.  Co.  v.  Stokes,  157 
Ala.  202,  47  So.  336. 

Whatever  definition  may  be 
given  by  a  court  to  the  term  "in- 
solvency" as  used  in  a  receiver- 
ship statute,  when  the  statute 
itself  does  not  define  the  term,  in- 
solvency alone  will  not  be  ground 
for  the  appointment;  there  must 
be  some  showing  of  danger  of  loss 
to  give  room  for  the  functioning 
of  the  court's  discretion;  a  bill  al- 
leging insolvency  might  not  be 
open  to  demurrer,  but  will  not  fur- 
nish ground  for  a  receivership. 
Sill  V.  Kentucky  Coal  &  Timber 
Development  Co.  (Del.  Ch.),  97 
Atl.  617;  Whitmer  v.  William 
Whitmer  &  Sons,  (Del.  Ch.),  99 
Atl.  428. 

A  ruling  denying  a  receivership 
on  the  grounds  of  insolvency  in 
one  case  will  not  be  res  adjudicata 
in  another  case  on  the  same 
grounds,  since  the  showing  might 
be  entirely  different.  Sill  v.  Ken- 
tucky Coal,  etc.,  Co.  (Del.)   supra. 

A     corporation     whose     assets, 


though  not  readily  convertible,  are 
of  a  value  many  times  greater  than 
the  amount  of  its  liabilities,  is  not 
in  imminent  danger  of  insolvency. 
Cronan  v.  District  Court,  15  Ida. 
184,  96  Pac.  768. 

Insolvency  serious  enough  to 
make  it  probable  that  creditors' 
suits  and  attachments  will  prac- 
tically stop  the  company's  busi- 
ness is  ground  for  the  appoint- 
ment. Planter  v.  Kirby,  138  Iowa 
259,  115  N.  W.  1032. 

A  special  statute  giving  the  At- 
torney General  a  right  to  apply  for 
the  dissolution  of  a  corporation 
and  a  receiver  to  wind  up  its 
affairs  "for  good  cause  shown" 
does  not  give  a  stockholder  the 
right  to  apply  for  a  receiver  on  a 
ground  not  specified  in  general 
statutes  providing  for  receivers 
over  corporations.  Platner  v. 
Kirby,  138  Iowa  259,  115  N.  W. 
1032. 

A  stockholder  complaining  of 
ultra  vires  transactions  must  show 
that  his  interests  are  being  en- 
dangered thereby.  Varnado  v. 
Banner  Cotton,  etc.,  Co.,  126  La. 
590,  52  So.  777. 

Where  the  capital  has  been  very 
seriously  impaired  and  directors 
have  been  guilty  of  concealment 
and  misrepresentation,  a  stock- 
holder is  entitled  to  have  a  re- 
ceiver appointed.  In  re  Receiver- 
ship of  Webre-Steib  Co.,  136  La. 
272,  67  So.  1. 

As  applied  to  a  corporation  en- 
gaged in  trade,  the  term  "insol- 
vent" means  inability  to  pay  debts 
in  the  ordinary  course  of  business. 
Woodman  v.  Butterfield,  116  Me. 
241,  101  Atl.  25. 


764 


LAW   OP   RECEIVERS. 


these  proceedings,  through  the  sale  of  the  corporation 
assets  and  distribution  of  the  proceeds  among  creditors 


A  creditor,  without  having  ex- 
ecution returned  unsatisfied  may 
have  a  receiver  on  a  showing 
tliat  business  has  ceased  for  more 
than  a  year  and  of  insolvency. 
Guilbert  v.  Kessinger,  173  Mo. 
App.  680,  IGO  S.  W.  17. 

Insolvency  alone  does  not  war- 
rant a  receivership.  Forsell  v. 
Pittsburg,  etc.,  Co.,  42  Mont.  412, 
113  Pac.  479. 

If  a  corporation  has  a  large 
amount  of  property  subject  to  at- 
tachment a  creditor  can  not  have 
a  receiver  simply  because  most  of 
its  other  property  is  heavily  en- 
cumbered. Prudential  Securities 
Co.  V.  Three  Forks,  etc.,  R.  Co.,  49 
Mont.  567,  144  Pac.  158. 

The  court  will  determine  for 
itself  from  the  evidence  whether 
or  not  a  corporation  has  sufficient 
"quick"  assets  to  be  considered 
not  insolvent.  Wright  v.  Ameri- 
can Finance  &  Securities  Co.,  85 
N.  J.  Eq.  181,  96  Atl.  387. 

Under  a  statute  providing  for  a 
receiver  in  case  of  insolvency  and 
suspension  of  the  ordinary  busi- 
ness of  the  company,  a  receiver 
may  be  had  over  a  company  whose 
financial  condition  practically 
makes  impossible  the  particular 
object  for  which  it  was  organized. 
Catlin  V.  Vichachi  Min.  Co.,  73 
N.  J.  Eq.  286,  67  Atl.  194. 

It  is  not  necessary,  under  a 
statute  providing  for  the  appoint- 
ment of  a  receiver  under  a  variety 
of  circumstances,  or  conditions, 
listed  in  the  statute,  that  it  be 
shown  that  all  of  the  mentioned 
elements  exist;  some  of  the  ele- 
ments, as,  for  instance,  "insol- 
vency" and  "not  about  to  resume 


its  business  in  a  short  time,"  may 
be  interpreted  as  being  definitions, 
or  explanations  one  of  the  other. 
Shaw  V.  Standard  Piano  Co.,  86 
N.  J.  Eq.  137,  97  Atl.  281.  [On 
appeal  this  case  was  affirmed  on 
this  point,  but  overruled  as  to  the 
necessity  for  notice  to  the  cor- 
poration before  a  receiver  could 
be  appointed.  Shaw  v.  Standard 
Piano  Co.,  87  N.  J.  Eq.  350,  100 
Atl.    1C7.] 

A  showing  of  serious  insolvency 
and  that,  after  certain  fires,  the 
company  was  unable  to  procure  in- 
surance on  its  property,  warranted 
a  receivership  on  the  ground  of  in- 
solvency or  suspension  of  the 
ordinary  business.  Department 
Store  Co.  v.  Gauss-Langenberg 
Hat  Co.,  17  N.  M.  112,  125  Pac.  614. 

A  claim  that  some  of  its  indebt- 
edness is  illegal  can  not  be  urged 
against  an  application  for  a  re- 
ceiver on  the  ground  of  insolvency 
and  inability  to  pay  debts.  De- 
partment Store  Co.  v.  Gauss,  etc., 
Co.,  17  N.  M.  112,  125  Pac.  614. 

Charging  grounds  for  a  receiver- 
ship merely  in  the  language  of  the 
statute  is  not  sufficient.  Sacra- 
mento Valley  Irr.  Co.  v.  Lee,  15 
N.  M.  567,  113  Pac.  834. 

Charges  of  mismanagement,  etc., 
must  show  either  injury  or  threat- 
ened injury  to  the  interest  of 
plaintiff.  Fenn  v.  W.  M.  Ostrander, 
132  App.  Div.  311,  116  N.  Y.  Supp. 
1083. 

A  transfer  of  all  its  property 
and  an  abandonment  of  business 
by  its  officers  at  a  time  when  its 
liabilities  exceeds  its  assets,  con- 
stitutes insolvency  of  the  com- 
pany.   Abrams  v.  Manhattan,  etc.. 


PRIVATE    CORPORATIONS. 


765 


and  stockliolders,  may  be  carried  to  sucli  an  extent  as  to 
result;  if  not  in  an  absolute  dissolution  of  the  corporation, 

392,  126   N.  Y 


Co.,  142   App.   Div. 

Supp.  844. 

Inability    to    pay    debts    in    the 

ordinary    course   of   business   con- 
stitutes   insolvency.     Anthony    v. 

Anthony  &  Cowell  Co.,  40  R.  I.  1, 

99  Atl.  641. 

The  fact  that  certain  creditors 
are  urging  illegal  or  unreasonable 
claims  is  not  grounds  for  the  ap- 
pointment of  a  receiver.  Conti- 
nental Trust  Co.  V.  Brown  (Tex. 
Civ.  App.)  179  S.  W.  939;  Floore 
V.    Morgan    (Tex.   Civ.    App.),    175 

S.  W.  737. 

Mere  excess  of  liabilities  over 
assets  does  not  necessarily  con- 
stitute insolvency.  State  v.  Trinity, 
etc.,  Society  (Tex.  Civ.  App.),  127 
S.  W.  1174;  San  Antonio  Hard- 
ware Co.  V.  Sanger  (Tex.  Civ.), 
151  S.  W.  1104. 

"Danger    of    insolvency,"     suffi- 
cient   to    warrant    a    receivership 
exists,  even  though  the  assets  may 
exceed  the  liabilities,  when  numer- 
ous creditors  will  follow  a  creditor 
threatening  to  take  the  lead  and 
through  attachment  proceeds  will 
cause  forced  sales  that  will  cause 
a   heavy    sacrifice   of   the    assets. 
Hart-Parr  Co.  v.  Alvin,  etc.,  Nur- 
sery   Co.     (Tex.    Civ.    App.),    179 
S   W.  697.     See,  also,  Ripy  v.  Red- 
water,  etc.,  Co.,  48  Tex.  Civ.  App. 
311,  106  S.  W.  474. 

Insolvency  alone  is  not  sufficient 
ground  for  the  appointment  of  a 
receiver.  Galvin  v.  McConnell,  53 
Tex.  Civ.  486,  117  S.  W.  211. 

Insolvency  and  danger  of  sacri- 
fice of  assets  through  forced  sales 
warrant  a  receivership.  Parr  v. 
Blue  Ridge  Coal  Co.,  72  W.  Va. 
174,  77  S.  E.  894;  Waggy  v.  Jane 


Lew,  etc.,  Co.,  69  W.  Va.  666,  72 
S.  E.  778. 

Insufficiency  of  assets  to  pay 
debts  in  full  constitutes  insol- 
vency. Harle-IIaas  Drug  Co.  v. 
Rogers  Drug  Co.,  19  Wyo.  35,  Ann. 
Cas.  1913E,  181,  113  Pac.  791. 

Duration  and  Extent  of  the  Re- 
ceivership.— It  may  be  stated  that 
most  of  the  state  statutes  author- 
izing the  appointment  of  a  corpo- 
ration receiver  provide  that,  if  a 
receivership  is  created,  it  may  be 
carried  to  the  extent  of  winding 
up  the  company's  affairs  and  that 
a  decree  of  dissolution  may  be 
entered. 

A  receiver  may  not  be  appointed 
merely  to  give  a  corporation  an 
opportunity  to  tide  over  a  period 
of  financial  stress.  Cronan  v.  Dis- 
trict Court,  15  Ida.  184,  96  Pac. 
768;  Duncan  v.  George  C.  Tread- 
well  Co.,  82  Plun  376,  31  N.  Y. 
Supp.  340;  Continental  Trust  Co. 
V.  Brown  (Tex.  Civ.  App.),  179 
S.  W.  939. 

A  section  of  a  statute  providing 
for    a    discontinuance    of    the    re- 
ceivership and  a  restoration  of  the 
property  to  the  corporation  on  a 
showing  that  the  debts  were  pro- 
vided for  and  sufficient  capital  to 
resume  business  raised  is  not  com- 
plied   with    by    an    arrangement 
under    which    a    party    has    been 
found  who  is  willing  to  purchase 
all  of  the  claims  against  the  com- 
pany   and    extend    time    for    pay- 
ment;    such    an    arrangement    is 
merely   substituting  one   debt  for 
another,   not   "providing"    for   the 
debts;  a  proposition  to  discontinue 
the     receivership     in     accordance 
with   the   section   should    be   sub- 


766 


LAW    OF    RECEIVERS. 


at  least  in  a  winding  up  of  its  affairs  so  as  to  leave  noth- 
ing but  a  shell  of  an  organization.^     We  have  seen  also 


mitted  to  the  court  by  the  corpo- 
ration itself;  though  the  corporate 
functions  were  suspended  by  the 
receivership,  the  court  would,  on 
a  proper  application,  give  the  di- 
rectors or  the  stockholders  an  op- 
portunity to  take  such  steps  as 
might  be  necessary  to  bring  the 
matter  properly  before  it.  Bull  v. 
International  Power  Co.,  87  N.  J. 
Eq.  1,  99  Atl.  111. 

An  order  appointing  a  receiver 
of  an  insolvent  corporation  to 
wind  up  its  affairs  should  be  ac- 
companied by  an  order  enjoining 
its  officers  from  further  transact- 
ing its  business.  Morgan  v.  New 
York,  etc.,  R.  Co.,  10  Paige  (N. 
Y.)   290,  40  Am.  Dec.  344. 

Even  under  a  statute  providing 
that  the  receiver  shall  pay  all 
debts,  or,  in  case  of  a  deficiency, 
distribute  the  assets  ratably 
among  the  creditors,  and  shall  dis- 
tribute any  surplus  among  the 
stockholders,  the  court  may  in  its 
discretion,  on  proper  application, 
authorize  a  surplus  to  be  turned 
back  to  the  corporation  so  that  it 
may  resume  business.  Anthony  v. 
Anthony  &  Cowell  Co.,  40  R.  I.  1, 
99  Atl.  641.  See  dissenting  opinion 
as  to  the  unqualified  right  of  stock- 
holders to  be  heard  on  such  a 
proposition. 

Though  a  receiver  pendente  lite 
should  be  appointed  on  a  sufficient 
showing,  he  should  be  discharged, 
if  on  the  full  hearing,  the  allega- 
tions of  fact  on  which  the  appoint- 
ment was  based  are  not  fully  and 
clearly  proved.  Rainey  v.  Free- 
port,  etc.,  Co.,  58  W.  Va.  424,  52 
S.  E.  528. 

1  See  §  296,  et  seq.  supra. 


As  to  whether  the  corporation 
may  be  dissolved  by  a  court  of 
equity  the  court  of  Missouri  holds 
that  it  can  not  be  done.  The  ques- 
tion had  been  before  that  court 
on  several  occasions  and  is  re- 
garded as  stare  decisis.  In  one 
of  the  recent  cases  (Ashton  v. 
Penfield,  233  Mo.  391,  135  S.  W. 
938),  Judge  Lamm  in  announcing 
the  opinion  of  the  court,  said: 
"That  question  has  two  sides.  It 
has  been  held  in  respectable  cases 
that  where  the  situation  is  so  cry- 
ing as  to  show  the  purposes  or 
business  of  the  corporation  have 
been  abandoned,  or  where  per- 
formance of  the  corporate  purpose 
is  clearly  impracticable,  or  where 
the  trouble  is  so  radical,  deep 
seated,  and  dominating  as  to  point 
to  inevitable  corporate  disease,  a 
crippled  and  non-paying  corporate 
life,  equity  will  wind  up  its  affairs 
and  dissolve  it,  absent  statutory 
authority.  Arents  v.  Blackwell's 
Durham  Tobacco  Co.,  101  Fed.  338, 
and  cases  and  authorities  cited; 
O'Connor  v.  Knoxville  Hotel  Co., 
93  Tenn.  708,  28  S.  W.  308;  Miner 
V.  Belle  Isle  Ice  Co.,  93  Mich.  97, 
17  L.  R.  A.  412,  53  N.  W.  218; 
Gluck  and  Becker  on  Rec.  (2  ed.) 
pp.  54,  55. 

"But  the  doctrine  of  this  court 
runs  counter  to  that  and  onr  doc- 
trine accords  with  the  overwhelm- 
ing weight  of  authority  elsewhere. 
The  rule  in  this  .lurisdiction  is  that 
a  court  of  equity  is  without  juris- 
diction in  any  extreme  case  put  to 
dissolve  a  corporation  and  make 
distribution  of  its  assets.  [State 
ex  rel.  v.  Poster,  225  Mo.  171,  125 
S.   W.    184.]      I   did   not   agree   to 


PRIVATE    CORPORATIONS. 


767 


that  tliis  same  result  may  follow  the  foreclosure  of  a  cor- 
poration mortgage  covering  practically  all  of  the  com- 
pany's property.-     Apart  from  these  instances  of  what 
might  be  called  the  indirect  dissolution,  or  practical  dis- 
solution, of  a  corporation,  it  is  a  universally  recognized 
rule  that  the  only  authority  which  has  the  power  to  say 
whether  or  not  a  corporate   existence  shall  terminate 
short  of  the  period  for  which  it  was  created  is  the  same 
authority  that  was  responsible  for  its  coming  into  being. 
Accordingly,  the  question  of  the  technical  dissolution  of 
a  corporation  earlier  than  the  time  at  which  its  charter 
would  naturally  expire  is  a  matter  of  purely  statutory 
arrangement  and  controlled  by  the  statutes  of  the  legisla- 
ture under  whose  enactments  the  corporation  was  organ- 
ized.^'    Many  and  varied  statutes  bearing  on  the  subject 


that  ruling  when   made,   but  was 
of  mind  then   that  the  reason  of 
the  rule  no  longer  existed  in  full 
vigor  because  of  changed  business 
conditions.    But  there  was  no  call 
then  or  now  to  give  voice  to  con- 
trary views.  The  matter  is  settled, 
stare  decisis.    On  the  authority  of 
the  Foster  case  we  hold  the  decree 
erroneous  in  the  above  particular." 
It  might  be  observed   that  the 
court  in  the  exercise  of  its  equity 
powers  made  an  order  in  the  case 
"that  the  receiver  should  be  kept 
in  charge  until  such  time  in  the 
future  as  the  court  may  find  full 
equity    done    and    that    it    should 
then  lift  its  hand  and  retire." 

A  strong  dissenting  opinion  was 
filed  by  Judge  Graves  in  which  he 
took  the  view  that  the  majority  of 
the  court  were  attempting  to  do 
indirectly  what  they  could  not 
directly  do,  namely,  dissolve  the 
corporation  by  "starving  it  to 
death."  He  also  criticised  what  he 
termed  the  "reaching  out  the  arms 


of  equity"  for  the  purpose  of  ad- 
ministering business  affairs  and 
thought  that  this  tendency  woul?^ 
end  "in  a  government  by  the 
courts." 

2  See  §  309,  note  9. 

3  Inasmuch  as  a  corporation  l3 
a  creature  of  the  statute,  its  exis- 
tence and  manner  of  dissolution  is 
also  fixed  by  statute.  In  re  French 
Bank  Case,  53  Cal.  495,  550;  Fees 
V.  Mechanics'  State  Bank,  84  Kan. 
828,  L.  R.  A.  1915A,  606,  115  Pac 
563;    Pride  v.  Pride  Lumber  Co., 
109   Me.   452,  84  Atl.   989;    Folger 
V.    Columbian   Ins.    Co.,    99    Mass. 
267,   96   Am.    Dec.  747;    Elizabeth- 
town  Gaslight  Co.  v.  Green,  46  N 
J.   Eq.  118,  18  Atl.   844;    Attorney 
General  v.  Utica  Ins.  Co.,  2  Johns. 
Ch.    (N.  Y.)    371;    Denike  v.  New 
York,  etc..   Cement  Co.,  80  N.  Y 
599,  605;  Lowe  v.  R.  P.  K.  Pressed 
Metal  Co.,  91  Conn.  91,  99  Atl.  1; 
Union    Sav.,    etc.,    Co.    v.    District 
Court,    44    Utah    397,    Ann.    Cas. 
1917A,  821,  140  Pac.  221. 


7GS  LAW    OP    RECEIVERS. 

have  been  passed.     They  are  found  in  practically  every 
jurisdiction.     Voluntary  and  involuntary  dissolution  is 
provided  for.    A  voluntary  dissolution  of  a  corporation 
is,  of  course,  placed  entirely  under  the  control  of  its 
stockholders.    Involuntary  dissolution  is  provided  for  in 
various  ways.    As  we  have  seen  in  the  sections  immedi- 
ately preceding  this,  statutes  have  been  enacted  providing 
for  the  appointment  of  receivers  to  aid  creditors  and 
stockholders  in  much  the  same  way  as  some  courts  of 
equity,  mthout  the  aid  of  statutes,  have  given  them  the 
same  remedy.    Some  of  these  statutes  have  made  the  dis- 
solution of  the  corporation  an  imperative  result  of  these 
receivership  proceedings,  while  others  have  left  the  ques- 
tion as  to  how  far  they  should  be  carried  to  the  discretion 
of  the  court.^    Some  statutes  provide  for  direct  dissolu- 
tici.  proceedings,  at  the  instance  of  creditors  or  stock- 
holders, making  a  receivership  a  necessary  or  a  discre- 
tionary aid  to  the  dissolution.     Then  there  are  statutes 
in  Ihe  enforcement  of  which  the  state  alone  is  primarily 
interested.     Statutes  of  this  character  are  such  as  pro- 
vide for  dissolution,  or  forfeiture  of  charter,  as  a  pen- 
alt  jv  for  disobedience  of  some  regulatory  statute,  failure 
to  pay  license  taxes,  disobedience  of  anti-trust  laws,  or 
of  laws  relating  to  the  manner  of  conducting  business 
by  banks,  insurance  companies,  building  and  loan  associ- 
ations, and  the  like,  in  which  the  general  public  are  inter- 
ested and  for  whose  protection  the  regulatory  acts  are 
passed.    Upon  dissolution  some  machinery  must  be  pro- 
vided for  liquidating  the  company 's  affairs  and  distribut- 
ing its  assets  to  those  to  whom  they  properly  belong. 
This  machinery  is  provided  for  by   statute   and   some 
statutes    dealing  with    this   matter   provide    that   their 
purposes  shall  be  accomplished  through  the  medium  of 
a  receivership.     In  regard  to   all  of  these   statutes   it 
must  be  said,  as  was  said  above  of  receivership  stat- 

4  See  §  310,  et  seq. 


PRIVATE    CORPORATIONS. 


769 


utes,  that  tliey  are  so  numerous  and  so  varied,  not  only 
as  to  their  general  provisions  and  the  extent  to  which 
they  attempt  to  take  care  of  details,  but  even  as  to 
their  phraseology  and  context,  that  it  is  impossible  to  lay 
down  many  principles  that  can  be  said  to  be  of  general 
application  under  them  and  that  decisions  concerning  the 
matters  with  which  they  deal  must  be  read  and  applied 
only  in  the  light  of  the  statutes  by  which  they  were 
controlled.^ 


5  In  an  action  seeking  the  dis- 
solution of  a  corporation  a  re- 
ceiver will  not  be  appointed  at  the 
instance  of  a  preferred  stock- 
holder without  a  showing  of  insol- 
vency or  mismanagement  threat- 
ening serious  injury  to  his  inter- 
ests. Texas  Consol.,  etc.,  Mfg. 
Assn.  V.  Storrow,  92  Fed.  5,  34 
C.  C.  A.  182. 

Under  the  statutes  of  Maine,  a 
liquidating  trustee  of  a  dissolved 
corporation,  having  title  to  its 
assets,  may  bring  suit  in  a  for- 
•  eign  jurisdiction  in  his  own  name. 
Strout  v.  United  Shoe,  etc.,  Co., 
195  Fed.  313. 

Such  a  trustee  has  power  to  sue 
notwithstanding  the  statute  con- 
tinuing the  corporation  for  certain 
purposes  for  a  period  of  three 
years  after  dissolution.  Strout  v. 
United  Shoe,  etc.,  Co.,  supra. 

The  fact  that  a  corporation  has 
lost  its  charter  through  failure  to 
pay  con^oration  license  tax  does 
not  necessitate  the  appointment  of 
a  receiver  to  keep  alive  actions 
commenced  before  the  charter  was 
forfeited.  Stark  Electric  R.  Co.  v. 
McGinty  Contracting  Co.,  238  Fed. 
657,  151  C.  C.  A.  507. 

In  an  action  looking  to  the  dis- 
solution of  a  corporation  all  stock- 
holders are  necessary  parties  in 
I  Rec— ID 


the  absence  of  some  equitable 
reason  such  as  impracticability  on 
account  of  numbers,  etc.  Alabama 
Fidelity,  etc.,  Co.  v.  Dubberly 
(Ala.),  73  So.  911. 

The  venue  of  an  action  brought 
several  months  after  the  life  of  a 
corporation  had  terminated  und:.- 
the  terms  of  its  charter  to  have 
liquidating  receivers  appointed  is 
the  county  in  which  it  carried  on 
its  business  or  had  its  principr.1 
place  of  business  as  a  going  con- 
cern. Henderson  v.  Palmer  Union 
Oil  Co.,  29  Cal.  App.  451,  156  Pac. 
65. 

Supersedeas  orders  staying  pro- 
ceedings of  the  receivership  pend- 
ing an  appeal  from  a  decree 
of  dissolution  do  not  affect  the 
decree.  Crittenden  v.  Superior 
Court,   166   Cal.  340,  136  Pac.  287. 

Forfeiture  of  charter  for  failure 
to  pay  corporation  license  tax  has 
same  effect  as  a  judicial  decree  of 
dissolution.  Brandon  v.  Umpqua 
Lumber,  etc.,  Co.,  166  Cal.  322,  136 
Pac.  62. 

A  corporate  deed,  made  after 
dissolution  conveying  property 
outside  of  the  jurisdiction  to  the 
liquidating  receiver  is  either  valid 
because  the  corporation  still  had 
title  or  immaterial  because  the 
title  was   in  the  receiver  without 


770 


LAW    OF    RECEIVERS. 


§  315.    Eif ect  of  Statutes  Providing  for  Dissolution  Proceedings. 

The  general  effect  of  the  appointment  of  a  receiver 

over  a  corporation  is  not  to  operate  as  a  dissolution  of 


the  deed.     Sayre  v.  Sage,  47  Colo. 
559,  108  Pac.  160. 

It  is  within  the  discretion  of  a 
court  to  dismiss  an  action  looking 
to  the  dissolution  of  a  corporation 
and  the  appointment  of  a  liquidat- 
ing receiver  brought  by  one  of  the 
three  owners  of  all  of  the  stock, 
In   the    absence   of   a   showing   of 
fraud  in  the  management,  notwith- 
standing the  fact  that  the  business 
had  been  run  at  a  loss  for  several 
years,   the   bearing   of  this   latter 
fact    being    weakened    by    an    im- 
provement in  the  showing  for  the 
last   year.     Ray    v.    Robert    Price 
Coal  Co.,  80  Conn.  558,  69  Atl.  355. 
A  corporation  that  has  lost  its 
charter    for    failure    to    pay    cor- 
poration license  tax  is  a  dissolved 
corporation  over  which  a  receiver 
may  be  appointed;  and  the  statute 
providing  that  a  corporation  shall 
function    as    such    for    liquidating 
purposes    for    a    period    of    three 
years  after  its  dissolution  does  not 
affect  the  proposition  that  a  stock- 
holder   or    creditor    may    ask    for 
a    liquidating    receiver    after    the 
expiration  of  the  three  years  and 
that    the    corporation    should    be 
made    a    party    to    the    action,    in 
which  its  officers  may  appear  and 
answer  for  it.     Harned  v.  Beacon 
Hill,  etc.,   Co.,  9   Del.   Ch.   232,   80 
Atl.  805;    (affirmed  9  Del.  Ch.  411, 
84  Atl.  229) ;    Slaughter  v.  Moore, 
9  Del.  Ch.  350,  82  Atl.  963. 

A  corporation  may  not  volun- 
tarily offer  to  surrender  its  charter 
and  have  a  receiver  appointed  on 
an  ex  parte  application.  White  v. 
Davis,  134  Ga.  274,  67  S.  E.  716. 


A  liquidating  receiver  may  not 
be  appointed  in  proceedings 
brought  for  the  surrender  of  the 
charter  until  the  surrender  has 
been  accepted  and  a  petition  for 
such  receiver  by  stockholders  and 
directors  is  not  aided  by  the  fact 
that  the  corporation  is  joined  as  a 
petitioner;  creditors  have  a  right 
to  contest  such  a  petition.  Bank 
of  Soperton  v.  Empire  Realty 
Trust  Co.,  142  Ga.  34,  82  S.  E.  464. 
The  appointment  of  a  liquidating 
receiver  should  be  made  only  after 
a  decree  of  dissolution  and  a 
hearing  on  behalf  of  all  interested 
parties.  Ward  v.  Farwell,  97  111. 
593. 

After  decree  of  dissolution,  and 
conveyance  of  property  to  the 
liquidating  receiver  by  a  special 
commissioner,  the  receiver  is  the 
proper  person  to  have  the  title- 
registered.  Teninga  v.  Glos,  266 
111.  121,  107  N.  E.  126. 

Pending  proceedings  by  the 
state  to  have  a  charter  forfeited, 
corporate  property  may  be  placed 
in  control  of  a  receiver  to  pre- 
vent its  being  used  for  an  unlaw- 
ful purpose.  Columbian  Athletic 
Club  V.  State,  143  Ind.  98,  52 
A.  L.  R.  407,  28  L.  R.  A.  727,  40 
N.  E.  914. 

When  a  liquidating  receiver  had 
been  appointed  pending  successful 
proceedings  to  set  aside  a  default 
judgment  against  a  corporation, 
the  action  could  not  be  continued 
without  notice  to  the  receiver. 
Hollister  v.  Vermont  Bldg.  Co., 
141  Iowa  160,  119  N.  W.  626. 
After  decree  of  dissolution  and 


PRIVATE   CORPORATIONS. 


771 


its  corporate  entity.     Such  an  appointment  merely  sus- 
pends its  corporate  functions  during  the  pendency  of  the 


appointment  of  a  liquidating  re- 
ceiver, the  corporation  has  no 
standing  to  prosecute  an  appeal 
from  only  the  part  of  the  decree 
that  appoints  the  receiver.  State 
V.  Fidelity  Loan  &  T.  Co.,  113  ' 
Iowa  439,  85  N.  W.  638. 

Corporation  liquidators  ap- 
pointed in  voluntary  dissolution 
proceedings  begun  after  the  state 
had  commenced  an  action  to  have 
the  charter  forfeited  will  not  dis- 
place a  state  liquidator,  the  state's 
rights  dating  from  the  filing  of  its 
bill.  State  v.  People's  Fire  Ins. 
Co.,  126  La.  548,  52  So.  763. 

Any  person  interested  may  ask 
for  a  receiver  of  property  of  a  de- 
funct corporation  in  the  court  of 
the  district  in  which  the  property 
is  situated.  Board  of  School  Di- 
rectors, etc.  v.  Meridith,  140  La. 
269,  72  So.  960. 

After  voluntary  dissolution  pro- 
ceedings have  reached  the  stage 
to  which  the  liquidating  receiver's 
title  will  relate  back,  execution 
sale  of  property  on  which  attach- 
ment had  been  levied  before  the 
dissolution  proceedings  had  been 
commenced  is  invalid;  the  attach- 
ment lien  is  not  dissolved,  but 
further  steps  should  be  taken  in 
the  liquidation  proceedings.  Cobb 
V.  Camden  Savings  Bank,  106  Me. 
178,  20  Ann.  Cas.  547,  76  Atl.  667. 

After  the  appointment  of  a 
liquidating  receiver  the  corpora- 
tion has  not  standing  to  make  any 
motion  concerning  an  action 
against  the  corporation  that  was 
pending  at  the  time  dissolution 
proceedings  were  begun;  the  re- 
ceivership court  should  direct  the 


receiver  what  to  do.  Carter,  etc., 
Co.  v.  Stewart  Drug  Co.,  115  Me. 
289,  98  Atl.  809. 

Notwithstanding  the  fact  that  a 
liquidating  receiver  has  not  dili- 
gently prosecuted  the  proceedings 
in  which  he  was  appointed  the 
time  within  which  claims  against  a 
corporation  will  outlaw  after  its 
dissolution  will  run  against  a  cred- 
itor. Montgomery  v.  Merrill,  18 
Mich.  338. 

A  corporation  ceases  to  exist 
upon  its  dissolution  and  the  liqui- 
dating receiver  is  vested  with  all 
the  corporate  interests  except  the 
power  to  conduct  business  other- 
wise than  as  may  be  necessary  for 
the  purposes  of  liquidation.  Cady 
V.  Centreville,  etc.,  Mfg.  Co.,  48 
Mich.  133,  11  N.  W.  839. 

In  a  dissolution  proceeding  a 
temporary  receiver  can  not  be 
given  authority  other  than  to  pre- 
serve the  corporate  property  until 
final  decree  of  dissolution.  Wood- 
mansee  v.  Ann  Arbor,  etc.,  Co., 
164  Mich.  688,  130  N.  W.  311. 

The  appointment  of  a  liquidating 
trustee  in  an  action  brought  to 
enjoin  a  corporation  from  continu- 
ing business  is  improper,  such  an 
appointment  being  provided  for 
in  an  action  brought  to  have  the 
charter  forfeited  and  then  only 
after  decree  of  forfeiture.  Jack- 
son Loan  &  T.  Co.  v.  State,  101 
Miss.  440,  56  So.  293. 

One  who  is  a  stockholder  in  his 
own  name  and  a  director  of  a  cor- 
poration as  well  as  the  adminis- 
trator of  an  estate  that  owns  a 
large  block  of  stock  is  entitled  to 
institute  certiorari  proceedings  to 


72 


LAW   OF    RECEIVERS. 


receiversliip  and  places  the  exercise  of  those  functions 
necessary  for  the  maintenance  and  preservation  of  its 


have  reviewed  proceedings  leading 
up  to  a  decree  of  dissolution  and 
the  appointment  of  a  liquidating 
receiver.  Hettel  v.  First  Judicial 
District  Court,  30  Nev.  382,  133 
Am.  St.  Rep.  731,  96  Pac.  1062. 

A  decree  of  dissolution  and  for 
the  appointment  of  a  liquidating 
receiver  can  not  be  made  on  an 
ex  parte  application.  Hettel  v. 
First  Judicial  District  Court, 
supra. 

The  right  of  a  corporation  to 
sue  for  injuries  to  its  property 
pending  dissolution  proceedings  is 
not  affected  by  the  appointment  of 
a  temporary  receiver  in  those  pro- 
ceedings, since  no  title  to  cor- 
porate assets  vests  in  such  re- 
ceiver. Mutual  Brewing  Co.  v. 
New  York,  etc.,  Co.,  16  App.  Div. 
149,  45  N.  Y.  Supp.  101. 

Since  a  liquidating  receiver  ap- 
pointed in  voluntary  dissolution 
proceedings  acts  as  trustee  for 
creditors,  time  does  not  run  to 
bar  the  claims  of  creditors  while 
such  receivership  proceedings  are 
progressing.  Ludington  v.  Thomp- 
son, 153  N.  Y.  499,  47  N.  E.  903. 

A  liquidating  receiver  can  not 
be  appointed  before  decree  of  for- 
feiture of  charter  in  proceedings 
brought  to  determine  that  there  is 
ground  for  such  forfeiture.  People 
v.  Washington  Ice  Co.,  18  Abb. 
Prac.    (N.  Y.)    382,  383. 

A  liquidating  receiver  may  sell 
corporate  property  subject  to  all 
prior  liens.  Mayor  v.  Burr,  133 
App.  Div.  604,  118  N.  Y.  Supp. 
203;  In  re  French,  181  App.  Div. 
719,   168  N.  Y.   Supp.  988. 

Dissolution   statutes   are    to   be 


strictly   construed.    In  re  French, 
supra. 

An  action  begun  against  a  cor- 
poration either  before  or  pending 
voluntary  dissolution  proceedings 
abates  upon  the  making  of  a  de- 
cree of  dissolution  and  can  not  be 
revived  without  making  the  liqui- 
dating receiver  a  party.  In  re 
French,  supra. 

In  voluntary  dissolution  pro- 
ceedings a  temporary  receiver 
should  not  be  appointed  on  an  ex 
parte  application.  In  re  Manoca 
Temple  Assn.,  128  App.  Div.  796, 
113  N.  Y.  Supp.  172. 

Corporate  title  vests  in  a  liqui- 
dating receiver  appointed  on 
voluntary  dissolution.  Michel  v. 
Betz,  108  App.  Div.  241,  95  N.  Y. 
Supp.  844. 

Notwithstanding  a  by-law  to  the 
effect  that  title  to  stock  does  not 
pass  until  a  transfer  is  made  on 
the  books,  one  who  buys  stock  on 
a  probate  sale  can  participate, 
without  such  transfer,  in  receiver- 
ship proceedings  as  a  stockholder, 
such  by-law  being  for  the  protec- 
tion of  the  company  only.  Mitchell, 
et  al.  V.  Aulander  Realty  Co.,  169 
N.  C.  516,  86  S.  E.  358. 

A  stockholder  bringing  suit  for 
dissolution  and  a  liquidating  re- 
ceiver must  show  that  he  can  not 
get  relief  within  the  corporation 
and  that  he  is  equitably  entitled 
to  institute  the  litigation  instead 
of  the  corporation.  Mitchell  v. 
Aulander  Realty  Co.,  169  N.  C.  516, 
86  S.  E.  358;  Moore  v.  Lewisburg, 
etc.,  Ry.  Co.,  80  W.  Va.  653,  93 
S.  E.  762. 

When   a   corporation   has   prac- 


PRIVATE    CORPORATIONS. 


773 


assets  and  business  in  the  court  acting  tlirougli  its  agent, 
the  receiver.^  A  court  of  equity  has  no  inherent  power 
to  dissolve  corporations  as  a  mere  dissolution  process  on 
account  of  corporations  being  creatures  of  the  legislature 
and  endowed  with  only  the  life  and  conditions  with  which 
the  legislative  enactment  endows  them.-  In  some  cases  the 


tically  ceased  to  operate  as  such, 
certain  former  directors  are  in 
possession  of  and  claiming  title  to 
a  piece  of  realty  which  is  the  only 
asset  of  the  corporation  and  a 
vendor's  lien  on  which  is  the  only 
corporate  liability,  the  court  may, 
at  the  instance  of  the  remaining 
stockholders,  appoint  a  receiver  to 
sell  the  property,  pay  the  lien,  and 
distribute  the  balance  among  the 
stockholders  as  their  interests 
may  appear.  Canadian  Country 
Club  V.  Johnson  (Tex.  Civ.  App.), 
176  S.  W.  835. 

On  decree  forfeiting  charter  the 
court  may  of  its  own  motion  ap- 
point a  liquidating  receiver. 
Waters-Pierce  Oil  Co.  v.  State,  47 
Tex.  Civ.  299,  48  Tex.  Civ.  147, 
105  S.  W.  851;  San  Antonio  Gas 
Co.  V.  State,  22  Tex.  Civ.  App. 
118,  54  S.  W.  289. 

In  a  stockholder's  proceedings 
for  dissolution  as  such  a  receiver 
can  not  be  appointed  and  such 
proceedings  can  not  be  used  as  a 
cloak  for  obtaining  a  receivership 
to  delay  creditors.  Kokernot  v. 
Roos  (Tex.  Civ.  App.),  189  S.  W. 
505. 

The  power  of  a  court  to  ap- 
point a  liquidating  receiver  in 
involuntary  dissolution  proceed- 
ings is  not  limited  to  those  insti- 
tuted by  the  state's  prosecuting 
attorney.  Conlan  v.  Oudin,  49 
Wash.  240,  94  Pac.  1074. 

Unless  saved  by  statute  actions 


pending  against  a  corporation 
are  abated  by  decree  of  dissolution 
and  can  not  be  reviewed  without 
making  the  title  holding  liquidator 
a  party.  Hawley  v.  Bonanza,  etc., 
Co.,  61  Wash.  90,  111  Pac.  1073. 

1  Moss  Steamship  Co.,  Ltd.  v. 
Whinney,  [1912]  A.  C.  263. 

2  Fluker  v.  Emporia  City  Ry. 
Co.,  48  Kan.  577,  580,  30  Pac.  18; 
Blum  Bros.  v.  Girard  Nat.  Bank, 
248  Pa.  St.  148,  Ann.  Cas.  1916D, 
609,  93  Atl.  940. 

In  Wheeler  v.  Pullman  Iron,  etc., 
Co.,  143  111.  197,  207,  17  L.  R.  A. 
818,  32  N.  E.  420,  the  court  said: 
"In  the  absence  of  statutory 
authority,  courts  of  chancery  had 
no  jurisdiction  to  decree  a  disso- 
lution of  a  corporation,  by  declar- 
ing a  forfeiture  of  its  franchise, 
either  at  the  suit  of  an  individual 
or  of  the  state.  Verplanck  v. 
Mercantile  Ins.  Co.,  1  Edw.  Ch. 
(N.  Y.)  84;  Doyle  v.  Peerless 
Petroleum  Co.,  44  Barb.  (N.  Y.) 
239;  Folger  v.  Columbian  Ins.  Co., 
99  Mass.  267,  274,  96  Am.  Dec.  747; 
State  V.  Merchants'  Ins.,  etc.,  Co., 
8  Humph.  (Tenn.)  235;  Attorney 
General  v.  Bank  of  Niagara,  1 
Hopk.  Ch.  (N.  Y.)  354;  Denike  v. 
New  York  &  R.  Lime,  etc.,  Co., 
80  N.  Y.  599,  605.  The  mode  of 
enforcing  a  forfeiture  of  the  char- 
ter at  common  law  was  by  scire 
facias  or  quo  warranto  in  courts 
of  law  only,  and  at  the  suit  only 
of  the  sovereign.   The  judgment  in 


774 


LAW    OF    RECEIVERS. 


statutes  not  only  prescribe  the  ordinary  metliod  for  tlie 
dissolution  of  a  corporation,  but  also  provide  for  the  ap- 
pointment of  a  receiver  in  special  circumstances  either  in 
the  dissolution  proceedings  or  in  the  winding  up  of  its 


such  cases,  at  law,  relates  solely 
to  the  right  to  exercise  the  cor- 
porate franchise,  and  operates  to 
extinguish  corporate  existence.  In 
respect  of  trade  corporations,  in- 
dependently of  statutory  provision, 
and  notwithstanding  the  dissolu- 
tion of  the  corporation,  its  assets 
belong  to  those  who  contributed  to 
its  capital,  and  for  whom  it  stood 
as  representative  in  the  business 
in  which  it  was  engaged,  and  are 
treated  in  equity  as  a  trust  fund 
to  be  administered  for  the  benefit 
of  the  bona  fide  holders  of  stock, 
subject  to  the  just  claims  of 
creditors  of  the  corporation." 

A  proceeding  for  the  dissolution 
of  corporation  because  it  has 
ceased  to  act  under  its  franchise 
must  be  brought  by  state,  and  not 
by  a  private  individual.  Richards 
V.  Cavalry  Club  of  Rhode  Island 
(R.  I.),  101  Atl.  222. 

The  power  of  a  court  of  equity 
to  dissolve  a  corporation  and  dis- 
tribute its  assets  was  denied  in  a 
recent  California  case  as  in  accord 
with  the  well  established  rule  in 
that  state.  Boyle  v.  Superior 
Court,  176  Cal.  671,  L.  R.  A.  1918D, 
226.  170  Pac.  1140. 

In  Ashton  v.  Penfield,  233  Mo. 
391,  135  S.  W.  938,  the  Supreme 
Court  held  that  a  court  of  equity 
was  without  jurisdiction  to  dis- 
solve a  corporation. 

In  Baillie  v.  Columbia  Gold  Min. 
Co.,  86  Ore.  1,  166  Pac.  965,  167 
Pac.  1167,  the  court  said:  "We 
are  cited  to  a  line  of  authority  to 
the  effect  that  equity  has  no  juris- 


diction to  dissolve  a  corporation 
unless  such  jurisdiction  is  con- 
ferred by  statute  and  that  a  re- 
ceivership which  would  be  equiva- 
lent to  a  dissolution  will  not  be 
granted.  The  receivership  sug- 
gested in  our  previous  opinion 
would  not  dissolve  the  Columbia 
Company.  It  is  within  the  general 
powers  of  a  court  of  equity  to 
grant  a  receivership  over  a  cor- 
poration where  through  such  re- 
ceivership the  relief  of  a  minority 
stockholder  can  be  best  worked 
out.  Smith  on  Receiverships, 
§  225g,  p.  359;  2  Machen  on  Mod- 
ern Law  of  Corporations,  §  1161, 
p.  958;  Miner  v.  Belle  Isle  Ice 
Co.,  93  Mich.  97,  112,  17  L.  R.  A. 
412,  53  N.  W.  218;  State  v.  Second 
Judicial  District  Court,  15  Mont. 
324,  333-339,  48  Am.  St.  Rep.  682, 
27  L.  R.  A.  392,  39  Pac.  316.  The 
right  is  to  be  exercised  sparingly 
and  with  great  caution,  to  the  end 
that  the  innocent  be  not  made  to 
suffer  with  or  for  the  guilty.  Co- 
lumbia Nat.  Sand  Dredging  Co.  v. 
V^^ashed  Bar,  etc.,  Co.,  136  Fed. 
710,  712;  Bauer  v.  Haggerty,  42 
Wash.  313,  84  Pac.  871;  Ponca 
Mill  Co.  V.  Mikesell,  55  Neb.  98, 
101,  75  N.  W.  46.  But  where  there 
are  no  innocent  stockholders  or 
creditors  liable  to  injury  from  the 
appointment  and  where  the  rights 
of  a  minority  stockholder  victim- 
ized by  the  frauds  of  the  majority 
can  best  be  secured  to  him 
through  a  receivership,  the  relief 
will  be  granted.  Hampton  v. 
Buchanan,   51  Wash.  155,   163,   98 


PRIVATE   CORPORATIONS, 


775 


affairs  after  a  dissolution  of  the  charter  has  taken  place.^' 
After  a  corporation  has  become  dissolved  by  any  method 


Pac.  374;  Fougeray  v.  Cord,  50 
N.  J.  Eq.  185,  201,  24  Atl.  499. 
Section  1108,  L.  O.  L.,  does  not 
divest  this  jurisdiction  inherent 
in  courts  of  equity;  the  office  of 
the  statute  is  not  to  abridge,  but 
to  enlarge  this  jurisdiction." 

In  some  cases  the  statutes  pro- 
vide for  liquidation  by  a  vote  of 
the  stockholders  and  in  certain 
conditions  by  application  to  the 
court  for  liquidation  through  a  re- 
ceivership. Hart  Land  &  Improve- 
ment Co.  V.  Odd  Fellows  Hall 
Assn.,  142  La.   487,  77  So.  125. 

3  The  ordinary  proceedings  for 
the  dissolution  of  a  corporation  in 
California  are  covered  by  section 
400  of  the  Civil  Code,  but  the  court 
is  given  authority  by  section  565, 
Code  of  Civil  Procedure,  to  ap- 
point other  persons  in  the  place  of 
the  persons  who  were  directors  at 
the  time  of  the  dissolution  for  the 
purpose  of  preserving  its  assets, 
winding  up  its  affairs  and  dis- 
tributing the  surplus  to  the  stock- 
holders. State  Investment,  etc., 
Co.  V.  Superior  Court,  101  Cal.  135, 
35  Pac.  549. 

See,  also,  Fischer  v.  Superior 
Court,  110  Cal.  129,  42  Pac.  561. 

In  California  the  statute  (Code 
of  Civil  Proc,  §  564,  subds.  5  and 
6)  allows  a  receiver  to  be  ap- 
pointed as  follows:  "5.  In  the 
cases  when  a  corporation  has  been 
dissolved,  or  is  insolvent,  or  in 
imminent  danger  of  insolvency,  or 
has  forfeited  its  corporate  rights. 
6.  In  all  other  cases  where  re- 
ceivers have  heretofore  been  ap- 
pointed by  the  usages  of  courts 
of  equity." 


Another  provision  of  the  Califor- 
nia Statute  (§  565  Code  of  Civ. 
Proc.)  provides  as  follows:  "Upon 
the  dissolution  of  any  corporation, 
the  superior  court  of  the  county  in 
which  the  corporation  carries  on 
its  business  or  has  its  principal 
place  of  business,  on  application 
of  any  creditor  of  the  corporation, 
or  of  any  stockholder  or  member 
thereof,  may  appoint  one  or  more 
persons  to  be  receivers  or  trus- 
tees of  the  corporation,  to  take 
charge  of  the  estate  and  effects 
thereof,  and  to  collect  the  debts 
and  property  due  and  belonging  to 
the  corporation,  and  to  pay  the 
outstanding  debts  thereof,  and  to 
divide  the  moneys  and  other  prop- 
erty that  shall  remain  over  among 
the  stockholders  or  members." 

The  above  section  of  the  code 
must,  however,  be  read  in  con- 
nection with  section  400  of  the 
Civil  Code  of  that  state,  which  pro- 
vides: "Unless  other  persons  are 
appointed  by  the  court,  the  di- 
rectors or  managers  of  the  affairs 
of  a  corporation  at  the  time  of 
its  dissolution  are  trustees  of  the 
creditors  and  stockholders  or 
members  of  the  corporation  dis- 
solved, and  have  full  power  to 
settle  the  affairs  of  the  corpora- 
tion." 

In  this  connection,  see,  French 
Bank  Case,  53  Cal.  495;  White  v. 
White,  130  Cal.  597,  80  Am.  St. 
Rep.  150,  62  Pac.  1062;  First  Nat. 
Bank  v.  Superior  Court,  12  Cal. 
App.  335,  107  Pac.  322. 

Where  a  corporation  dies  a 
natural  death  a  fund  in  its  bank 
account  at  the  time  of  its  dissolu- 


776 


LAW    OF    RECEIVERS. 


under  tlie  statutes,  its  property  naturally  becomes  a  trust 
subject  to  be  administered  by  a  court  of  equity  if  there  is 
any  necessity  for  such  control  by  such  a  court,  and 
the  statutory  provisions  are  insufficient  to  cover  the 
situation.'* 


tion  becomes  a  part  of  its  assets 
to  be  administered  as  a  trust  fund 
notwithstanding  an  attempt  to 
transfer  it.  All  of  its  assets  under 
the  statute  immediately  become  a 
fund  for  the  benefit  of  its  stock- 
holders and  creditors.  Porter  v. 
Anglo  &  London,  etc.,  Bank,  36 
Cal.  App.  191,  171  Pac.  845. 

In  Grossman  v.  Vivienda  Water 
Co.,  150  Cal.  575,  89  Pac.  335,  the 
court,  in  defining  the  status  of 
dissolved  corporations,  said:  "It 
is  settled  beyond  question  that,  ex- 
cept as  otherwise  provided  by 
statute,  the  effect  of  the  dissolu- 
tion of  a  corporation  is  to  term- 
inate its  existence  as  a  legal 
entity,  and  render  it  incapable  of 
suing  or  being  sued  as  a  corporate 
body  or  in  its  corporate  name.  It 
is  dead,  and  can  no  more  be  pro- 
ceeded against  as  an  existing  cor- 
poration than  could  a  natural  per- 
son after  his  death.  There  is  no 
one  who  can  appear  or  act  for  it, 
and  all  actions  pending  against  it 
are  abated,  and  any  judgment  at- 
tempted to  be  given  against  it  is 
void.  As  to  this,  all  the  text-writ- 
ers agree,  and  their  statement  is 
supported  by  an  overwhelming 
weight  of  authority.  See  5  Thomp- 
son on  Corporations,  §§  6721,  6722, 
6723;  Clark  &  Marshall  on  Private 
Corporations,  §§322,  329;  Angell 
&  Ames  on  Corporations,  §  195;  2 
Morawetz  on  Corporations,  §  1031; 
10  Cyc.  p.  1316;  7  Am.  &  Eng. 
Ency.  of  Law,  p.  854;  Pendleton  v. 
Russell,   144   U.   S.   640,   36    L.    Ed. 


574,  12  Sup.  Ct.  743;  First  Nat. 
Bank  v.  Colby,  21  Wall.  (U.  S.) 
609,  22  L.  Ed.  687;  Mumma  v.  Po- 
tomac Co.,  8  Pet.  (U.  S.)  2S1,  8 
L.  Ed,  945;  Sturges  v.  Vanderbilt, 
73  X.  Y.  384;  Rodgers  v.  Adriatic, 
etc.,  Ins.  Co.,  148  N.  Y.  34,  38,  42 
N.  E.  515." 

4  Where  the  corporation  has  de- 
termined to  dissolve  and  appointed 
an  agent  to  collect  and  distribute 
its  assets,  a  receiver  will  not  be 
appointed  at  the  instance  of  a 
stockholder  on  the  ground  that  the 
agent  is  wasting  the  assets,  until 
he  has  exhausted  his  remedies  in 
the  matter  before  the  directors 
and  stockholders  or  shown  why 
it  could  not  be  done.  Blades  v. 
Billings  Mercantile  Co.,  154  Mo. 
App.  350,  360,  134  S.  W.  579,  582. 
The  dissolution  of  a  corporation 
does  not  affect  its  property  rights 
which  rest  in  its  governing  body 
for  the  benefit  of  all  interested. 
Iowa  Telephone  Co.  v.  Keokuk, 
226  Fed.  82. 

In  Greenwood  v.  Union  Freight 
R.  R.  Co.,  105  U.  S.  13,  26  L.  Ed. 
961,  Mr.  Justice  Miller  said: 
"Personal  and  real  property  ac- 
quired by  the  corporation  during 
its  lawful  existence,  rights  of  con- 
tract, or  choses  in  action  so  ac- 
quired, and  which  do  not  in  their 
nature  depend  upon  the  general 
powers  conferred  by  the  charter, 
are  not  destroyed  by  such  a  repeal 
(after  dissolution  by  legislative 
action),  and  the  courts  may,  if 
the    legislature    does    not    provide 


PRIVATE    CORPORATIONS. 


777 


Even  where  there  are  statutory  provisions  npon  the 
subject  of  the  procedure  to  dissolve  a  corporation  and  in 
jurisdictions   which   emphatically  hold   that   a  court   of 


some  special  remedy,  enforce  such 
rights  by  the  means  in  their 
power.  The  rights  of  the  share- 
holders of  such  a  corporation  to 
their  interests  in  its  property  are 
not  annihilated  by  such  a  repeal 
and  there  must  remain  In  the 
courts  the  power  to  protect  those 
riglits." 

Where  a  corporation  has  become 
dissolved  its  property  vests  in 
those  who  were  its  directors  at  the 
time  of  its  dissolution.  They  take 
it  as  trustees  for  stockholders  and 
creditors,  and  they  must  be  made 
parties  to  any  proceeding  seeking 
to  appoint  a  receiver  over  the 
property.  People  v.  O'Brien,  111 
N.  Y.  1,  7  Am  St.  Rep.  684,  2 
L.  R.  A.  255,  18  N.  E.  692. 

Under  the  New  York  statute  the 
directors  at  the  time  of  dissolu- 
tion became  trustees  for  the  stock- 
holders and  corporation's  creditors 
with  power  "to  settle  its  affairs, 
collect  and  pay  outstanding  debts, 
and  divide  among  the  persons 
entitled  thereto  the  money  and 
other  property  remaining  after 
payment  of  debts  and  necessary 
expenses."  But  where  there  were 
no  creditors  at  the  time  of  its  dis- 
solution by  expiration  of  its  char- 
ter, the  stockholders  become  equit- 
able owners  of  the  corporate 
assets  and  the  court  may,  under 
the  General  Corporation  Law,  in 
an  action  by  a  stockholder  against 
a  trustee  charging  bad  faith  and 
suing  for  an  accounting,  appoint 
a  trustee,  the  court  saying:  "A 
receiver  for  the  benefit  of  creditors 
is    not   a   necessary    party   to   the 


action,  because  there  are  no 
creditors.  As  a  matter  of  orderly 
administration,  in  such  an  action 
as  this,  the  court  would,  either 
pendente  lite  or  in  the  interlocu- 
tory judgment,  appoint  a  receiver 
and  require  him  to  advertise  for 
creditors,  and  ascertain  the  per- 
sonnel of  the  stockholders  and  the 
extent  of  their  holdings.  The  com- 
plaint asks  such  relief."  De  Mar- 
tini v.  McCaldin,  184  App.  Div.  222, 
171  N.  Y.  Supp.  528. 

Where  under  the  statute  the 
directors  are  made  trustees  for 
the  purpose  of  winding  up  its 
affairs,  if  they  unduly  delay  in 
doing  so,  the  court  may  appoint  a 
receiver.  Re  Pontius ,  26  Hun 
(N.  Y.)   232. 

In  Carter,  etc.,  Co.  v.  Stewart 
Drug  Co.,  115  Me.  289,  98  Atl.  809, 
it  is  held  that,  upon  the  dissolu- 
tion of  a  corporation  and  the  ap- 
pointment of  receivers  to  distrib- 
ute its  funds,  the  provisions  of 
R.  S.  c.  47,  §  77  (R.  S.  1916,  c.  51, 
§81),  extending  the  existence  of 
a  corporation  for  three  years  after 
the  termination  of  its  charter  are 
inapplicable,  and  that  the  corpor- 
ation is  thereafter  incapacitated  to 
sue  or  be  sued  in  a  court  of  law, 
otherwise  than  to  promote  the 
object  confided  to  the  receiver. 

The  general  rule  is  that  a  re- 
ceiver may  be  appointed  in  lieu  of 
trustees,  when  trustees  are  negli- 
gent and  guilty  of  a  breach  of 
duty  as  such.  Boyd  v.  Murray,  3 
Johns.  Ch.  (N.  Y.)  48;  Re  Pontius, 
26  Hun  (N.  Y.)  232;  Etowah  Min. 
Co.  V.  Wills  Valley  Min.   &   Mfg. 


778 


LAW    OF    RECEIVERS. 


equity  lias  no  power  to  dissolve  a  corporation,  it  is  lielcF 
that  such  statutes  will  not  interfere  with  ''the  ancient 
and  settled  jurisdiction  of  equity,"  and  accordingly  the 
court  will,  where  equitable  facts  warranting  the  appoint- 
ment of  a  receiver  are  shown,  appoint  a  receiver  to  be 
kept  in  charge  * '  until  such  time  in  the  future  as  the  court 
may  find  full  equity  done"  and  that  it  will  then  ''lift  its 
hand  and  retire."  It  is  to  be  presumed  that  the  courts 


Co.,  106  Ala.  492,  17  So.  522;  New- 
man V.  Newman,  2  Bro.  Ch.  92 
(Belt's  ed.)  note  7;  Davis  v. 
Browne,  2  Del.  Ch.  188. 

Where  the  corporation  has  been 
dissolved  at  the  instance  of  the 
state,  a  stockholder  may  obtain 
a  receiver  to  wind  up  its  affairs. 
Olmstead  v.  Distilling,  etc.,  Co., 
73  Fed.  44. 

A  receiver  may  be  appointed, 
after  the  dissolution  of  a  corpora- 
tion under  the  statute,  for  the  pur- 
pose of  winding  up  its  affairs. 
State  V.  Farmers',  etc.,  Co.,  90 
Neb.  664,  Ann.  Cas.  1913B,  643, 
134  N.  W.  284. 

Where  the  funds  of  a  dissolved 
corporation  are  being  diverted,  a 
receiver  may  be  appointed.  Cogs- 
well V.  Second  Nat.  Bank,  76  Conn. 
252,  56  Atl.  574. 

5  In  Ashton  v.  Penfield,  233  Mo. 
391,  135  S.  W.  938,  the  evidence 
showed  deep  rooted  dissensions 
and  gross  mismanagement  on  the 
part  of  two  directors  and  a  third 
director,  the  three  constituting  all 
of  the  stockholders.  The  secretary 
of  the  corporation  acted  in  con- 
junction with  the  majority  stock- 
holders. The  receiver  was  ap- 
pointed at  the  instance  of  the 
minority  stockholder  who  held 
merely  less  than  one-half  of  the 
stock.      The    corporation,    though 


solvent,  was  headed  toward 
disaster.  The  court  regarded  the 
bill  as  not  solely  one  for  dissolu- 
tion of  the  corporation  but  to  pre- 
serve the  corporate  property  and 
to  right  the  property  wrongs  com- 
mitted by  the  majority  in  control. 
The  court,  speaking  through  Judge 
Lamm,  said:  "It  is  urged  that 
such  relief  is  at  law,  not  in  equity, 
and  we  are  referred  by  counsel  to 
certain  sections  of  the  statutes  for 
the  cure  of  corporate  ills.  But 
those  statutes  are  preclusive  and 
do  not  oust  the  ancient  and  settled 
jurisdiction  of  equity,  absent  ex- 
press provision  to  that  effect.  .  .  . 
Before  existing  heads  and  sub- 
jects of  equity  jurisdiction  are 
lopped  off,  the  lawmaker  must 
evince  such  beheading  purpose  so 
unmistakably  that  there  can  be  no 
fair  two  ways  about  it.  .  .  .  We 
conclude,  then,  that  in  the  face  of 
injuries,  suffered  and  threatened, 
the  minority  stockholder  was  en- 
titled to  a  receivership  and  to  the 
aid  of  equity  in  rehabilitating  the 
corporation  by  such  orders,  pro- 
ceedings, suits  and  management 
as  would  attain  that  result  and 
meanwhile  protect  the  corpus  of 
the  estate.  Under  the  facts  here 
the  complaining  stockholder  could 
get  no  relief  from  corporate  ac- 
tion." 


PRIVATE    CORPORATIONS.  779 

which,  through  stare  decisis  or  other  reasons,  find  them- 
selves unable  to  allow  a  court  of  equity  to  wind  up  the 
affairs  of  a  corporation  in  the  course  of  their  equitable 
administration  of  its  affairs  in  a  suit  brought  before 
them  upon  a  showing  of  equitable  facts  will,  as  soon  as  it 
is  apparent  that  a  winding  up  of  the  affairs  will  result  in 
a  mere  corporate  shell  remaining,  ''lift  their  hands," 
remove  the  receiver  and  leave  the  corporation  to  be 
dissolved  according  to  the  procedure  laid  down  by  the 
statutes.  If  the  court  of  equity  will  retain  jurisdiction 
of  such  a  receivership  until  it  is  apparent  that  a  dissohi- 
tion  of  the  corporation  is  the  only  future  course  on  behalf 
of  the  corporation,  we  see  no  reason  why  a  dissolution 
proceeding  may  not  be  initiated  with  its  consent  and  the 
receivership  thereupon  terminated,  as  was  the  evident 
intention  of  the  court  in  the  Missouri  case  just  referred 
to,  where  Judge  Lamm  seemed  to  take  that  position. 

It  might  be  remarked  that  the  fact  that  the  assets  of  a 
corporation  are  preserved  by  a  receiver  and  its  affairs 
administered  with  a  view  to  closing  up  its  affairs  need 
not  amount  to  a  dissolution  of  the  corporate  entity  inas- 
much as  long  as  its  assets  have  not  been  distributed  to 
its  stockholders  it  may  resume  business.^ 

We  do  not  apprehend  that  a  receivership  will  prevent 
a  corporation  from  maintaining  its  corporate  entity  and 
making  arrangements  as  such  corporate  entity  to  resume 
business  where  it  has  not  been  restrained  from  doing  so 
by  the  court,''  and  undoubtedly  reorganization  efforts  by 
its  stockholders  with  a  view  to  rehabilitating  itself  and 

c  A  sale  of  all  of  the  property  of  been  enjoined  from  acting.   United 

a  corporation  does  not  necessarily  States,  etc.,  Trust  Co.  v.  Delaware, 

terminate  its  corporate  existence.  etc..    Const.    Co.    (Tex.    Civ.),    112 

Geddes  v.  Anaconda  Copper  Min-  S.  W.  447.  , 

ing  Co.,  245  Fed.  225,  157  C.  C.  A.  It   may   incur   expenses    for   re- 

417.  organization    purposes.      Linn    v. 

7  A  receivership  will  not  prevent  Joseph   Dixon,   etc.,   Co.,   59  N.  J. 

the  corporation  from  issuing  new  L.  28,  35  Atl.  2. 
stock  and  bonds  where  it  has  not 


780  LAW   OF   RECEIVERS. 

resuming  business  as  a  going  concern  slioulcl  be  encour- 
aged by  the  court,  subject,  however,  to  the  supervision  of 
the  court  so  that  the  reorganization  is  fair  to  all  parties 
concerned. 

§316.    When  Liquidating  Trustees  Are  Favored  Rather  Than 
liquidating  Receivers. 

The  aversion  of  courts  of  equity  to  taking  the  control 
of  property  out  of  the  hands  of  the  real  owners  and 
placing  it  in  the  hands  of  an  officer  of  the  court  applies 
to  the  business  of  winding  up  the  affairs  of  a  dissolved 
corporation  as  fully  as  to  any  other  situation.  In  many 
states  it  is  provided  that  upon  dissolution,  the  corpora- 
tion shall  continue  to  function  as  such,  for  a  limited  time, 
for  the  purpose  of  winding  up  its  affairs.  In  others  the 
directors  in  office  at  the  time  of  the  dissolution  have  the 
statutory  duty  of  caring  for  the  liquidation.  In  prac- 
tically every  state  some  statutory  authority,  not  nomi- 
nated by  a  court  and  composed  of  persons  directly  inter- 
ested in  the  property,  is  furnished  for  this  purpose.  It 
is  the  general  rule  that  courts  will  not  displace  these 
statutory  liquidators  by  receivers,  unless  some  statute 
imperatively  so  requires,  or  it  be  shown  that  such  trus- 
tees are  guilty  of  gross  frauds  or  abuse  of  their  trust  in 
their  liquidation  actions.  This  statement  is  true  even  with 
reference  to  dissolution  brought  about,  at  the  instance  of 
the  state,  as  a  punishment  for  violation  of  a  regulatory 
statute.  The  state  may  be  interested  in  the  matter  as  to 
whether  or  not  a  corporation  shall  continue  in  business ; 
in  fact  the  state  may  be  the  only  party  entitled  to  raise 
the  question.  But  after  dissolution  has  occurred,  the 
state,  generally,  has  no  interest  in  what  happens  to  the 
assets  of  the  concern. 

In  order  to  have  a  receiver  appointed  in  preference  tc 
the  statutory  liquidators  in  case  of  the  dissolution  of  a 
corporation,  no  matter  what  may  be  the  cause  of  the  dis- 


PRIVATE   CORPORATIONS. 


781 


solution,  tliere  must  be  a  showing  that  sucli  liquidators 
are  violating  their  trust  and  that  the  property  of  the 
corporation  will  not  be  preserved  without  the  appoint- 
ment of  a  receiver.^ 

§  317.     Court's  Method  of  Making  a  Choice  Between  Liquidat- 
ing Trustees  and  Liquidating  Receivers. 

Some  statutes  provide  that  the  court  may  make  a 
choice  between  a  receiver  and  liquidating  trustees  at  the 
very  outset  of  the  liquidation  proceedings.  This  choice 
will  be  exercised  in  favor  of  the  trustee  process.  To  lead 
to  a  different  decision  there  must  be  a  showing,  of  some 
equitable  character,  not  simply  that  the  management  of 
a  receiver  is  likely  to  be  better  than  that  of  the  statutory 
trustee,  but  that,  with  the  trustee  in  control  the  creditors 


1  Havemeyer  v.  Superior  Court, 
84  Cal.  327,  18  Am.  St.  Rep.  192,  10 
L.  R.  A.  627,  24  Pac.  121. 

For  a  different  result  and  some- 
what different  reasoning,  but 
under  different  statutes,  see  San 
Antonio  Gas  Co.  v.  State,  22  Tex. 
Civ.  118,  54  S.  W.  289.  See,  also. 
In  re  Standard  Cordage  Co.,  184 
Fed.  156;  Anderson  v.  Buckley,  126 
Ala.  623,  28  So.  729;  Conlan  v. 
Oudin,  49  Wash.  240,  94  Pac.  1074. 

Since,  under  the  Washington 
statutes,  corporate  property,  upon 
dissolution,  vests  in  certain  statu- 
tory trustees,  a  Minnesota  court, 
in  which  there  was  pending  at  the 
time  of  its  dissolution,  an  action 
in  which  a  Washington  corpora- 
tion was  plaintiff,  could  not  ap- 
point a  receiver  to  continue  the 
action  in  the  name  of  the  com- 
pany. Gulledge  Bros.  Lumber  Co. 
v.  Wenatchee  Land  Co.,  115  Minn. 
491,  132  N.  W.  992, 


While  a  corporation  is  in  the 
hands  of  statutory  liquidating 
trustees  a  court  can  not  appoint  a 
receiver  in  an  action  brought  to 
compel  the  issuance  of  a  dupli- 
cate stock  certificate.  Baltimore 
Trust  Co.  V.  George's  Creek,  etc., 
Co.,  119  Md.  21,  85  Atl.  949. 

When  corporate  property  has 
vested  in  statutory  liquidating 
trustees  the  state  can  not  provide 
for  the  continuance  of  the  liqui- 
dating proceedings  by  a  receiver 
to  be  appointed  in  an  action  to 
which  the  trustees  are  not  parties 
and  in  which  the  court  has  no 
judicial  function  except  the  ap- 
pointment of  a  receiver.  People  v. 
O'Brien,  111  N.  Y.  1,  7  Am.  St.  Rep. 
684,  1  L.  R,  A.  255,  18  N.  E.  692. 

Upon  dissolution,  the  stockhold- 
ers can  not  appoint  a  liquidating 
trustee  to  displace  statutory  trus- 
tees. Lakeside  Irr.  Co.  v.  Buffing- 
ton  (Tex.  Civ.  App.),  168  S.  W.  21. 


782  LAW    OF    RECEIVERS, 

or  the  stockliolders  would  be  liable  to  suffer  loss  or  injury 
that  would  not  threaten  them  under  a  receivership.^ 

§  318.    Displacement  of  Liquidating  Trustees  by  Receivers. 

Not^^dthstanding■  what  has  been  said  in  the  preceding 
two  sections,  courts  of  equity,  with  or  without  statutory 
authority,  have  the  power  to  depose  statutory  liquidating 
trustees  and  appoint  receivers  in  their  stead.  The  assets 
of  a  dissolved  corporation  constitute  a  trust  fund  for 
the  benefit  of  the  creditors  and  the  stockliolders.  Tlie 
management  of  this  trust,  as  is  that  of  any  other  trust, 
is  under  the  visitorial  power  of  a  court  of  equity.  Since 
the  corporation  itself  is  out  of  the  way  and  is  not  even  a 
party  to  the  proceedings,  there  is  not  the  same  objection 
to  appointing  a  receiver  that  has,  in  the  minds  of  some 
courts,  militated  against  the  appointment  of  a  receiver 
over  a  going  concern.^  Proceedings  looking  toward  such 
a  receivership  may  be  instituted  by  a  shareholder  or  a 
creditor.  Fraud  is  usually  the  basis  of  the  jurisdiction ; 
though  indifference,  incompetency,  and  the  like  condi- 
tions, sufficiently  serious  to  threaten  loss,  or  irreparable 
damage,  may  be  sufficient.^ 

1  Hegeman   v.    Atlantic   Rubber-  ful  acts  of  the  directors  committed 

Shoe  Co.,  73  N.  J.  Eq.  295,  75  Atl.  before      the      proceedings      were 

819;    Floore  v.  Morgan  (Tex.  Civ.  begun.     American    Surety    Co.    v, 

App.),    175    S.   W.    737;    Moore   v.  Great  White  Spirit  Co.,  58  N.  J.  Eq. 

Lewisburg,    etc.,    Ry.    Co.,    80    W.  526,  43  Atl.  579. 

Va.   653,  93  S.  E.  762.     See,  also,  i  See  §  309,  note  9,  supra. 

Merchants'  &  Insurers'  Reporting  2  Henderson    v.    Palmer    Union 

Co.,  et  al.  V.  Jones,  et  al.,  220  Fed.  Oil  Co.,  29  Cal.  App.  451,  156  Pac. 

791,  136  C.  C.  A.   397;    Harned  v.  65,  68;    Midland  Co.  v.  Anderson, 

Beacon    Hill    Real    Estate    Co.,    9  63  111.  App.  51;  Wank  v.  Peet  (Mo. 

Del.  Ch.  232,  80  Atl.  805;   State  v.  App.),   190   S.  W.   88;    Charles   H. 

Syndicate  Land  Co.,  142  Iowa  22,  Home  &  Co.  v.  Frederick  Harring- 

120  N.  W.  327;    American   Spirits  ton,  Inc.,  87  N.  J.  Eq.  227,  100  Atl. 

Mfg.  Co.  V.  Eldridge,  209  Mass.  590,  335;    Tailing   v.    Elbs,    120    N.    Y. 

95  N.  E.  942.  Supp.   693;    Seering  v.  Black,   140 

The  court's  choice  of  a  receiver  Wis.  413,  122  N.  W.  1055. 

rather  than  the  directors  as  liqui-  When  the  affairs  of  a  corpora- 

dators  may  be  based  upon  wrong-  tion  are   being  liquidated  by   the 


PRIVATE    CORPORATIOXS. 


783 


8.    Status  of  Statutory  Receivers  Appointed  on 
Account  of  Insolvency. 

§319.     General  Rule  in  Respect  to  the  Subject. 

Many  statutes  provide  for  the  appointment  of  a 
receiver  upon  the  insolvency  of  a  corporation.  Such  a 
receivership  is  undoubtedly  based  upon  the  necessity  of 


statutory  trustees  of  its  domicil- 
iary state,  a  claim  that  a  local  re- 
ceiver could  dispose  of  its  prop- 
erty in  another  state  to  better  ad- 
vantage than  the  trustees  will  not 
warrant  the  appointment  of  a  re- 
ceiver in  that  state.  Black  v.  Sulli- 
van Timber  Co.,  147  Ala.  327,  40 
So.  667.  See,  also,  Weatherly  v. 
Capital  City  Water  Co.,  115  Ala. 
156,  22  So.  140. 

In  an  action  seeking  to  displace 
statutory  trustees  by  a  receiver 
the  trustees  are  necessary  parties. 
Weatherly  v.  Capital  City  Water 
Co.,  supra. 

On  a  motion  to  vacate  a  receiver- 
ship created  to  displace  liquidators 
chosen  by  the  stockholders,  stock- 
holders who  voted  for  the  liqui- 
dators may  intervene  in  support  of 
the  motion  when  the  liquidators 
are  consenting  to  the  receivership. 
In  re  Eckhardt  Mfg.  Co.,  114  La. 
119,  38  So.  78. 

A  receiver  should  not  be  ap- 
pointed to  displace  statutory  trus- 
tees except  on  a  showing  of 
threatened  injury  to  the  applicant 
through  wrongful  conduct  of  the 
trustees.  Ferrell  v.  Evans,  25  Mont. 
444,  65  Pac.  714. 

One  who  was  a  stockholder  at 
the  time  of  dissolution  continues 
to  be  a  stockholder  so  as  to  be 
entitled  to  participate  in  proceed- 
ings   looking    to    the    substitution 


of  a  receiver  for  the  statutory 
liquidators;  one  who  had  resigned 
as  director  before  such  proceed- 
ings were  begun  was  not  a  proper 
party  defendant;  adverse  claims 
to  stock  can  not  be  litigated  in 
such  a  proceeding.  Tompkins  v. 
Transit  Finance  Co.  (N.  J.  Eq.), 
78  Atl.  398. 

Statutory  trustees  may  reduce 
the  par  value  of  preferred  stoc'.: 
to  the  amount  actually  paid  for  it 
instead  of  calling  upon  the  hold- 
ers to  pay  in  the  amount  of  the 
par  value  remaining  unpaid;  such 
action  does  not  wrongfully  affect 
the  preference  to  which  the 
holders  are  entitled  on  distribu- 
tion so  as  to  entitle  them  to  a  re- 
ceiver. Hellman  v.  Pennsylvania 
Electric,  etc.,  Co.,  73  N.  J.  Eq.  269, 
67  Atl.  834. 

A  stockholder  who  attempts  to 
displace  by  a  receiver  a  liquidat- 
ing agent  appointed  by  the  stock- 
holders, must  show  that  he  could 
not  obtain  relief  within  the  cor- 
poration itself.  Blades  v.  Billings, 
etc.,  Co.,  154  Mo.  App.  350,  134  S. 
W.  579. 

Allegations  of  fraud,  mismanage- 
ment, etc.,  to  be  used  as  reasons 
for  supplanting  statutory  trustees, 
must  be  specific  and  positive,  not 
general  and  in  the  nature  of  con- 
clusions. Moore  v.  Lewisburg,  etc., 
Ry.  Co.,  80  W.  Va.  653,  93  S.  E. 
762. 


784  LAW   OF    RECEIVERS. 

preserving  and  conserving  the  assets  of  the  corporation, 
but  such  a  disaster  to  a  corporation,  unless  the  insolvency 
is  one  of  a  temporary  character  and  likely  to  be  removed 
by  good  management  under  a  period  of  freedom  from 
pressing  creditors,  is  naturally  a  final  step  in  the  life  of 
the  corporation  and  a  preliminary  to  dissolution. 

Some  confusion  has  arisen  among  the  authorities  be- 
cause of  the  fact  that  insolvency  or  temporary  financial 
embarrassment  amounting  in  effect  to  insolvency  is  a 
most  frequent  cause  among  a  group  of  causes  in  which 
fraud  or  improper  actions  on  the  part  of  corporate 
officers  is  the  controlling  receivership  fact.  In  such 
circumstances  the  receivership  is  generally  granted 
under  the  general  equity  powers  of  the  court,  but  there 
ar.^  many  instances  where  under  the  statute  insolvency 
of  the  corporation  is  made  a  specific  ground  for  the 
appointment  of  a  receiver.  The  powers  of  receivers 
under  these  different  circumstances   is  variant.^      The 

1  Alabama,  T.  &  N.  Ry.  v.  Tol-  vent  corporation  at  the  instance 
man  (Ala.),  76  So.  381.  of  a  simple  creditor.  Oil  City  Iron- 
In  a  general  receivership  created  works  v.  Pelican  Oil,  etc.,  Co.,  115 
upon  the  ground  of  insolvency  the  La.  265,  38  So.  987;  Darragh  v. 
court  may  grant  the  receiver  tern-  H.  Wetter  Mfg.  Co.,  78  Fed.  7, 
porary  authority  to  conduct  tne  23  C.  C.  A.  609;  San  Antonio,  etc., 
business  as  a  going  concern.  R.  Co.  v.  Davis  (Tex.  Civ.),  30 
Blum  Bros.  v.  Girard  Nat.  Bank,  S.  W.  693. 

248  Pa.  St.  148,  156,  Ann.  Cas.  Where  it  is  not  shown  that  a 
1916D,  609,  93  Atl.  940.  corporation  is  dissolved  or  is  seek- 
In  Pennsylvania  the  courts  of  ing  dissolution,  nor  that  it  is  In- 
equity have  long  exercised  the  solvent,  nor  the  existence  of 
jurisdiction  to  appoint  receivers  fraud  or  mismanagement  on  the 
over  corporations  which  are  finan-  part  of  its  officers  and  it  is  merely 
cially  embarrassed.  Since  1836  shown  that  its  liabilities  exceed 
this  course  has  had  also  statutory  its  assets  and  that  it  has  ceased  to 
authority.  Blum  Bros.  v.  Girard  conduct  the  business  for  which  it 
Nat.  Bank,  248  Pa.  St.  148,  156,  was  incorporated,  the  court  is 
Ann.  Cas.  1916D,  609,  93  Atl.  940.  without  jurisdiction  to  appoint  a 
See,  also.  Power  v.  Grogan,  232  receiver.  Murray  v.  Superior 
Pa.  387,  81  Atl.  416.  Court,  129  Cal.  628,  62  Pac.  191. 

Under  many  statutes  a  receiver  The   courts   in   New  York  have 

may  be  appointed  over  an  insol-  no    power    either    by    statute    or 


PRIVATE    CORPORATIONS. 


785 


status  of  a  receiver  of  an  insolvent  corporation,  ap- 
pointed under  statutory  authorization,  is  generally  fixed 
by  the  statute  itself  as  far  as  title  to  the  corporate  prop- 
erty is  concerned,  which  is  the  general  basis  of  confusion 
arising  from  the  power  to  sue  or  be  sued  in  respect  to 
the  property  or  liens  atfecting  it.^    A  receiver  appointed 


under  their  inherent  jurisdiction 
as  courts  of  chancery,  to  appoint  a 
receiver  of  a  corporation  upon  a 
petition  showing  sufficient  assets 
to  meet  all  liabilities  eventually, 
but  that  some  of  the  creditors 
whose  claims  have  matured 
threaten  suit,  and  that  the  insti- 
tution of  such  suits  would  be 
prejudicial  to  the  interests  of 
creditors  whose  claims  are  not 
due.  Re  Atlas  Iron  Const.  Co.,  72 
N.  Y.  St.  Rep.  801,  38  N.  Y.  Supp. 
172. 

But  courts  have  also  refused  to 
appoint  receivers  at  the  instance 
of  stockholders  alleging  insol- 
vency and  the  rendition  of  judg- 
ments against  it.  See  Steele  Lum- 
ber Co.  V.  Laurens,  etc.,  Co.,  98 
Ga.  329,  24  S.  E.  755;  Bell  v.  Wood, 
181  Pa.  St.  175,  37  Atl.  201. 

In  order  to  make  the  appoint- 
ment upon  the  ground  of  insol- 
vency a  strong  case  must  be 
shown.  Miller  v.  Southern  Land, 
etc.,  Co.,  53  S.  C.  364,  31  S.  E.  281. 
Where  insolvency  is  alleged  as 
a  ground  for  the  appointment  of 
a,  receiver,  it  must  be  shown  by 
the  facts  which  go  to  prove  such 
insolvency.  Atlantic  Trust  Co.  V. 
Consolidated,  etc.,  Co.,  49  N.  J. 
Eq.  402,  23  Atl.  934. 

Under  the  New  Jersey  statute 
allowing  a  receiver  to  be  ap- 
pointed over  an  insolvent  corpo- 
ration, the  proceeding  appears  to 
be  one  in  rem.  Albert  v.  Claren- 
I  Rftf , — 50 


don  Land,   etc.,  Co.,  53  N.  J.  Eq. 
623,  23  Atl.  8. 

Sometimes  under  the  statute  a 
receiver  may  be  appointed  over  a 
corporation  at  the  instance  of  a 
stockholder  where  the  corporation 
is  in  such  a  financial  condition 
that  threatened  litigation  and 
judicial  sales  of  its  property  will 
waste  its  assets.  Waggy  v.  Jane 
Lew  Lumber  Co.,  69  W.  Va.  666, 
72  S.  E.  778. 

See,  also,  notes  under  section 
314,  supra. 

2  Under  the  provisions  of  Re- 
visal  1905,  §§  1207,  1224,  receiver 
of  insolvent  corporation  has  such 
a  title  that  a  creditor  attacking 
unregistered  contract  of  condi- 
tional sale  must  by  some  judicial 
process  or  method  fasten  his  claim 
upon  the  property.  Observer  Co. 
V.  Little,  175  N.  C.  42,  94  S.  E.  526. 
Under  the  Arkansas  statute  a 
receiver  of  an  insolvent  corpora- 
tion is  vested  with  the  title  to  the 
property  of  the  corporation  and 
hence  is  the  real  party  in  inter- 
est in  any  litigation  concerning  it. 
Buchanan  v.  Hicks,  98  Ark.  370,  34 
L.  R.  A.  (N.  S.)  1200,  136  S.  W. 
177. 

"While  receivers  do  not  acquire 
the  legal  title  to  the  assets  of  an 
insolvent  corporation,  yet  they  are 
clothed  with  a  kind  of  equitable 
title  to  be  worked  out  under  the 
order  and  direction  of  the  appoint- 
ing court.    The  effect  of  their  ap- 


786 


LAW    OF    RECEIVERS. 


over  an  insolvent  corporation  by  virtue  of  a  statute  is 
sometimes  invested  with  such  a  character  of  title  to  the 
property  and  assets  of  the  corporation  which  give  him 
a  standing  in  the  courts  of  another  state  which  a  chan- 
cery receiver  has  not,  since  the  latter  receiver  is  a  mere 
officer  of  the  court  which  appointed  him  and,  of  course, 
his  powers  are  limited  by  that  of  the  court  of  which  he  is 
a  mere  officer.^ 


pointment  is  to  remove  those  in 
charge  of  the  management  of  the 
corporation  and  to  place  the  re- 
ceivers in  possession  and  conti'ol 
of  its  business  and  assets  as 
custodians  for  the  benefit  of  cred- 
itors and  others  ultimately  en- 
titled." Blum  Bros.  v.  Girard  Nat. 
Bank,  248  Pa.  148,  156,  Ann.  Cas. 
1916D,  609,  93  Atl.  940. 

Receiver  of  insolvent  corpora- 
tion may  enforce  stockholder's  lia- 
bility for  unpaid  stock  issued  as 
full  paid  only  in  right  of  creditors. 
McDermott  v.  Woodhouse,  87  X.  J. 
Eq.  615,  101  Atl.  375. 

3  Where,  under  the  statute  under 
which  a  receiver  is  appointed,  he 
is  vested  with  the  title  to  the 
property  over  which  he  is  ap- 
pointed receiver  as  assignee  in 
statutory  successor,  he  may  prose- 
cute an  action  for  its  recovery  in 
another  state  than  that  of  his  ap- 
pointment. Sterrett  v.  Second 
Nat.  Bank.  248  U.  S.  73,  63  L.  Ed. 
52,  39  Sup.  Ct.  27.  See,  also,  Relfe 
V.  Bundle,  103  U.  S.  222,  26  L.  Ed. 
337;  Hawkins  v.  Glenn,  131  U.  S. 
319,  33  L.  Ed.  184,  9  Sup.  Ct.  739; 
Bernheimer  v.  Converse,  206  U.  S. 
516,  51  L.  Ed.  1163,  27  Sup.  Ct.  755; 
Converse  v.  Hamilton,  224  U.  S. 
243,  Ann.  Cas.  1913D,  1292.  56 
L.  Ed.  749,  32  Sup.  Ct.  415;  Keatley 
V.  Furey,  226  U.  S.  399,  57  L.  Ed. 
273,  33  Sup.  Ct.  121. 


Under  some  statutes  it  is  ex- 
pressly provided  that  all  of  the 
real  and  personal  property  of  an 
insolvent  corporation  together 
with  its  franchises,  rights  and 
privileges  forthwith  vest  in  the 
receiver  upon  his  appointment. 
Under  such  a  statute  the  proceed- 
ing and  appointment  is  considered 
in  the  nature  of  judicial  process 
by  which  the  rights  of  general 
creditors  are  fastened  upon  the 
property.  Observer  Co.  v.  Little, 
175  N.  C.  42,  94  S.  E.  526. 

The  appointment  of  a  receiver 
of  an  insolvent  corporation  under 
a  statute  which  invests  him  with 
the  title  of  its  assets,  is  legal 
notice  to  all  persons  having  con- 
tractual relations  with  it.  Bu- 
chanan V.  Hicks,  98  Ark.  370,  34 
L.  R.  A.  (N.  S.)  1200,  136  S.  W. 
177.  See,  also.  Breed  v.  Glasgow 
Inv.  Co.,  92  Fed.  760. 

The  federal  courts  will  appoint 
receivers  over  insolvent  receivers 
under  the  statutory  provisions  of 
the  state  in  which  the  jurisdiction 
is  invoked.  Land  Title,  etc.,  Co. 
v.  Asphalt  Co.,  127  Fed.  1.  62 
C.  C.  A.  23;  McGraw  v.  Matt,  179 
Fed.  646,  103  C.  C.  A.  204. 

But  in  this  connection  see.  Mor- 
row Shoe  Mfg.  Co.  V.  New  Eng- 
land Shoe  Co.,  60  Fed.  341,  8  C.  C. 
A.  652,  24  L.  A.  R.  417;  Jacobs  v. 
Mexican  Sugar  Co.,  130  Fed.  589. 


PRIVATE.  CORPORATIONS. 


7S< 


In  Sterrett  v.  Second  National 
Rank,  248  U.  S.  73,  63  L.  Ed.  52, 
39  Sup.  Ct.  27,  the  court,  speaking 
through  Mr.  Justice  Day,  said: 
"Since  the  decision  of  this  court  in 
Booth  V.  Clark,  17  How.  (U.  S.) 
322,  15  L.  Ed.  164,  it  is  the  settled 
doctrine  in  federal  jurisprudence 
that  a  chancery  receiver  has  no 
authority  to  sue  in  the  courts  of 
a  foreign  jurisdiction  to  recover 
demands  or  property  therein  situ- 
ated. The  functions  and  authority 
of  such  receiver  are  confined  to 
the  jurisdiction  in  which  he  was 
appointed. 

"The  reasons  for  this  rule  were 
fully  discussed  in  Booth  v.  Clark, 
and  have  been  reiterated  in  later 
decisions   of  this   court.     Hale   v. 
Allinson,   188   U.   S.   56,   47    L.    Ed. 
380,  23  Sup.  Ct.  244;   Great  West- 
ern Min.,  etc.,   Co.  v.  Harris,   198 
U.  S.  561,  575,  577,  49  L.  Ed.  1163, 
25  Sup.  Ct.  770;  Keatley  v.  Furey, 
226  U.  S.  399,  403,  57   L.   Ed.   273, 
33  Sup.  Ct.  121.    This  practice  has 
become   general   in   the   courts   of 
the  United  States,  and  is  a  system 
well  understood  and  followed.     It 
permits     an     application     for     an 
ancillary  receivership  in  a  foreign 
jurisdiction  where  the  local  assets 
may  be  recovered,   and,  if  neces- 
sary,   administered.     The    system 
established  in  Booth  v.  Clark  has 
become  the  settled  law  of  the  fed- 
eral courts,  and  if  the  powers  of 
chancery     receivers     are     to     be 
enlarged  in  such  wise  as  to  give 
them  authority  to  sue  beyond  the 
jurisdiction      of     the      appointing 
court,  such  extension  of  authority 


must  come  from  legislation  and 
not  from  judicial  action.  Great 
Western  Mining,  etc.,  Co.  v. 
Harris,  supra,  p.  577." 

In  the  leading  case  of  Booth  v. 
Clark,    17    How.    (U.    S.)    322,    15 
L.  Ed.  164,  upon  the  right  of  a  re- 
ceiver to  sue  in  a  state  other  than 
that   of  his   appointment,   the    re- 
ceiver    was     appointed     under     a 
creditors  bill.     He  sought  to  sub- 
ject certain  property  of  the  debtor 
in  a  foreign  state  to  his  judgment. 
The    court    said:       "Whether    ap- 
pointed,    as     this     receiver     was, 
under   the    statute   of   New   York, 
or  under  the  rules  and  practices  of 
chancery  as  they  may  be,  his  offl- 
cial  relations  to  the  court  are  the 
same.       A     statute     appointment 
neither    enlarges    nor    diminishes 
the  limitation  upon  his  action.    His 
responsibilities       are       unaltered. 
Under  either  kind  of  appointment 
he    has    at    most    only    a    passive 
capacity    in    the    most    important 
part  of  what  it  may  be  necessary 
for  him   to  do,  until  it  has  been 
called    by    the    direction    of    the 
court  into  ability  to  act.     He  has 
no  extra  territorial  power  of  offi- 
cial action;  none  which  the  court 
appointing   him   can   confer,    with 
authority  to  enable  him  to  go  into 
a  foreign  jurisdiction  to  take  pos- 
session   of   the    debtor's    property 
none  can  give  him,  upon  the  prin- 
ciple of  comity,  a  privilege  to  sue 
in  a  foreign  court  or  another  juris- 
diction, as  the  judgment  creditor 
himself   might  have   done,   where 
his    debtor    may    be    amenable    to 
the    tribunal    which    the    creditor 
may  seek." 


ibb 


LAW   OF    RECEIVERS. 


9.    Receiverships  on  Account  of  Corporation  Maintaining 
a  Monopoly  or  Engaged  in  Illegal  Transactions. 

§320.  Circumstances  When  Receiver  Appointed  in  Proceed- 
ings for  Maintaining  a  Monopoly  Under  the  Sherman 
Anti-Trust  Law. 

The  general  extent  and  purposes  of  the  Sherman  Anti- 
Trust  Law  are  well  established  by  numerous  decisions  of 
the  United  States  Supreme  Court.  In  a  general  way  it 
may  be  said  the  Anti-Trust  Act  broadly  condemns  all  cor- 
porations and  companies  which  restrain  the  free  and 
natural  flow  of  trade  in  the  channels  of  interstate  com- 
merce, although  it  is  not  intended  that  the  act  shall  inter- 
fere with  normal  and  usual  contracts  incident  to  lawful 
purposes  and  intended  to  further  legitimate  trade.^  Al- 
though in  several  of  the  larger  cases  in  which  the  court 
found  that  the  corporations  involved  were  maintaining  a 
monopoly  in  violation  of  the  Sherman  Anti-Trust  Law, 
the  appointment  of  a  receiver  was  threatened  in  case  the 
court  found  that  such  a  necessity  would  be  shown  in  order 
to  accomplish  the  purpose  of  the  prosecution,  still  no 

1  See  Standard  Oil  Co.  v.  United  Ct.    141;    Nash    v.    United    States, 

States,  221  U.  S.  1,  55  L.  Ed.  619,  229   U.   S.   373,  57    L.   Ed.   1232,   33 

34  L.  R.  A.  (N.  S.)  834,  31  Sup.  Ct.  Sup.  Ct.  780;    Straus  v.  American 

502,  Ann.  Cas.  1912D,  734;   United  Pub.    Asso.,    231    U.    S.    222,    Ann. 

States   V.   American   Tobacco   Co.,  Cas.    1915A,   369,    L.    R.   A.   1915A, 

221   U.    S.    106,    55    L.    Ed.   663,   31  1099,  58  L.  Ed.  192,  34  Sup.  Ct.  84. 

Sup.    Ct.    632;     United    States    v.  The     domination     and     control, 

Terminal  R.  Asso.,  224  U.  S.  383,  and   the   power   to   suppress    com- 

56    L.    Ed.    810,    32    Sup.    Ct.    507;  petition     may     be     acquired     by 

Standard     Sanitary     Mfg.     Co.     v.  means  of  a  holding  company  or  by 

United    States,    226    U.    S.    20,    57  means   of  a  direct  controlling  in- 

L.    Ed.    107,    33    Sup.    Ct.    Rep.    9;  terest  in  the  stock  of  one  corpo- 

United  States  v.  Union  P.  R.  Co.,  ration  by  another.     The  mischief 

226  U.  S.  61,  57  L.  Ed.  124,  33  Sup.  at    which    the    Anti-Trust    Statute 

Ct.  53;    United  States  v.  Reading  is     aimed,     is     equally     effective 

Co.,  226  U.  S.  324,  57  L.  Ed.  243,  33  whichever  form  is  adopted.    United 

Sup.  Ct.  90;  United  States  v.  Pat-  States  v.   Union   Pac.   R.   Co.,   226 

ten,  226  U.   S.   525,   57   L.   Ed.  333,  U.    S.   61,   57    L.    Ed.   124,    33    Sup. 

44    L.   R.   A.    CN.   S.)    325,   33    Sup.  Ct.   53. 


PRIVATE    CORPORATIONS.  789 

appointment  was  made.  The  legislative  policy  under  tlie 
Anti-Trust  Law  lias  been  stated  to  be  a  resort  to  restraint 
rather  than  a  dissolution  of  the  corporate  entity  engaged 
in  the  monopoly.  A  receivership  is  a  proper  remedy 
where  it  is  shown  to  be  necessary  to  effect  the  dissolution 
of  the  unlawful  combination,  but  the  court  will  only  resort 
to  a  receivership  as  a  last  resort.^  In  the  American  To- 
bacco Company  case^  the  Supreme  Court  held  that  the 
defendants  were  operating  a  combination  in  restraint  of 
trade  and  a  monopoly  of  the  trade,  and  granted  a  wider 
relief  than  the  court  below.  The  court  stated  in  its  opin- 
ion the  difficulties  of  applying  a  remedy.  The  court 
adverted  to  the  fact  that  one  of  the  remedies  which  it 
could  apply  was  the  appointment  of  a  receiver  to 
take  charge  of  the  assets  and  property  of  the  combina- 
tion in  all  of  its  ramifications  for  the  purpose  of  pre- 
venting a  continued  violation  of  the  law,  and  thus  work 
out  by  a  sale  of  the  property  or  otherwise  a  condition 

2  See,     also,     United     States    v.  merce  of  anthracite  coal.      It  did 

Union  Pacific  R.  Co.,  226  U.  S.  470,  not  involve  a  receivership. 

57    L.    Ed.    306,    33    Sup.    Ct.    162;  Although  the  court  did  not  ap- 

United   States   v.   Terminal  R.   R.  point    a    receiver    in    the    case    of 

Assn.  of  St.  Louis,  224  U.  S.  383,  United    States    v.    American    To- 

56    L.    Ed.    810,    32    Sup.    Ct.    507.  bacco  Co.,  221  U.  S.  106,  55  L.  Ed. 

The  fact  that  the  cause  of  action  663,  31  Sup.  Ct.  632,  which  was  a 
involved  arises  under  the  Sherman  suit  under  the  Sherman  Anti- 
Anti-Trust  Law  will  not  prevent  Trust  Act  brought  to  dissolve  an 
a  court  of  equity  from  entertain-  unlawful  combination,  which  act 
ing  jurisdiction  of  the  suit.  did  not  by  its  terms  provide  for 
United  Copper  Securities  Co.  v.  the  appointment  of  a  receiver. 
Amalgamated  Copper  Co.,  244  the  court  observed:  "We  might 
U.  S.  261,  61  L.  Ed.  1119,  37  Sup.  at  once  resort  to  one  or  the  other 
Ct.  509;  In  United  States  v.  Read-  of  two  general  remedies — (a)  the 
ing  Co.,  226  U.  S.  324,  57  L.  Ed.  .allowance  of  an  injunction  .  .  . 
243,  33  Sup.  Ct.  90,  the  suit  was  or  (b)  to  direct  the  appointment 
to  enforce  the  Anti-Trust  Law  re-  of  a  receiver  to  take  charge  of 
specting  an  alleged  combination  the  assets  and  property  in  this 
of  railroad  and  coal  mining  com-  country  of  the  combination." 
panics  formed  to  restrain  compe-  3  United  States  v.  American  To- 
tition  in  the  production,  sale  and  bacco  Co.,  221  U.  S.  106,  55  L.  Ed. 
transportation   in    interstate    com-  G63,  31  Sup.  Ct.  632. 


790  LAW   OP    RECEIVERS. 

which  would  not  be  repugnant  to  the  act.  But  it  thought 
that  on  account  of  the  extensive  poM^er  which  would  at 
once  result  from  resorting  to  a  receivership,  such  a  re- 
ceivership might  not  only  do  grievous  injury  to  the 
public,  but  cause  widespread  and  perhaps  irreparable 
loss  to  many  innocent  people.  The  court  then  made  cer- 
tain orders  for  the  dissolution  of  the  combination,  but 
with  a  condition  that  if  the  dissolution  was  not  accom- 
jjlished  within  a  six  months'  period  it  would  apply  one 
of  the  two  remedies,  one  of  which  w^as  a  receivership,  to 
the  situation. 

One  of  the  elements  wdiich  obtains  a  large  considera- 
tion by  the  court  in  applying  the  remedy  and  in  determin- 
ing whether  a  receivership  should  be  resorted  to  in  the 
case  of  laige  business  enterprises  is  the  effect  wdiich 
would  result  from  a  cessation  of  the  interstate  business 
in  which  the  company  is  engaged.^  And  where  the 
appointment  of  a  receiver  would  as  a  practical  effect  aid 
in  the  continuance  of  the  unlawful  combination,  the 
appointment  of  a  receiver  will  naturally  be  refused.^ 

In  a  case^  in  the  United  States  Circuit  Court,  in  which 
one  corporation,  through  stock  ownership  in  other  cor- 
porations and  ownership  of  vessels  operating  on  the 
Great  Lakes,  was  held  to  have  created  a  monopoly  under 
the  Anti-Trust  Law,  the  court  laid  down  the  general  prin- 

4  In  Standard  Oil  Co.  v.  United  "normal   and   lawful   contracts    or 

States,  221  U.  S.  1,  55  L.  Ed.  619,  agreements."     It  did  not  desire  to 

Ann.  Cas.  1912D,  734,  34   L.   R.  A.  deprive  "the  stockholders  or  cor- 

<N.  S.)    834,  31   Sup.   Ct.   502,   the  Porations  of  the  right  to  live  un- 


court  adverted  to  the  serious  in- 
jury to  the  public  which  would 
result  from   a  cessation   of  inter- 


der  the  law  of  the  land  but  as 
compelling  obedience  to  that  law." 
5  A  receiver  will  not  be  ap- 
pointed where  if  to  do  so  it  would 
state  commerce,  in  the  necessary  ^.^  ^  combination  or  trust  in  re- 
products  of  the  defendant  and  ex-  gtraint  of  trade.  American  Bis- 
pressed  a  desire  not  to  deprive  cuit  &  Mfg.  Co.  v.  Klotz,  44  Fed. 
the   stockholders    or   the    corpora-      721. 

lions  of  the   right  to  make,  after  6  United   States  v.  Great  Lakes 

the  dissolution  of  the  combination,      Towing  Co.,  217  Fed.  656. 


PRIVATE    CORPORATIONS.  791 

ciples  wliicli  would  govern  the  court  in  determining  the 
advisability  of  appointing  a  receiver.    It  said: 

"While  the  receivership  is  clearly  proper  when  neces- 
sary to  effectuate  dissolution  (Union  Pacific  Case, 
supra;  St.  Louis  Terminal  Case,  supra),"  it  is  not  always 
necessary,  even  in  such  a  case,  and  should  not  be  resorted 
to  except  where  necessary.  In  none  of  the  anti-trust 
cases  to  which  we  have  referred  does  there  appear  to 
have  been  actual  receivership.  The  nearest  approach  to 
it  is  in  the  Union  Pacific  Case,  where  a  trustee  was 
appointed  to  hold  and  transfer  the  stocks  required  to  be 
disposed  of. 

"The  controlling  inquiry  thus  is :  What  remedy  prom- 
ises the  most  eifective  measure  of  relief  against  the  evils 
which  we  have  found  to  exist!  In  the  instant  case,  the 
evil  to  be  remedied  is  not  the  ownership  by  the  towing 
company  of  the  corporate  stocks  of  the  Dunham  and 
the  Union  companies,  the  Thompson  Towing  and  Wreck- 
ing Association,  the  Hand  and  Johnson  Tug  Line,  and 
the  Great  Lakes  Towing  Company,  Limited.  These  com- 
panies were  not  substantial  competitors.  No  good  would 
result  in  distributing  to  the  stockholders  of  the  towing 
company  the  stocks  of  the  five  companies  above  enumer- 
ated ;  and  the  government  does  not  so  request.  Nor  does 
the  evil  reside  in  the  mere  ownership  of  the  corporate 
stocks,  or  physical  properties,  or  both,  bought  from  the 
other  corporations  or  individuals.  It  is  concededly  impos- 
sible to  restore  to  the  sellers  the  property  so  bought. 
The  combination  represented  by  the  towing  company 
violates  the  Sherman  Act  because  it  is  a  monopoly  created 
by  abnormal  and  unfair  means,  the  most  important  of 
which  are  (a)  the  system  of  exclusive  contracts  by  which 
vessel  owners  who  employ  throughout  the  entire  season 

7  United  States  v.  Union  Pacific  v.  Terminal  R.  R.  Assn.  of  St. 
R.  Co.,  226  U.  S.  470,  57  L.  Ed.  Louis,  224  U.  S.  383,  56  L.  Ed.  810, 
306,  33  Sup.  Ct.  162;  United  States      32  Sup.  Ct.  507. 


792  LAW    OF    RECEIVERS. 

the  towiug  company's  tug  and  wrecking  service,  at  all 
the  ports  covered  by  its  tariffs  (so  far  as  the  vessel  owner 
had  occasion  for  such  service),  receive  a  large  discount 
from  tariff  rates,  which  is  denied  to  all  others;  (b)  the 
giving  of  special  concessions,  rebates,  and  discriminations 
to  customers;  (c)  the  restraint  of  competition  by  means 
of  operating  contracts,  by  unnecessary  conditions 
imposed  upon  sellers  of  towing  properties  to  buyers  of 
tugs  from  the  towing  company;  and  (d)  unfair  rate  wars, 
all  adopted  or  engaged  in  for  the  purpose  of  obtaining 
and  effectuating  monopolistic  control.  Unless  for  such 
means,  purposes,  and  practices,  the  size  alone  of  the  com- 
bination, or  the  mere  unification  of  the  towing  interests 
thereby  brought  about,  would  surely  not  justify  putting 
the  towing  company  entirely  out  of  business. 

''Merely  enjoining  further  operation  by  the  towing 
company  would  injure,  rather  than  benefit,  the  public 
by  depriving  it  of  the  present  service  pending  the  reor- 
ganization of  a  new  and  sufficient  service.  A  receivership, 
and  operation  thereunder,  until  competitive  conditions 
should  be  restored,  without  utilizing  the  towing  com- 
pany's property,  would  amount  to  a  partial  and  unnec- 
cessary  confiscation.  We  are  thus  left  practically  to  a 
choice  of  two  remedies :  First,  selling  the  tomng  com- 
pany's  properties  to  purchasers  dissociated  from  the 
officers,  directors  and  stockholders  of  the  towing  com- 
pany, with  the  expectation  that  operations  will  be  car- 
ried on  under  a  number  of  separate  and  independent 
ownerships,  each  confined  to  a  given  port  or  group  of 
ports,  and  by  receivership  insuring  a  continuance  of 
service  pending  sale  and  the  ability  to  deliver  the  towing 
company's  properties  upon  sale;  or,  second,  to  permit 
continued  operation  by  the  towing  company  only  upon 
complete  elimination  of  the  offensive  practices  under 
which  its  monopoly  has  been  created  and  maintained,  and 
the  imposition  of  such  injunctive  restrictions  as  will  keep 


PRIVATE    CORPORATIONS.  793 

tLe  way  open  for  full  and  free  competition.  The  towing 
company  is  before  the  court  and  subject  to  its  injunctive 
processes,  including  punishment  for  disobedience  thereto ; 
and  if  we  can  impose  upon  that  company  prohibitions, 
susceptible  of  enforcement,  which  shall  eliminate  past 
abuses  and  remove  obstacles  to  free  competition,  such 
course  would  provide  the  most  effective  relief  available, 
and  so  would  manifestly  be  for  the  public  interest. 

*'We  do  not  overlook  the  government's  contention  that 
a  corporation  which  has,  by  improper  practices,  created 
a  monopoly,  will,  if  left  in  control,  find  means  through 
indirect  and  secret  methods  to  evade  any  injunctive  re- 
strictions whicli  may  be  imposed.  We  also  appreciate 
that  the  towing  company's  present  occupancy  of  the  field 
places  all  prospective  competitors  at  such  disadvantage 
as  in  considerable  measure  to  deter  them  from  entering 
into  competition.  Nor  do  we  fail  to  appreciate  the  insis- 
tence that  this  court  can  not  effectively  superintend  the 
conduct  of  the  defendant's  business.  Indeed,  in  our  for- 
mer opinion  we  said  that,  for  reasons  there  stated,  it  then 
seemed  to  us  unlikely  that  a  decree  merely  enjoining 
administrative  practices  would  give  complete  relief,  in 
the  absence  of  radical  change  in  the  fundamental  princi- 
ples upon  which  the  towing  company  was  organized  and 
operated,  one  of  which  reasons  was  the  fact  that  a  decree 
commanding  cessation  of  purely  administrative  practices 
would  not  be  self-executing. 

*'In  spite,  however,  of  these  difficulties,  we  are  con- 
vinced, after  mature  consideration,  that  continued  opera- 
tion by  the  towing  company  under  proper  and  stringent 
injunctive  regulations  will,  if  obedience  to  such  regula- 
tions can  be  adequately  enforced  through  punishment  for 
contempt,  give  better  assurance  of  free  competition  and 
better  public  service  than  is  promised  by  a  division  of 
the  towing  company's  properties  among  several  new  own- 
erships.   In  reaching  this  conclusion,  we  take  into  account 


794  LAW    OF    RECEIVERS.. 

the  unsatisfactory  history  of  the  towing  business  previous 
to  the  organization  of  the  Great  Lakes  Towing  Company, 
the  fair  possibility  of  a  recurrence  of  those  conditions  if 
the  parties  interested  in  the  towing  company's  business 
are  wholly  excluded  from  the  field  and  the  new  organiza- 
tions released  from  all  restraint  by  means  of  our  decree, 
and  the  possibility  of  a  renewal  of  the  present  monopoly 
through  the  reacquisition  of  the  interests  in  the  new 
organizations  by  those  now  interested  in  the  towing  com- 
pany (which  again  would  be  released  from  the  restraint 
of  our  decree),  and  the  fact  that  under  the  plan  we  pro- 
pose to  adopt  we  shall  have,  if  such  plan  can  be  enforced, 
the  effect  of  fourteen  separate  organizations,  so  far  as 
concerns  opportunities  for  competition  and  the  avoid- 
ance of  discriminations,  and  under  the  continued  control 
of  this  court. 

^'The  plan  we  have  adopted,  not  only  includes  the  limi- 
tation contained  in  the  plan  presented  by  the  towing  com- 
pany, but  in  the  extent  and  stringency  of  its  provisions 
goes  far  beyond  that  plan.  For  example :  The  so-called 
'exclusive  contracts'  are  forbidden,  not  only  as  affecting 
more  than  one  port,  but  as  applied  to  even  one  port ;  and 
such  restrictions,  as  well  as  the  towing  company's  tariffs, 
are  made  to  apply  to  all  classes  of  service  given  by  that 
company.  Stringent  provisions  against  unfair  rate  cut- 
ting are  also  contained,  and  the  provision  against  dis- 
criminations is  practically  unlimited.  Again,  we  have 
sought  to  impose  the  general  prohibitions  contained  in 
the  Sherman  Act,  so  far  as  applicable,  as  well  as  to  apply 
the  rules  of  the  Interstate  Commerce  Act  (Feb.  4,  1887, 
c.  104,  24  Stat.  379  [U.  S.  Comp.  St.  1913,  §  8563  et  seq.] ) 
as  far  as  seems  possible  unless  Congress  shall  include 
within  the  terms  of  that  act  corporations  of  the  class  of 
the  towing  company. 

"We  see  no  reason  to  doubt  that  under  the  decree  as 
drafted  obedience  to  the  injunctive  i)rocess  can  be  en- 


PRIVATE,  CORPORATIONS.  "^^^ 

forced,  and  disobedience  thereto  punished,  without  seri- 
ous difficulty,  for  operation  is  expressly  forbidden, 
except  in  strict  compliance  with  the  terms  of  the  decree. 
Receivership  and  sale  will,  however,  be  resorted  to  in 
the  event  that  the  towing  company  shall  not  consent  to 
be  bound  by  the  plan  embodied  in  our  decree." 

In   most    of    the    cases    involving    dissolution    of    the 
monopoly  it  has  not  been  found  necessary  to  dissolve 
the  corporation  itself  and  the  court  has  always  been  open 
for  the  suggestion  of  a  plan  by  either  the  government  or 
the  offending  corporation  whereby  the  monopoly  may  be 
dissolved  without  causing  the  confiscation  or  other  de- 
struction of  the  private  interests  in  the  property  and 
business.    Various  remedies  have  been  applied.    In  most 
of  the  cases  injunctive  relief  in  one  form  or  other  has  been 
applied,^  but  generally,  in  connection  with  cancellation  of 
objectionable  contracts,^  distributions  of  stock  holdings 
of  constituent  or  subsidiary  companies  to  the  stockhold- 
ers of  the  holding  company,^-^  the  enforcement  of  the  giv- 
ing of  withheld  privileges  to  other  companies,^^  or  the 
sale  of  the  stock  holdings  which  caused  the  obnoxious 

s  United     States    v.    Trans-Mis-  663,  31  Sup.  Ct.  632   (in  this  case 

souri  Freight  Assn.,  166  U.  S.  290,  in    addition    to   stock   distribution 

343,  41  L.  Ed.  1007,  1028,  17  Sup.  the  business  was  divided  into  four 

Ct  '  ^40,    560;     Standard    Sanitary  controlling  companies  which  were 

Mfg.    Co.    V.    United    States,    226  so  divided  that  the  business  con- 

U.  S.  20,  57  L.  Ed.  107,  33  Sup.  Ct.  trol  was  in  the  hands  of  a  number 

g  '           '  of  separate  companies.     (Northern 

'  9  United  States  v.  Reading  Co.,  Securities    Co.    v.    United    States, 

226   U     S    324,   57    L.    Ed.    243,   33  193    U.    S.   197,   48    L.    Ed.   679,    24 

Sup    Ct    90    (in  this  case  certain  Sup.    Ct.    436    (in    this    case    the 

contracts   with   coal   mining   com-  holding  company  was  required  to 

panics    were    ordered    to    be    can-  reduce    its    stock    and    in    lieu    of 

CQied).  the  stock  so  retired  to  distribute 

10  Standard    Oil    Co.    v.    United  to  its  stockholders  a  proportionate 

States,  221  U.  S.  1,  55  L.  Ed.  619,  amount  of  the  competitive  stocks 

Ann.  Cas.  1912D,  734,  34  L.  R.  A.  held  by  it). 

(N.    S.)     834,    31     Sup.    Ct.    502;  ii  United  States  v.  Terminal  R. 

United    States    v.    American    To-  R.   Assn.   of   St.   Louis,   224   U.   S. 

bacco  Co.,  221  U.  S.  106,  55  L.  Ed.  383,  56  L.  Ed.  810.  32  Sup.  Ct.  507. 


796  LAW    OF    RECEIVERS. 

monopoly.^-  In  most  of  the  cases  the  courts,  however, 
reserved  the  idea  of  a  receivership  as  a  remedy  of  the  hist 
resort,  in  the  event  that  the  plan  adopted  did  not  prove 
effective  through  the  fault  of  the  offending  corporation. 
Thus  it  will  be  seen  that  each  case  must  stand  upon  its 
own  particular  facts,  and  the  methods  adopted  in  one  case 
are  not  necessarily  a  precedent  in  another  case,  except 
where  the  same  situation  is  presented  for  remedy.^'"* 

We  do  not  apprehend  that  a  receiver  would  be 
appointed  in  a  proceeding  under  the  Sherman  Anti-Trust 
Law,  except  as  a  temporary  measure  pending  the  en- 
forcement of  some  definite  remedy  w^hich  might  take 
some  time  to  put  into  effect  or  pending  a  dissolution  and 
sale  of  the  corporation  and  its  property.  In  one  of  the 
cases,  ^^  to  w^hich  we  have  already  referred,  it  was  said : 

"The  Anti-Trust  Act  contains  in  terms  no  provision 
for  equitable  relief  to  the  public  on  account  of  violations 
of  the  act,  except  by  way  of  injunction  or  prohibition. 
Section  4,  which  alone  relates  to  the  equitable  remedy, 
invests  the  appropriate  courts  with  'jurisdiction  to  pre- 
vent and  restrain  violations  of  this  act.'  It  is  made  the 
duty  of  the  district  attorneys,  under  the  direction  of  the 
Attorney  General,  to  'institute  proceedings  in  equity  to 
prevent  and  restrain  such  violations.'  The  prescribed 
prayer  of  the  petition  is  that  'such  violations  shall  be 
enjoined  or  otherwise  prohibited,'  and  provision  is  made 
for  'such  temporary  restraining  order  or  prohibition  as 
shall  be  deemed  just  in  the  premises.'  While  the  power 
to  dissolve  an  unlawful  combination  clearly  exists,  and 
should  be  exercised  when  necessary  to  give  complete  re- 
lief, the  legislative  policy,  as  disclosed  by  the  terms  of 

12  United  States  v.  Union  Pacific  is  United  States  v.  Union  Pacfic 

R.  Co.,  226  U.  S.  470,  57  L.  Ed.  306,  R.   Co.,   226   U.    S.   470,   57    L.    Ed. 

33  Sup.  Ct.  162    (in  this  case  the  306,  33  Sup.  Ct.  162. 

dissolution    of   the   monopoly   was  i-i  United  States  v.  Great  Lakes 

effected  by  a  sale  of  the  Southern  Towing  Co.,  217  Fed.   656. 
Pacific  Railway  stock  held  by  it). 


PRIVATE    CORPORATIONS.  '^^* 

the  act,  is  cloarly  to  resort  to  restraint  rather  than  to 
dissolution,  except  where  restraint  alone  is  inadequate." 

§  321.     Right  of  Receiver  of  Corporation  Injured  by  Violations 
of  Anti-Trust  Law  to  Recover  Treble  Damages. 
Where  a  corporation  of  which  a  receiver  is  appointed 
has  been  damaged  by  unlawful  acts  or  agreements  in  vio- 
lation  of   the   Sherman  Anti-Trust   Law,   the    receiver 
thereof  may  sue  to  recover  the  statutory  treble  damages, 
but  in  order  to  recover  such  damages  he  must  show  that 
the  corporation  was  damaged  in  the  transaction.     It  is, 
of  course,  necessary  in  a  case  of  that  sort  to  show  that 
the  cause  of  action  really  and  substantially  involves  a 
dispute  or  controversy  arising  under  the  Anti-Trust  Act.^ 
In  the  prosecution  of  such  actions,  the  general  principles 
of  tlie  law  of  torts  are  applied.    If  the  plaintiff  has  been 
a  participant  with  the  defendant  in  the  creation  and  main- 
tenance  of  the  unlawful  monopoly,   the   question   then 
arises  as  to  whether  such  participation  or  acquiescence 
operates  as  an  estoppel  to  the  maintenance  of  the  action 
for  damages.^     This  question,  of  course,  does  not  arise 
where  the  damages  are  imposed  upon  the  plaintiff  by 
acts  in  the  nature  of  oppressive  competition  of  such  a 
character  as  to  violate  the  provisions  of  the  Anti-Trust 
Law. 

1  Noyes  v.  Parsons,  245  Fed.  689,  agreements  necessarily  operate  to 

158  CCA    91.  restrain   unduly    trade   and    inflict 

•2  The    case    of   Blueflelds    S.    S.  injury,  questions  of  willful  purpose 

Co    V    United  Fruit  Co.,  243  Fed.  or  conscious  design  to  violate  the 

1  155  C  C  A   531,  was  an  instance  law    and    inflict    injury    have    no 

of  the  creation  of  a  monopoly  in  place."     Addyston  Pipe  Case,  175 

the  production  and  wholesale  mar-  U.  S.  211,  214,  234,  44  L.  Ed.  136, 

keting    of   bananas    in    which    the  20   Sup.   Ct.  96;    Northern   Securi- 

agreements    creating    the    unlaw-  ties  Co.  v.  United  States,  193  U.  S. 

ful    condition    were    suggested    by  197,  331,  48  L.  Ed.  679,  24  Sup.  Ct. 

the  plaintiff  corporation.     In  that  436.      The    courts   have   held    that 

case  the  court  said:  so  far  as  intent  is  involved   (that 

"When  in  this  class  of  torts  un-  is,  intent  either  to  violate  the  law 

lawful    combinations    or    unlawful  or   thereby   to   inflict  injury)    per- 


798 


LAW    OP    RECEIVERS. 


In  actions  for  damages  brought  under  tliis   act,  the 
statute  of  limitations  of  the  place  where  the  action  is 


sons  so  combining  or  contracting 
are    presumed    to    have    intended 
the  necessary,  natural,  and  prob- 
able   consequences    of    their    acts 
and  agreements,   and   if  their   ef- 
fect  is    to    restrain    unduly    inter- 
state trade  with  consequent  injury, 
then    the    combination    is    illegal 
and    the   participants    are    charge- 
able   with    the    consequences    and 
are  liable  for  the  damages  result- 
ing.    Continental  Wall   Paper  Co. 
V.  Voight,  212  U.  S.  227,  53  L.  Ed. 
486,    29    Sup.    Ct.    280;    Loewe    v. 
Lawlor,   208   U.   S.   274,   52    L.    Ed. 
488,    13    Ann.    Cas.    815,    28     Sup. 
Ct.    301;    O'Halloran   v.   American 
Sea    Green     Slate     Co.     (D.     C), 
207     Fed.     187,     189.       There     is 
no  question  about  this  law  when 
the    damages    inflicted    by    an    un- 
lawful combination  fall  upon  one 
not   involved    in   the    combination 
and  not  participating  in  violating 
the  law.     But  here  there  was  evi- 
dence   that    the    plaintiff,    acting 
through   all   its   stockholders,  had 
combined    with    the    defendant    to 
restrain  trade  and  commerce  and 
to   build   up   a  monopoly   between 
them.    In  prescribing  the  zone  for 
banana  cultivation  and  in  limiting 
the  purchase  price  and  regulating  ^ 
the    importation    of   bananas    into 
the  United  States,  the  parties  un- 
questionably   effected    thereby    a 
combination  which  in  some  degree 
restrained   trade   and    measurably 
created  a  monopoly.     If  that  com- 
bination     unlawfully      restrained 
trade    and    created    an    unlawful 
monopoly,  as  averred  by  the  plain- 
tiff, then  certainly  when  the  plain- 
tiff  complains   of   injury    done   by 


the  defendant,  the  question  arises 
ex  necessitate  rei  whether  the  in- 
jury complained  of  was  the  nat- 
ural and  probable  consequence  of 
the  combination  or  was  in  conse- 
quence of  conduct  pursued  be- 
yond its  scope  with  intent  to 
inflict  injury  not  within  the  agree- 
ment of  the  parties. 

The  plaintiff's  claim  was  in  ef- 
fect that  it  did  not  reap  all  the 
profits  which  the  combination 
should  have  yielded  because  of 
the  manner  in  which  the  defen- 
dant exercised  its  control  and  con- 
ducted the  plaintiff's  business.  The 
plaintiff's  business  was  intended 
to  be  conducted  by  the  defendant 
along  lines  of  restraint  of  trade 
and  monopoly,  in  the  course  of 
which  injury  might  follow  as  a 
natural  effect,  or  might  be  oc- 
casioned by  intentional  and  malev- 
olent acts  of  the  defendant.  In 
this  state  of  the  case,  the  origin 
and  purpose  of  the  injury  became 
questions  for  the  jury.     .     .     . 

If  the  Sherman  Act  was  violated 
by  the  combination  in  which  the 
Bluefields  Company  participated, 
and  injury  to  that  company  was  a 
natural  consequence,  then  the 
case  comes  within  the  well  settled 
principle  that  where  a  criminal 
combination  is  made  or  a  crim- 
inal enterprise  is  undertaken  by 
two  parties  and  either  party  vio- 
lates the  agreement  with  injury 
to  the  other,  the  law  will  afford 
the  injured  party  no  redress  but 
will  leave  him  as  it  finds  him.  In 
pari  delicto  potior  est  conditio  de- 
fendantis.  Daniels  v.  Tearney,  102 
U.  S.  415,  26  L.  Ed.  187;  McMullen 


PRIVATE.  CORPORATIONS. 


799 


Lroiiglit  are  applicable.^*  A  receiver  may  intervene  in 
such  an  action  or  be  substituted  as  plaintiff  in  a  suit 
already  commenced  by  the  corporation  of  which  he  is 
receiver.* 

§  322.    Whether  the  Cause  of  Action  for  Treble  Damages  May 
Be  Asserted  by  Receiver  After  Dissolution  of  Cor- 
poration. 
The  question  whether  after  the  dissolution  of  a  cor- 
poration, which  had  a  cause  of  action  for  treble  damages 
■for    violation    of    the    Anti-Trust    Law,    its    receiver 


V.  Hoffman,  174  U.  S.  639,  43  L.  Ed. 
1117,  19   Sup.  Ct.  839;    Pittsburgh 
Dredging    &    Construction    Co.    v. 
Monongahela    &    Western    Dredg- 
ing Co.  (C.  C),  139  Fed.  780;  Chi- 
cago,   M.    &    St.    P.    Ry.    Co.    V. 
Wabash,  St.   L.   &   T.  Ry.   Co.,  61 
Fed.  993,  9  C.  C.  A.  659;  Bishop  v. 
American   Preserves   Co.    (C.    C), 
105    Fed.    845;     Continental    Wall 
Paper  Co.  v.  Voight,  212  U.  S.  227, 
262,  53  L.  Ed.  486,  29  Sup.  Ct.  280. 
So  also  were  correct  the  court's 
rulings  and  instructions  as  to  the 
plaintiff's  acquiescence  in  the  de- 
fendant's  exercise    of   its    control. 
If,  upon  evidence  which  we  think 
abundantly     sufficient,     the     jury 
found  that  all  the  stockholders  of 
the  Bluefields  Company  joined  in 
forming  the  alleged  unlawful  com- 
bination and  in  placing  their  com- 
pany in  it;   acquiesced  for  a  long 
term    of   years    in   the    part   their 
company  played  in  that  combina- 
tion and  in  the  manner  it  played  it 
or    was    caused    to    play    it;    and 
accepted   and   enjoyed  the   profits 
which   sprang   from   it,   we   are   of 
opinion  that  the  corporation  itself 
was  bound  by  their  acts  and  was 
precluded   from   asserting  a  right 


of  action  based  upon  them.    Mora- 
wetz  on  Corporations,  §  262;  Wells 
V.  Northern  Trust  Co.,  195  111.  288, 
63  N.  B.  136;   Omaha  Hotel  Co.  v. 
Wade,  97  U.  S.  13,  24   L.   Ed.  917. 
The  rights  of  its  two  new  and 
innocent  stockholders  are  not  su- 
perior to  the  rights  of  the  corpora- 
tion.    It   is   urged,   however,    thai 
even    if    the    corporation    is    pre- 
cluded from  maintaining  an  action 
for  the  benefit  of  its  stockholders, 
the  corporation  might  later  repudi- 
ate their  acts  and  recover  for  the 
benefit  of  its  creditors.    But  there 
is  in  this  case  no  question  of  cred- 
itors other  than  such  as  may  al- 
ways   technically    be    present    in 
cases  in  which  corporate  action  is 
involved.      The    litigation   had   its 
rise   on    a   stockholder's   bill,   and 
though   now    prosecuted    by   a   re- 
ceiver   in    an    action    at    law,    the 
rights  involved  are  obviously  those 
which  exist  between  the  corpora- 
tion and  its  stockholders. 

3  Bluefields  S.  S.  Co.  v.  United 
Fruit  Co.,  243  Fed.  1,  155  C.  C.  A. 
531. 

4  Bluefields  S.  S.  Co.  v.  United 
Fruit  Co.,  supra;  Imperial  Film 
Exch.  V.  General  Film  Co.,  244  Fed. 
985. 


800 


LAW-  OF    RECEIVERS. 


appointed  in  the  dissolution  proceedings  may  sue  is  one 
not  free  from  difficulty.  The  general  test  of  survivor- 
ship of  a  cause  of  action  lies  in  whether  it  was  assign- 
able, and  besides  certain  forms  of  tort  actions  cease  with 
tlie  death  of  the  party  in  whose  favor  they  run.  There 
has  been  some  discussion  as  to  the  nature  of  the  cause 
of  action  for  treble  damages  as  to  whether  it  is  one  in 
which  the  damages  recoverable  are  only  such  as  affect 
property  interests.  The  act  itself  has  not  prescribed 
whether  the  cause  of  action  is  assignable,  and  under  such 
circumstances  the  question  must  be  determined  by  the 
general  principles  regulating  that  point  in  choses  in 
action  in  general.    In  a  well-considered  case^  in  the  Fed- 


1  Imperial  Film  Exchange  v. 
General  Film  Co.,  244  Fed.  985.  In 
the  above  case  Judge  Hough  said: 

"Such  an  action  as  this  under 
the  Sherman  Law  can  only  be 
brought  when  a  person  is  'injured 
in  his  business  or  property.'  Sec- 
tion 7.  The  action  is  to  recover 
•threefold  the  damages  by  him 
sustained";  i.  e.,  sustained  by  and 
in  the  said  'business'  or  'property.' 

"Such  an  action  as  this  might 
well  be  called  sui  generis,  but 
surely  the  nearest  approach  to 
one  of  the  old  legal  categories 
that  can  be  made  is  to  assign  this 
new  statutory  cause  of  action  to 
that  of  actions  for  a  tort  occasion- 
ing injury  to  property,  of  which 
perhaps  the  most  ancient  and  fa- 
miliar illustrations  are  trespass 
q.  c.  f.  and  trespass  d.  b.  a.  By 
a  long  list  of  decisions  the  gen- 
eral test  of  survivability  of  ac- 
tions is  their  assignability.  In 
fact,  many,  if  not  most,  of  the 
cases  seem  to  reason  in  a  circle; 
i.  e.,  if  the  question  is  of  assign- 
ability, a  case  of  survival  is 
thought  to  rule  it,  and  e  converso. 


See   such   decisions  catalogued  in 

4  Cyc.  23.  In  short,  assignability 
and  the  right  of  survival  are  at- 
tributes of  causes  of  action  dis 
coverable  by  the  same  tests;  as 
a  general  rule  they  are  'convert- 
ible terms.'  Selden  v,  Illinois 
Trust,  etc.,  Bank,  239  111.  67,  130 
Am.  St.  Rep.  180,  87  N.  E.  860; 
Tanas  v.  Municipal  Gas  Co.,  88 
App.  Div.  251,  84  N.  Y.  Supp.  1053; 
Morenus  v.  Crawford,  51  Hun  89, 

5  N.  Y.  Supp.  453;  Grocers'  Na- 
tional Bank  v.  Clark,  48  Barb. 
(N.  Y.)  26. 

Admitting  that  most  actions  for 
wrong  to  the  person,  or  indeed  to 
a  person,  are  still  subject  to  the 
common-law  rule,  it  is  several  cen- 
turies since  an  exception  was  es- 
tablished (in  language  of  Story) 
that: 

"  'Vested  rights  ad  rem  and  in 
re,  possibilities  coupled  with  an 
interest,  and  claims  growing  out 
of  and  adhering  to  property  may 
pass  by  assignment.'  Comegys  v. 
Vasse,  1  Pet.  at  213,  7  L.  Ed.  108. 

"Sometimes  this  rule  is  covered 
up  or  disguised  by  an  assignment 


PRIVATE    CORPORATIONS. 


801 


eral  Court  for  the  Southern  District  of  New  York  it 
was  held  by'  Judge  Hough  that  a  trustee,  whom  he 
regarded  as  a  receiver,  of  a  corporation  in  the  dissolu- 
tion proceedings  was  the  equivalent  of  an  assignee  and 
could  be  substituted  as  plaintiff  in  an  action  previously 
instituted  by  the  corporation  to  recover  treble  damages 
under  the  Anti-Trust  Law.     But  it  has  also  been  held 


of  the  property  injured,  as  in 
Tome  V.  Dubois,  6  Wall.  548,  18 
L.  Ed.  943,  where  the  defendant 
had  wrongfully  deprived  the  plain- 
tiff's assignor  of  a  quantity  of  saw- 
logs.  The  assignor  sold  the  saw- 
logs  to  the  plaintiff,  though  he  had 
no  possession  of  them,  and  the 
plaintiff  maintained  an  action  for 
conversion.  In  New  York,  not 
merely  such  property  might  have 
been  assigned,  together  with  the 
cause  of  action  growing  out  of  it, 
but  the  cause  of  action  itself 
might  have  been  directly  assigned. 
Richtmeyer  v.  Remsen,  38  N.  Y. 
206. 

"Assuming  that  the  cause  of  ac- 
tion set  forth  in  this  complaint, 
being  statutory,  is  sui  generis, 
the  Congress  has  not  prescribed 
whether  said  cause  of  action  may 
be  assigned  or  not.  In  the  absence 
of  such  permission  or  prohibition, 
the  question  of  assignability  of 
rights  conferred  by  statutes  is  to  be 
governed  by  the  general  principles 
regulating  that  quality  ia  choses  in 
action  in  general.  The  general 
rule  was  laid  down  in  Meech  v. 
Stoner,  19  N.  Y.  26,  when  Com- 
stock,  J.,  said,  in  speaking  of  the 
right  to  assign  a  claim  under  the 
statute  for  money  lost  at  gam- 
bling: 

"  'The  assignability  of  things  in 
action  is  now  the  rule,  nonassign- 
ability the  exception;  and  this  ex- 
I  Rec— Gl 


ception  is  confined  to  wrong  done 
to  the  person,  the  reputation,  or 
the  feelings  of  the  injured  party, 
and  to  contracts  of  a  purely  per- 
sonal nature,  like  promises  of  mar- 
riage.'    19  N.  Y.  29. 

"Therefore,  if  this  be  regarded 
merely  as  a  statutory  claim,  it  is 
of  such  a  nature  as  to  be  assign- 
able. The  chose  in  action  alleged 
to  exist  in  the  complaint  is  un- 
doubtedly property  in  the  largest 
sense  of  that  word,  the  test 
whereof  is  that  it  could  by  appro- 
priate process  be  reached  by  th3 
creditors  of  the  Imperial  Film 
Exchange.  I  do  not  think  it  open 
to  doubt  that  a  judgment  creditor 
of  this  plaintiff  could  by  proceed- 
ings supplementary  to  execution 
procure  the  appropriation  of  this 
cause  of  action  to  himself  in  satis- 
faction of  his  judgment.  This  is 
enough  to  prove  that  it  is  property. 

"The  Supreme  Court  of  the  state 
by  its  order  has,  in  obedience  to 
the  statute,  preserved  and  handed 
on  to  Mr.  Truesdale  as  trustee  all 
the  property  of  this  plaintiff;  that 
is,  it  has  taken  possession  of 
everything  that  the  plaintiff  could 
have  assigned  and  everything  that 
the  creditors  of  the  plaintiff  could 
hope  to  reach,  either  at  law  or  in 
equity.  This  lawful  action  of  the 
court  having  supervision  of  this 
corporation  is  the  equivalent  (.at 
least)   of  an  assignment. 


802 


LAW    OF    RECEIVERS. 


in  other  districts  that  the  cause  of  action  is  one  sounding 
purely  in  tort  and  not  assignable.-  But  such  a  cause  of 
action,  although  assignable,  may  by  assignment  under 
some  circumstances  become  champertous.^ 

§  323.     Right  to  Sell  Plant  to  Sole  Competitor  in  Business. 

A  concern  which  has  been  conducting  its  business  at  a 
loss  may  sell  its  property  and  plant  to  its  sole  competitor 
instead  of  scrapping  it  as  junk  or  selling  it  piecemeal 
without  violating  the  Sherman  Anti-Trust  Law,  since  the 
buyer  will  be  required  to  deal  fairly  with  the  public  under 
the  law.^ 


"Because,  therefore,  the  perma- 
nent receiver,  Mr.  Truesdale,  is 
the  equivalent  of  an  assignee,  be- 
cause the  cause  of  action  is  capa- 
ble of  assignment,  and  Mr.  Trues- 
dale has  become  the  owner  of  it, 
I  regard  the  legal  death  of  the 
corporation  as  an  immaterial  ele- 
ment in  this  application." 

For  an  exhaustive  consideration 
of  the  authorities  on  the  assign- 
ability of  such  causes  of  action, 
and  especially  in  connection  with 
champerty,  see  the  opinion  of  Cir- 
cuit Judge  Rogers  in  Sampliner  v. 
Motion  Picture  Patents  Co.,  255 
Fed.  242. 

See  also  United  Copper  Secur- 
ities Co.  v.  Amalgamated  Copper 
Co.,  232  Fed.  574,  146  C.  C.  A.  532. 

In  Caillouet  v.  American  Sugar 
Refining  Co.,  250  Fed.  639,  it  was 
stated  that  inasmuch  as  the  Sher- 
man Anti-Trust  Law  is  silent  as 
to  the  survival  of  the  right  of  ac- 
tion for  damages,  and  there  is  no^ 
other  statute  of  the  United  States 
in  point  whether  the  action  sur- 
vives or  not,  must  be  determined 
by  the  principles  of  the  common 
law,  regardless  of  the  law  of  Lou- 


isiana.   It  was  there  held  that  the 
cause  of  action  sounded  in  tort. 

2  In  Bonvillain  v.  American 
Sugar  Refining  Co.,  250  Fed.  641, 
it  was  held  that  the  action  to  re- 
cover threefold  damages  for  viola- 
tion of  the  anti-trust  law  is  one 
sounding  in  tort  and  not  assign- 
able. 

3  While  such  a  claim  may  be 
assignable,  its  assignability  may 
amount  to  champerty.  Sampliner 
V.  Motion  Picture  Patents  Co.,  243 
Fed.  277;  also  on  appeal  in  255 
Fed.  242,  277;  see,  also.  General 
Film  Co.  V.  Sampliner,  252  Fed. 
443,  164  C.  C.  A.  367,  to  same  effect. 

1  American  Press  Assn.  v.  United 
States,  245  Fed.  91,  157  C.  C.  A. 
387. 

Minority  shareholders  of  com- 
pany owning  copper  mining  prop- 
erty can  not  attack  a  sale  of  its 
property  to  defendant  on  the 
ground  that  the  defendant  is  at- 
tempting to  acquire  a  monopoly  of 
copper  mining  business  in  viola- 
tion of  Sherman  Anti-Trust  Act. 
Geddes  v.  Anaconda  Copper  Min- 
ing Co.,  245  Fed.  225,  157  C.  C.  A. 
417. 


PRIVATE    CORPORATIOXS. 


803 


§  324.     Circumstances  When  Receiver  Appointed  Under  State 
Anti-Trust  Laws. 

The  same  general  principles  appear  to  he  applied  by 
state  courts  in  proceedings  under  state  statutes  prohibit- 
ing monopolies.  The  power  of  the  court  to  appoint  a 
receiver  for  the  purposes  of  enforcing  the  decree  of  the 
court  is  recognized.  In  a  leading  case  on  the  subject  from 
New  Jersey,^  the  court,  speaking  through  Chancellor 
McGill,  said : 

*<I  have  not  for  a  moment  doubted  the  power  of  this 
court,  where  necessary  to  prevent  the  property  of  a  de- 
fendant from  use  in  the  contrivance  of  devices  to  mislead 
and  deceive  the  court,  and  thereby  defeat  its  injunction, 
to  take  control  of  that  property,  through  the  instrumen- 
tality of  a  receiver.  Indeed,  the  power  of  the  court  to 
appoint  such  a  receiver,  when  the  appointment  is  neces- 
sary to  effectuate  its  decree,  has  not  been  disputed.  Such 
power  is  so  essential  at  times  to  the  efficient  exercise  of 
the  court's  jurisdiction  that  it  has  become  too  well  estab- 
lished  either  to  be  seriously  questioned  or  to  need  citation 
of  authority  to  support  it.  Out  of  consideration  for  prop- 
erty rights  it  is  sparingly'  and  cautiously  exercised ;  but 
when  execution  of  a  decree  depends  upon  its  exercise  the 
court  will  most  certainly  use  it  to  the  full  extent  that  the 
exigencies  of  the  case  demand.  I  perceive  no  necessity 
for  the  appointment  of  a  receiver  in  this  case  as  it  now 
stands  upon  the  assurance  of  counsel ;  but,  in  order  that 
the  court  may  be  completely  and  particularly  informed 
touching  the  obedience  to  its  injunction,  I  will  refer  it  to 
a  master,  to  inquire  whether  the  injunction  is  now  being 

1  Stockton  V.  Central  R.  Co.  of  Railroad  Company.    An  injunction 

New  Jersey,  50  N.  J.  Eq.  489,  25  was  granted  and  the  question  was 

^^1    942.  referred  to  a  master  to  ascertain 

The  above  case  was  a  proceed-  whether     the     order     was     being 

ing    by    the    attorney-general    to  obeyed.     It  was  declared  that  the 

break  the  anthracite  coal  combine  court  had  power  to  appoint  a  re- 

between    the    Pennsylvania    Rail-  ceiver  for  the  purpose  of  prevent- 

road    Company    and    the   Readins  ing  a  violation  of  the  order. 


80i 


LAW    OF    RECEIVERS. 


obeyed  in  letter  and  in  spirit.  He  will  be  empowered  to 
send  for  and  examine  the  officers,  agents,  books  and 
papers  of  the  defendants.  Further  order  in  the  premises 
will  be  reserved  until  the  coming  in  of  his  report." 

Where  the  corporation  is  being  dissolved  and  its  prop- 
erty distributed  on  account  of  its  maintenance  of  a 
monopoly,  the  appointment  of  a  receiver  has  been  held  to 
be  proper.-  This  generally  occurs  in  proceedings  by  the 
state  for  a  forfeiture  of  the  charter  under  statutes  declar- 
ing a  forfeiture  in  cases  where  a  corporation  is  guilty  of 
conducting  an  unlawful  monopoly  or  combination  in 
restraint  of  trade.^    But  where  it  is  attempted  to  appoint 


2  Cameron  v.  Havemeyer,  25 
Abb.  N.  C.  438  (451),  12  N.  Y. 
Supp.  126.  This  was  one  of  the 
early  sugar  trusts.  In  this  case 
the  court  had  declared  the  trust 
agreement  void  as  creating  a  vast 
monopoly,  and  so  against  public 
policy.  The  court  says:  "I  can 
not,  therefore,  but  think  such  a 
course  is  not  only  demanded  by 
law  but  it  is  to  the  best  interest 
of  all  concerned — for  the  public, 
because  it  will  free  the  corpora- 
tions composing  the  trust  from 
their  illegal  relations  with  it 
.  .  ;  for  the  certificate  hold- 
ers, because  it  will  preserve  the 
property  and  facilitate  the  speedy 
settlement  of  the  matter,  either 
by  a  reorganization,  if  practicable, 
or  a  division  of  the  property." 

A  receiver  was  appointed  in 
Pittsburg  Carbon  Co.  v.  McMillin, 
119  N.  Y.  46,  7  L.  R.  A.  46,  23  N.  E. 
530,  in  a  case  involving  a  combi- 
nation in  violation  of  the  anti- 
trust laws. 

In  Gray  v.  De  Castro,  23  App. 
N.  C.  314,  8  N.  Y.  Supp.  237,  a  re- 
ceiver was  appointed  of  property 
which  the  trial  court  declared  to 


be  a  combination  known  as  the 
"sugar  trust,"  and  decreed  that 
the  charter  of  the  defendant  cor- 
poration be  forfeited.  The  re- 
ceiver, pending  an  appeal  from 
that  decree,  sought  to  have  an  in- 
junction restraining  the  trustees 
of  the  trust  from  selling  or  dispos- 
ing of  the  property,  but  the  defen- 
dants unequivocally  denied  any  in- 
tentions of  so  disposing  of  the 
property  and  the  court,  in  view  of 
their  financial  responsibility  and 
the  fact  that  the  appeal  would  be 
very  shortly  decided,  refused  to 
grant  the  injunction  but  with  leave 
to  renew  the  motion  after  decision 
of  the  appeal,  or  upon  a  new  show- 
ing of  any  intention  of  disposing 
of  the  property. 

3  The  case  of  Waters-Pierce  Oil 
Co.  V.  State  (Tex.),  106  S.  W.  326, 
was  one  in  which  a  receiver  was 
appointed  at  the  instance  of  the 
state  in  a  proceeding  to  forfeit 
the  permit  of  a  foreign  corpora- 
tion to  do  business  on  account  of 
violation  of  the  anti-trust  laws  of 
the  state.  An  appeal  was  taken 
from  the  order  appointing  the  re- 
ceiver   and,    pending   the    hearing 


PRIVATE   CORPORATIONS, 


805 


a  receiver  in  a  proceeding  by  the  state  to  forfeit  the 
charter  of  a  corporation  for  such  unlawful  conduct,  it 
has  been  held  that  the  appointment  will  not  be  made  if 
the  facts  and  circumstances  do  not  bring  the  case  within 
statutory  provisions  for  such  appointment.^ 

§  325.  Receiverships  Where  Corporation  Is  Engaged  in  an 
Illegal  Business,  Such  as  Racing,  Gambling  or  Pri^e- 
Fighting. 

Where  a  corporation  is  engaged  in  conducting  horse 
races  and  racing  stables,  if  a  receiver  is  appointed,  he 
may  continue  the  business  if  it  can  be  done  without  vio- 
lating the  law.  If,  however,  it  can  not  be  conducted  with- 
out violating  the  law,  it  will  be  the  duty  of  the  receiver 
to  wind  up  the  aifairs  of  the  corporation.  But  a  stock- 
holder who  seeks  the  appointment  of  a  receiver  on  the 


of  the  appeal,  a  receiver  was 
sought  in  the  federal  courts,  but 
it  was  held  that  the  latter  court 
had  no  jurisdiction.  See  Palmer 
V.  Texas,  212  U.  S.  118,  53  L.  Ed. 
435,  29  Sup.  Ct.  230. 

4  In  Havemeyer  v.  Superior 
Court,  84  Cal.  327,  18  Am.  St.  Rep. 
192,  10  L.  R.  A.  627,  24  Pac.  121,  a 
judgment  of  dissolution  in  quo 
warranto  ■  proceedings  against  a 
corporation  had  been  entered  be- 
cause of  an  alleged  monopoly  in 
respect  to  the  manufacture  of 
sugar,  and  the  trial  court  ap- 
pointed a  receiver  over  its  prop- 
erty under  a  statute  which  author- 
ized the  appointment  of  receivers 
over  corporate  property  in  certain 
circumstances,  but  the  Supreme 
Court  held  no  authority  to  make 
such  an  appointment  existed  under 
the  statutory  provision  relied  on, 
which  provided  that  a  receiver 
may  be  appointed  by  the  court  in 
which  an  action  is  pending  in  va- 


rious cases,  and  among  others,  "In 
the  cases  where  a  corporation  has 
been  dissolved,  or  is  insolvent,  or 
in  imminent  danger  of  insolvency, 
or  has  forfeited  its  corporate 
rights,"  but  there  being  other  pro- 
visions specifically  applying  to  for- 
feiture proceedings  for  such  causes 
and  which  in  fact  was  the  basis 
for  the  quo  warranto  proceedings. 
The  case  was  decided  strictly 
upon  the  provisions  of  several  dif- 
ferent statutory  provisions  rela- 
tive to  allowing  ordinarily  the  di- 
rectors to  act  as  trustees  upon 
dissolution  of  a  corporation,  and 
of  the  specific  statute  which  al- 
lowed quo  warranto  proceedings 
to  be  instituted.  The  court  held 
in  effect  that  provisions  under 
which  the'  receivership  was  sought 
to  be  maintained  had  reference  to 
another  proceeding  separate  and 
distinct  from  the  judgment  of  dis- 
solution in  the  quo  warranto  pro- 
ceedings. 


806  LAW    OF    RECEIVERS. 

ground  that  the  racing  business  conducted  by  the  cor- 
poration is  in  violation  of  law  will  be  denied  relief  if  he 
knew  of  the  character  of  the  business  when  he  became 
a  stockholder.^  A  receiver  will  not  be  allowed  to  recover 
money  lost  by  the  corporation  of  which  he  is  a  receiver 
in  wagering  contracts  in  the  absence  of  a  statute  allow- 
ing such  a  recovery,  and  this  is  especially  true  where  the 
directors  of  the  corporation  were  aware  of  the  fact  that 
their  general  manager  was  conducting  such  illegal  opera- 
tions upon  the  exchange.^  In  an  Indiana  case^  a  corpora- 
tion was  engaged  in  conducting  prize-fights  and  main- 
tained premises  for  that  sole  purpose,  to  which  it  induced 
the  public  to  attend.  The  state  sought  to  have  the  corpora- 
tion dissolved  as  having  forfeited  its  franchise  and  to 
have  a  receiver  appointed  to  take  charge  of  its  property 
until  the  further  order  of  the  court.  A  receiver  was 
appointed,  which  was  assigned  as  error.  The  receiver- 
ship was  sustained  on  the  ground  that  under  the  statute 
a  receiver  may  be  appointed  when  the  corporation  "has 
forfeited  its  corporate  rights,"  or  when,  ''in  the  discre- 
tion of  the  court  or  the  judge  thereof,  in  vacation,  it  may 
be  necessary  to  secure  ample  justice  to  the  parties."  The 
court  had  issued  a  restraining  order  and  the  receiver- 
ship was  also  said  to  be  necessary  to  secure  the  full  effect 
of  the  injunction.  The  court  had  issued  an  injunction 
restraining  the  future  conducting  of  prize-fights  in  the 
premises.  The  court  stated:  "The  receivership  in  this 
case  is  not  necessarily  for  the  segregation  and  sale  of  the 
property,  but  only  to  take  charge  of  the  same  until  further 
order  of  the  court  in  aid  of  the  injunction." 

1  Gordon  v.  Business  Men's  Rac-  s  Columbian     Athletic     Club     v. 
ing  Ass'n,  140  La.  674,  73  So.  768.  State,  143  Ind.  98,  52  Am.  St.  Rep. 

2  F.  M.  Davies  &  Co.  v.  Porter,  407,  28  L.  R.  A.  727,  40  N.  E.  914. 
248  Fed.  397,  160  C.  C.  A.  407. 


PRIVATE    CORrORATIONS.  807 

10.   Receivers  Over  Foreign  Corporations. 

§326.  Receivers  Over  Foreign  Corporations  for  Special  Pur- 
poses. 
At  the  outset  of  this  chapter,^  it  was  shown  that  certain 
of  the  receiverships  discussed  in  preceding  chapters  were 
created  to  take  charge  of  and  preserve  property  without 
regard  to  the  character  of  the  owner  of  the  property. 
The  property  involved  in  these  cases  is  special  property 
and  it  is  protected  by  the  court  pendente  lite  for  a  special 
purpose.  Thus  a  receiver  may  be  appointed  in  a  mort- 
gage foreclosure  action,  or  in  a  judgment  creditor's  suit 
to  set  aside  a  fraudulent  conveyance,  or  to  reach  equit- 
able assets  of  a  debtor  without  regard  to  the  question  as 
to  whether  or  not  the  debtor  is  an  individual  or  a  corpo- 
ration. Likewise  it  is  immaterial  in  these  cases  that  the 
debtor  is  a  foreign  corporation,  if  the  court  has  jurisdic- 
tion otherwise  of  the  property  and  the  debtor. 

In  this  connection  it  is  of  interest  to  note  that  a  court 
may  sometimes  effect  an  indirect  control  over  the  prop- 
erty of  a  foreign  corporation  through  action  with  refer- 
ence to  its  capital  stock.  If  the  owner  of  the  stock  is 
subject  to  the  jurisdiction  of  the  court  in  any  suit  and  it 
will  serve  the  purposes  of  justice  to  do  so  the  court  may 
appoint  a  receiver  to  sell  the  stock  and  make  an  assign- 
ment thereof.- 

Another  instance  that  may  be  mentioned  of  the  power 
of  a  court  to  deal  with  the  property  of  a  foreign  corpo- 
ration is  in  connection  with  the  rights  of  the  state  to 
define  the  conditions  upon  which  a  foreign  corporation 
may  do  business  and  own  assets  within  its  borders.  When 
it  has  been  decreed,  in  an  action  brought  on  behalf  of 
the  state,  that  a  foreign  corporation  should  be  ousted 

1  See  §  293  supra.  Fertilizer  Co.  et  al.  v.  Hand,  147 

2  Title  Ins.  &  T.  Co.  v.  California  Ga.  588,  95  S.  E.  81,  dissenting 
Development  Co.,  171  Cal.  173,  152      opinion. 

Pac.    542.      See,    also,    Tennessee 


803  LAW    OP    RECEIVERS. 

from  the  riglit  to  coutiniie  in  business  within  the  state, 
the  court  may,  although  the  state  has  no  beneficial  interest 
in  the  property,  appoint  a  receiver,  in  aid  of  the  decree, 
to  hold  and  manage  the  corporation's  property  until 
the  purposes  of  the  decree  have  been  accomplished. =^ 

It  is  to  be  observed  that,  though  a  court  of  equity  may 
find  an  existing  statute  to  support  its  appointment  of  a 
receiver  over  property  of  a  foreign  corporation  in  any 
of  the  circumstances  above  referred  to,  it  is  universally 
held  that  such  a  court  may  take  such  action  solely  by 
virtue  of  its  inherent  powers. 

§327.     Ancillary    Coi^poration    Receivers    of   Foreign    Corpo- 
rations. 

In  the  case  of  a  corporation  owning  property  and  doing 
business  in  a  number  of  jurisdictions,  one  of  which  is  its 
domiciliary,  or  creating,  jurisdiction,  when  a  situation 
arises  which  makes  it  proper  or  necessary  to  have  a  cor- 
poration receivership  created  to  take  charge  of  all  of  its 
property  and  affairs  for  the  benefit  of  all  of  its  creditors 
and  stockholders,  either  temporarily,  until  some  wrong- 
ful and  harmful  condition  has  been  remedied,  or  perma- 
nently, to  wind  up  its  affairs  by  selling  all  of  its  assets 
and  distributing  the  proceeds  among  its  creditors  and 
stockholders,  the  usual  practice  is  to  have  a  so-called 
primary  receiver  appointed  in  an  action  instituted  in  the 
domiciliary  jurisdiction,  and  so-called  ancillary  receivers 
appointed  in  actions  instituted  in  other  jurisdictions.^ 

3  McKinney  v.  Landon,  209  Fed.  lary   suits   and   appointment    of   a 

300,  126  C.  C.  A.  226.  A  foreclosure  receiver  therein  in  different  juris- 

suit  having  been  instituted  against  dictions   is   proper  where   the   de- 

a  foreign  corporation  that  has  lost  fendant  is  a  corporation  engaged 

its  right  to  do  business  within  the  in   business   and  owning  property 

state,  the  court  may  appoint  a  re-  in  different  districts  and  in  differ- 

ceiver,  or  trustee,  to  defend  for  the  ent  states ;    and,  while  the  courts 

company.      Rowe    v.    Stevens,    25  in  which  such  ancillary  suits  are 

Idaho  237,  137  Pac.  159.  brought  are  entirely  indepedent  in 

1  The    commencement    of   ancll-  fact  of  the  court  of  primary  juris- 


PRIVATE    CORPORATIONS. 


809 


The  separate  actions  are  strictly  independent  a(  ions. 
Each  court  acts  on  its  own  jurisdiction.  It  is  a  ju  isdic- 
tion  that  rests  on  the  inherent  power  of  the  court  .^  The 
general  purpose  and  effect  of  this  procedure  is  stated, 
in  a  federal  court  opinion,^  as  follows: 

''When  the  administration  extends  over  assets  located 
in  several  jurisdictions,  it  is  often  convenient  to  apply, 
in  advance,  for  the -assistance  of  the  different  courts; 
hence  the  practice  has  become  common  of  applying  for 
auxiliary  or  ancillary  appointments.   When  such  an  ap- 
plication is  made,  the  court  to  which  it  is   addressed 
exercises  its  own  original  jurisdiction.   The  decree  in  the 
court  of  the  domicile  of  the  corporation  is  evidence  in 
every  other  state  that  the  corporation  is  insolvent,  and 
that  a  proper  case  exists  in  that  state  for  the  appointment 
of  a  receiver,  and  it  is  to  be  respected  accordingly,  in 
obedience  to  the  constitutional  provision  whereby  full 
faith  and  credit  is  to  be  given  in  each  state  to  the  records 
and  judicial  proceedings  of  every  other  state  in  the  Union. 
But  it  is  for  the  court  to  which  the  application  is  made 
to  decide  what  remedy  it  should  extend  in  the  particular 
case,  and  wdiether  the  proper  administration  of  the  assets 
requires  the  appointment  of  a  receiver.    Ordinarily,  in 
comity  to  the  proceeding  of  another  court  of  coordinate 
jurisdiction,  it  will  appoint  an  ancillary  receiver,  and 
assume  administration  in  aid  of  the  primary  receiver. 
Trust  Co.  V.  Miller,  33  N.  J.  Eq.  155.   When  it  appoints 
a  receiver,  the  officer  becomes  its  officer,  and  is  completely 

diction,  they  will  treat  their  juris-  ceiver  of  the  assets  of  the  corpo- 

diction'  as  ancillary  in   the   inter-  ration  located  within  the  state  and 

ests   of  uniformity   of  action  and  for  the  sequestration  of  its  assets 

economical  adminstration.     Lewis  for    the    benefit    of    all    creditors. 

V.  American  Naval  Stores  Co.,  119  Brunner  v.  York  Bridge  Co.,  78  W. 

Fed.    391.     Non-resident   creditors  Va.  702,  90  S.  E.  233. 

of  an  insolvent  foreign  corporation  2  Evans  v.  Pease,   21   R.  I.   187, 

on  account  of  their  interest  there-  42  Atl.  506. 

in    may    maintain    a   suit   for   the  ^■^  Sands  v.  E.  S.  Greeley  &  Co., 

appointment    of    an    ancillary    re-  88  Fed.  130.  132,  31  C.  C.  A.  424. 


810  LAVr    OF    RECEIVERS. 

amenable  to  its  control,  and  it  matters  not  wlietlier  lie  is 
called  an  ancillary  receiver  or  merely  a  receiver.  His 
title  to  the  assets  within  the  jurisdiction  is  derived  from 
its  decree,  and  does  not  depend  upon  comity.  The  assets 
are  in  its  custody,  and  are  to  be  disposed  of  as  equity  and 
the  orderly  administration  of  justice  require.  Its  judg- 
ments and  decrees  in  respect  to  these  assets  must  be  ac- 
cepted as  conclusive  by  all  other  courts.  'Where  a  re- 
ceiver, administrator,  or  other  custodian  of  an  estate  is 
appointed  by  the  courts  of  one  state,  the  courts  of  that 
state  reserve  to  themselves  full  and  exclusive  jurisdiction 
over  the  assets  of  the  estate,  mthin  the  limits  of  the 
state.'  Reynolds  v.  Stockton,  140  U.  S.  254,  11  Sup.  Ct. 
773,  35  L.  Ed.  464.  It  rests  in  the  discretion  of  the  court 
appointing  the  receiver  whether  the  assets  within  its 
jurisdiction  shall  be  distributed  under  its  own  direction  or 
shall  be  transmitted  to  the  primary  receiver.  U.  S.  v. 
Coxe,  18  How.  105,  15  L.  Ed.  299.  It  is  eminently  proper 
that  claimants  residing  within  its  jurisdiction  should  be 
relieved  from  the  expense  and  inconvenience  of  proving 
their  claims  in  other  jurisdictions,  and  that  provision 
should  be  made  for  securing  to  them  equality  of  distri- 
bution in  respect  to  the  whole  assets  of  the  corporation ; 
but  there  is  no  hard  and  fast  rule  to  control  the  discretion 
of  the  court  in  making  such  distribution  of  the  assets  as 
shall  be  just  to  all  creditors,  and  ultimately  effect  a 
ratable  distribution  of  all  the  property  of  the  corporation. 
Buswell  V.  Supreme  Sitting,  161  Mass.  224,  36  N.  E.  1065, 
23  L.  R.  A.  846;  Baldwin  v.  Hosmer,  101  Mich.  119,  59 
N.  W.  432,  25  L.  R.  A.  739." 

The  principles  above  set  forth  are  M-ell  established  by 
the  decisions  and  the  practice  is  quite  uniform.* 

4  Haydock  v.  Fisheries  Co.,  156  only  a  general  and  not  a  judgment 

Fed.  988.  creditor,  and  the  application  was 

When  a  corporation  has,  in  the  on  behalf  of  all  creditors,  the  cor- 

primary    proceedings,   waived    the  poration  can  not  raise  this  defense 

defense    that    the    applicant    was  against  a  similar  applicant  in  an- 


PRIVATE    CORPORATIONS. 


811 


§328.     Independent  Corporation  Receivers  of  Foreign  Corpo- 
rations. 

''In  the  absence  of  statute  a  corporation  can  not  be 
dissolved  by  judicial  decree  except  in  an  action  com- 
menced in  the  name  of  the  state  which  created  it."^  This 
quotation  states  a  universally  accepted  rule,  as  far  as 
the  control  of  courts  over  foreign  corporations  is  con- 
cerned. Sometimes  it  is  stated  to  the  effect  that  a  court 
can  not  wind  up  the  affairs  of  a  foreign  corporation  nor 
interfere  in  its  internal  affairs.  ' '  Its  corporate  existence, 
derived  from  another  sovereignty,  may  not  be  dissolved 
nor  the  internal  Avorkings  of  its  purely  corporate  ma- 
chinery controlled  or  regulated."-    However  courts  of 


ciliary  proceedings.  Walker  v. 
United  States  Light  &  Heating 
Co.,  220  Fed.  393. 

An  ex  parte  ancillary  appoint- 
ment, without  a  complaint  tiled  in 
the  ancillary  jurisdiction  and  on 
application  of  one  who  was  not 
a  party  to  the  primary  action  is 
erroneous.  There  should  be  an  in- 
dependent bill.  Greene  v.  Star 
Cash,  etc.,  Co.,  99  Fed.  656. 

The  primary  appointment  may 
be  by  a  state  court  and  the  an- 
cillary one  by  a  federal  court. 
Scaife  v.  Scammon  Inv.,  etc., 
Assn.,  71  Kan.  402,  80  Pac.  957; 
Shinney  v.  North  American  Sav- 
ings, etc.,  Co.,  97  Fed.  9. 

An  attorney  of  a  foreign  cor- 
poration, as  a  creditor,  may  apply 
for  an  ancillary  receivership, 
though  the  corporation  has  not 
complied  with  a  statutory  require- 
ment that  it  should  appoint  the 
commissioner  of  corporations  as 
its  attorney  upon  whom  process 
might  be  served.  Thornley  v.  J.  C 
Walsh  Co.,  200  Mass.  179,  86  N.  E 
255. 

Where  a  receiver  in  a  proceed- 


ing for  dissolution  has  been  ap- 
pointed in  the  court  of  the  domi- 
cile of  a  foreign  corporation,  the 
court  may  appoint  an  ancillary  re- 
ceiver to  distribute  its  assets 
located  in  the  foreign  jurisdiction. 
MacNabb  v.  Porter  Air,  etc.,  Co., 
44  App.  Div.  102,  60  N.  Y.  Supp. 
694. 

Where  it  is  shown  that  the 
affairs  of  a  corporation  have  been 
grossly  mismanaged  and  that  ap- 
plications for  a  receiver  have 
been  made  in  two  other  states  and 
also  a  federal  court,  the  court  will 
appoint  a  receiver  to  protect  its 
assets  in  the  state.  Williams  v 
United  Wireless  Telegraph  Co., 
131  N.  Y.  Supp.  41. 

1  Low  V.  R.  P.  K.  Pressed  Metal 
Co.,  91  Conn.  91,  99  Atl.  1. 

2  McKinney  v.  Landon,  209  Fed. 
300,  126  C.  C.  A.  226.  See,  also, 
Sidway  v.  Missouri  L.  &  L.  Stock 
Co.,  101  Fed.  481;  Federal  Union 
Surety  Co.  v.  Flemister,  95  Ark. 
389,  130  S.  W.  574;  Dickey  v. 
Southwestern  Surety  Ins.  Co.,  119 
Ark.  12,  Ann.  Cas.  1917B,  634,  173 
S.  W.  3PS;   Heitkamp  v.  American 


812 


LAW    OF    RECEIVERS. 


equity  clo  appoint  ''receivers  of  the  assets"  of  foreign 
corporations  located  within  their  jurisdiction.  Some- 
times the  right  to  do  so  is  based  upon  statutory  authori- 
zation—either a  statute  expressly  relating  to  foreign  cor- 
porations, or  one  relating  to  corporations,  the  term 
corporations  being  unmodified  and  construed  to  include 
foreign  as  well  as  domestic  corporations.^    It  is  generally 


Pigment  &  Chemical  Co.,  158  111. 
App.  587;  Edwards  v.  Schillinger, 
245  111.  231,  137  Am.  St.  Rep.  308,  33 
L.  R.  A.  (N.  S.)  895,  91  N.  E.  1048 
(affirming  148  111.  App.  227); 
Stockley  v.  Thomas,  89  Md.  663,  43 
Atl.  766;  Hallenberg  v.  Greene,  66 
App.  Div.  590,  73  N.  Y.  Supp.  403. 
Equity  will  not  decree  what  it 
can  not  enforce  and  therefore  will 
not  appoint  a  receiver  to  examine 
the  books  of  a  foreign  corporation 
when  it  can  not  empower  its  re- 
ceiver to  do  so.  State  ex  rel.  Min- 
nesota Mutual,  etc.,  Co.  v.  Denton, 
229  Mo.  187,  138  Am.  St.  Rep.  417, 
129  S.  W.  709. 

Where  there  is  no  showing  of 
insolvency  and  no  receiver  has 
been  appointed  over  the  corpora- 
tion in  the  state  of  its  domicile,  a 
receiver  should  not  be  appointed 
over  it  at  the  instance  of  minority 
stockholders.  Parks  v.  United 
States,  etc..  Corporation,  140  Fed. 
160. 

3  In  Holshouser  Co.  v.  Gold  Hill 
Copper  Co.,  138  N.  C.  248,  70 
L.  R.  A.  183,  50  S.  E.  650,  under 
the  statutes  of  North  Carolina  a 
suit  was  commenced  by  creditors 
against  a  foreign  corporation,  own- 
ing property  in  the  state  and  doing, 
business  therein,  to  have  a  re- 
ceiver take  charge  of  its  assets 
and  apply  them  under  the  orders 
of  the  court  to  the  payment  of  its 


debts.  It  was  alleged  that  the 
corporation  had  suspended  its 
ordinary  business  for  want  of 
funds  to  carry  it  on  and  that 
numerous  judgments  and  attach- 
ments had  been  docketed  and 
levied  on  its  property.  The  court 
regarded  the  assets  as  a  trust  fund 
for  the  payment  of  the  debts  of 
the  corporation  and  allowed  non- 
resident creditors  to  file  their 
claims  against  the  corporation. 

Under  the  statute  the  courts  of 
the  state  are  authorized  to  appoint 
receivers  to  take  charge  of  the 
property  of  foreign  corporations  lo- 
cated in  the  state,  "at  the  instance 
of  any  stockholder,  or  creditor, 
when  the  directors  or  other  officers 
of  the  corporation  are  jeopardizing 
the  rights  of  stockholders  or  cred- 
itors by  grossly  mismanaging  the 
business,  or  by  committing  acts 
ultra  vires,  or  by  wasting,  mis- 
using or  misapplying  the  property 
or  funds  of  the  corporation."  Van 
Vleet  V.  Evangeline  Oil  Co.,  129 
La.  406,  56  So.  343. 

The  following  are  also  instances 
of  appointing  receivers  over  for- 
eign corporations  under  the  ex- 
press provisions  of  statutes.  Rittle 
V.  J.  L.  Owens  Mfg.  Co.,  136  Minn. 
93,  161  N.  W.  401;  MacNabb  v. 
Porter  Air-Lighter  Co.,  44  App. 
Div.  102,  60  N.  Y.  Supp.  694;  Swing 
V.  Bentley  &  Gerwig  Furniture 
Co.,   45  W.  Va.   283,   31  S.  E.   925. 


PRIVATE    CORPORATIONS.  813 

recognized,  however,  that  courts  of  equity  have  inherent 
power  to  take  such  action.  This  view  of  the  matter  is 
expressed  in  a  case  decided  by  the  Supreme  Court  of 
Errors  of  Connecticut.-'  At  the  instance  of  certain  stock- 
liolders  a  receiver  was  appointed  by  a  Connecticut  court, 
to  take  charge  of  the  local  assets  of  a  New  York  corpora- 
tion. Proceedings  went  to  the  point  of  a  sale  of  prac- 
tically all  of  the  assets.  In  the  meantime  a  domestic  re- 
ceiver had  been  appointed  by  a  New  York  court.  This 
receiver  intervened  in  the  Connecticut  court;  asked  to 
have  all  of  the  proceedings  theretofore  taken  annulled, 
as  being  void  for  want  of  jurisdiction,  and  himself  ap- 
pointed as  ancillary  receiver.  Affirming  an  order  sustain- 
ing a  demurrer  to  this  petition  the  Supreme  Court,  speak- 
ing through  Mr.  Justice  Beach,  said : 

''Courts  of  equity  have,  in  the  absence  of  statutory 
authority,  been  unwilling  to  appoint  receivers  of  corpora- 
tions in  liquidation  proceedings  at  the  instance  of  private 
suitors,  lest  they  should  by  indirection  accomplish  all  the 
practical  consequences  of  a  technical  dissolution  of  the 
corporation.    Penna.  Steel  Co.  v.  N.  Y.  City  R.  R.  Co., 

A  resident  stockholder  of  a  for-  The  court  is  allowed  to  exercise 

eign  corporation,  who  claims  that  its  discretion  as  to  the  manner  of 

a  transfer  of  corporate  assets  has  protecting  local  creditors  in  their 

been     fraudulent,     may     maintain  rights,    according    to    the    circum- 

an  action  for  a  receiver  and  gt^n^es  of  each  individual  case, 
other  equitable  relief.    Whitman  v 


It  may  retain  the  funds  until  the 
proportionate  shares  of  the  local 
creditors    have    been    ascertained 


Holmes  Pub.  Co.,  33  Misc.  Rep.  47, 
68  N.  Y.  Supp.  167. 

Where  there  is  a  sufficient  peti- 
tion for  the  purpose,  a  court  may  ^nd  these  shares  decreed  and  paid 
appoint  a  receiver  of  property  o"t  of  the  local  assets  before  trans, 
within  the  District  of  Columbia  terring  the  funds  to  the  domicil- 
belonging  to  a  foreign  corporation,  iary  administration  or  their  rights 
although  the  corporation  may  not  protected  in  some  other  manner 
be  doing  business  therein  at  the  best  suited  to  the  circumstances 
time,  and  to  that  extent  proceed  of  the  individual  case.  Brunner  v. 
upon  the  substituted  notice  pro-  York  Bridge  Co.,  78  W.  Va.  702, 
vided     by     statute     in     analogous  ^^  S.  E.  233. 

cases.       Mitchell     Mining    Co.    v.  -i  Low  v.  R.  P.  K.  Pressed  Metal 

Emig,  35  App.  D.  C.  527.  Co.,  91  Conn.  91,  99  Atl.  1. 


814  LAW    OF    RECEIVERS. 

198  Fed.  721, 117  C.  C.  A.  503.  As  a  result  of  tliis  judicial 
caution  expressions  may  be  found  in  some  text-books  and 
decisions  questioning  whether  equity  has  any  jurisdiction 
at  all  to  appoint  receivers  over  corporations  for  the  pur- 
pose of  administering  the  corporate  assets,  in  actions 
commenced  by  private  suitors,  unless  specially  authorized 
by  statute  to  wind  up  the  business  of  the  corporation  and 
terminate  its  corporate  existence.  See  Penna.  Steel  Co. 
V.  N.  Y.  City  E.  E.  Co.,  supra,  where  the  development  of 
the  jurisdiction  of  equity  to  appoint  receivers  of  corpo- 
rations is  outlined.  These  authorities  do  not  lay  down  the 
broad  generalization  that  equity  has  no  inherent  juris- 
diction over  the  subject-matter.  On  the  contrary,  courts 
of  equity  frequently  appoint  receivers  in  liquidation  over 
corporations  without  statutory  authority.  As  pointed  out 
by  Judge  Noyes  in  Penna.  Steel  Co.  v.  N.  Y.  City  R.  R. 
Co.  supra,  exceptions  to  the  so-called  rule  have  been 
evolved  which  are  in  some  aspects  as  broad  as  the  rule 
itself.  The  particular  exception  to  which  he  refers  in 
that  opinion  is  in  the  case  of  creditors'  bills.  Another  ex- 
ception is  in  the  case  of  foreclosures  of  corporate  mort- 
gages.^ Still  another,  which  arises  out  of  the  necessities 
of  the  case,  is  in  the  appointment  of  receivers  of  the 
property  of  foreign  corporations  carrying  on  business 
within  the  forum.  In  the  latter  class  of  cases  the  local 
court  is  necessarily  without  authority,  statutory  or  other- 
wise, to  dissolve  the  corporation;  and  since  the  statutes 
of  the  forum  in  regard  to  corporate  receiverships  gener- 
ally relate  to  domestic  corporations  only,  courts  of 
equity,  in  dealing  with  receiverships  over  foreign  corpo- 
rations, have  in  point  of  fact  exercised  their  inherent 
powers  as  courts  of  chancery. 

"The  plaintiff  relies  upon  authorities  holding  that  be- 
cause the  courts  of  one  state  can  not  decree  the  dissolu- 

5  See  §  309,  note  9,  supra,  foi-  a  quotation  from  Judge  Noyes  opinion 
on  this  subject. 


PRIVATE    CORPORATIONS.  815 

tion  of  corporations  created  by  another  state,  they  will 
not  entertain  an  original  action  in  the  nature  of  a  stock- 
liolders'  suit  to  wind  up  the  business  of  a  foreign  corpo- 
ration. Eepublic  Mountain  Silver  Mines  v.  Brown,  58 
Fed.  644,  7  C.  C.  A.  412,  24  L.  R.  A.  776;  Sidway  v. 
Missouri  Land  &  Live  Stock  Co.  (C.  C),  101  Fed.  481; 
Maguire  v.  Mtg.  Co.  of  America  et  al,  203  Fed.  858,  122 
C  C.  A.  83.  Here  again  may  be  found  expressions  tend- 
ing to  support  the  plaintiff's  claim  that  the  courts  of  one 
8tate  are  absolutely  without  original  jurisdiction  to  wind 
up  the  local  business  of  a  foreign  corporation  at  the 
instance  of  stockholders ;  but  the  common  practice  of 
appointing  so-called  ancillary  receivers  in  such  cases 
demonstrates  that  courts  do  have  jurisdiction  over  the 
subject-matter  of  winding  up  the  local  business  of  foreign 
corporations  in  receivership  proceedings,  whether  in  a 
stockholders'  suit  or  upon  a  creditors'  bill.  It  would  be 
an  intolerable  proposition  to  assert  that  any  local  busi- 
ness was  beyond  the  original  equity  jurisdiction  of  our 
courts  merely  because  it  was  conducted  by  a  foreign  cor- 
poration. The  principle  that  courts  will  not  interfere  in 
what  are  vaguely  called  the  internal  affairs  of  a  foreign 
corporation  must  yield  to  the  larger  and  more  important 
principle  that  all  who  choose  to  engage  in  business  within 
the  state,  whether  under  a  corporate  franchise  or  not, 
necessarily  subject  such  business  to  the  jurisdiction  of 
the  courts  as  fully  as  if  it  were  conducted  by  bur  own 
citizens  or  corporations.  It  is,  however,  unnecessary  to 
argue  the  point  further,  for  the  plaintiff  himself,  by  ap- 
plying to  be  appointed  as  ancillary  receiver,  admits  that 
the  Superior  Court  for  Fairfield  county  has  power  to  ap- 
point an  ancillary  receiver,  of  the  local  business  of  this 
New  York  corporation  for  the  purpose  of  winding  up  the 
local  business ;  and  his  contention  that  it  has  power  to 
appoint  an  ancillary  receiver,  but  not  an  original  receiver 
for  that  purpose,  or  in  other  words,  that  it  had  no  juris- 
diction to  appoint  any  receiver  at  all  for  that  purpose 


816  LAW    OF    RECEIVERS. 

until  the  courts  of  New  York  had  first  appointed  a  general 
receiver  in  winding  up  proceedings  at  the  domicile  of  the 
corporation,  is  manifestly  inconsistent  with  the  indepen- 
dent sovereignty  of  the  state  of  Connecticut.  It  may  be 
the  better  practice,  as  it  is  the  usual  practice,  for  the 
domiciliary  receiver  to  be  first  appointed ;  but  it  is  self- 
evident  that  the  jurisdiction  of  a  Connecticut  court  to 
wind  up  a  Connecticut  business  in  receivership  proceed- 
ings must  be  derived  wholly  and  exclusively  from  the 
state  of  Connecticut." 

§  329.    General  Circumstances  and  Conditions  for  Appointment. 

Although  corporate  property  taken  over  by  a  corpora- 
tion receiver  must  be  held  for  the  benefit  of  all  parties 
interested  therein,  the  power  of  the  court  to  take  control 
of  the  local  assets  of  a  foreign  corporation  is  usually 
invoked  for  the  special  benefit  of  local  creditors.^  A 
receiver  of  a  foreign  corporation  will  be  appointed  at 
the  instance  of  a  creditor  or  a  stockholder  and  on  much 
the  same  grounds,  or  under  the  same  circumstances,  as 
a  receiver  of  a  domestic  corporation.  There  must  be  a 
showing  of  insolvency,  mismanagement,  official  neglect, 
and  the  like,  sufficiently  serious  to  have  caused  injury  or 
to  threaten  injury  to  those  on  whose  behalf  the  receiver- 
ship is  requested.^ 

1  Scattergood  v.  American  Pipe,  2  Shinney    v.    North    American 

etc.,  Co.,  247  Fed.  712;  Irwin  v.  Savings,  Loan  &  Building  Co.,  97 
Granite  State,  etc.,  Assn.,  56  N.  J.  Fed.  9;  Blalje  v.  McClung,  172  U.  S. 
Eq.  244,  38  Atl.  680;  Hallenberg  239,  43  L.  Ed.  432,  19  Sup.  Ct.  165; 
Greene,  66  App.  Div.  590,  73  Summit  Silk  Co.  v.  Kinston  Spin- 
ning Co.,  154  N.  C.  421,  Ann.  Cas. 
1912A,  897,  70  S.  E.  820;  Reusens 
V.  Manufacturing  &  Selling  Co.  of 
appointed  at  the  instance  of  a  non-  America.  99  App.  Div.  214,  90  N.  Y. 
resident  stockholder,  the  property  Supp.  1010;  Walter  v.  F.  E.  Mc- 
will  be  held  until  the  claims  of  Alister,  21  Misc.  Rep.  747,  27  Civ. 
domestic  creditors  are  satisfied.  Proc.  R.  33,  48  N.  Y.  Supp.  26; 
Walter  v.  F.  E.  McAlister  Co.,  21  Pacific  Coast  Coal  Co.  v.  Esary, 
Misc.  Rep.  747,  48  N.  Y.  Supp.  26.       85  Wash.  448,  148  Pac.  579;    Scat- 


V 

N.  Y.   Supp.  403.     Although  a  re- 
ceiver of  a  foreign  corporation  is 


PRIVATE    CORPORATIONS. 


817 


As   in   other  cases,   such  a  receivership  will  not  be 
created  when  there  is  a  legal  or  less  drastic  equitable 


tergood  v.  American  Pipe,  etc.,  Co., 
247  Fed.  712. 

Where  a  foreign  corporation  has 
its  principal  place  of  business 
within  the  state,  it  is  not  immune 
from  the  supervising  control  of  the 
courts  of  equity  of  that  state. 
State  ex  rel.  Wurdeman  v.  Rey- 
nolds, 275  Mo.  113,  204  S.  W.  1093. 
Under  a  proper  showing  courts 
of  equity  of  the  District  of  Colum- 
bia may  appoint  receivers  of  prop- 
erty within  the  district  belonging 
to  foreign  corporations,  notwith- 
standing acts  of  Congress  forbid- 
ding them  to  appoint  receivers  of 
foreign  corporations.  Barley  v. 
Gittings,  15  App.  D.  C.  427. 

On  a  proper  showing  a  receiver 
of  a  foreign  corporation  may  be 
appointed  when  it  appears  that  its 
domiciliary  affairs  have  been 
wound  up  and  the  domiciliary  re- 
ceiver discharged.  Culver  Lumber 
&  Mfg.  Co.  V.  Culver,  81  Ark.  102, 
118  Am.  St.  Rep.  17,  99  S.  W.  391; 
Holbrook  v.  Ford,  153  111.  633,  46 
Am.  St.  Rep.  917,  27  L.  R.  A.  324, 
39  N.  E.  1091. 

The  appointment  of  a  receiver 
of  a  foreign  corporation  at  the  in- 
stance of  a  creditor  and  with  the 
consent  of  the  corporation,  can 
not  be  collaterally  attacked.  Hor- 
ton  V.  Thomas  McNally  Co.,  155 
App.  Div.  322,  140  N.  Y.  Supp.  357. 
An  action  looking  to  the  appoint- 
ment of  a  receiver  of  a  foreign 
corporation  can  not  be  maintained 
on  the  basis  of  a  cause  of  action 
that  arose  against  the  corporation 
out  of  the  state.  Fenkart  v.  Bode- 
mann,  64  Misc.  Rep.  Us,  118  N.  Y. 
Supp.  1. 

I  Rec— 52 


Certain  statutes  giving  to  the 
Attorney  General  or  stockholders 
the  right  to  have  receivers  of  for- 
eign corporations  appointed  are 
not  exclusive  so  as  to  deny  to  a 
creditor  the  right  to  have  a  re- 
ceiver appointed  over  the  local 
assets  of  a  foreign  corporation. 
Popper  V.  Supreme  Council,  etc.,  61 
App.  Div.  405,  70  N.  Y.  Supp.  637. 

Where  a  corporation  is  organ- 
ized under  one  state  but  its  offi- 
cers, who  are  in  control  of  its 
assets,  are  residents  of  another 
state,  and  the  corporation  is  in 
process  of  dissolution  in  the  state 
of  its  creation,  but  the  officers, 
who  are  insolvent,  have  property 
belonging  to  it  in  the  state  in 
which  they  reside,  the  court  of  the 
latter  state  will  at  the  instance  of 
stockholders  in  its  own  jurisdic- 
tion appoint  a  receiver  to  pre- 
serve the  property  since  the  stock- 
holders are  remediless  in  the  state 
of  the  corporation's  legal  residence 
and  the  property  is  within  the 
jurisdiction  of  the  court.  Redmond 
V.  Hoge,  3  Hun  (N.  Y.)  171. 

And  under  statutes  so  permit- 
ting the  court  may  appoint  a  re- 
ceiver over  the  property  belonging 
to  a  foreign  corporation  at  the  in- 
stance of  its  judgment  creditors 
for  the  purpose  of  preserving  it 
for  the  benefit  of  stockholders  and 
other  creditors.  Murray  v.  Van- 
derbilt,  39  Barb.  (N.  Y.)  140;  De 
Bemer  v.  Drew,  57  Barb.  (N.  Y.) 
438. 

But  the  court  will  not  appoint  a 
receiver  for  a  foreign  corporation 
where  it  has  no  property  in  the 
state    where    the    appointment    is 


818 


LAW    OF    RECEIVERS. 


remedy  available  to  the  applicant  nor  on  an  insufficient 
showing  of  facts.  Wrongs  that  may  be  corrected  through 
the  corporation  will  not  be  remedies  through  a  receiver- 
ship. Facts,  not  conclusions,  must  be  pleaded,  and  the 
pleading  must  be  positive  and  explicit.^  A  receivership 
will  not  be  conducted  for  the  mere  purpose  of  finding 
wliether  a  receiver  can  conduct  it  more  profitably  than 
has  the  corporation  itself,^  nor  as  a  real  estate  promo- 
tion.^ A  receiver  will  not  be  appointed  over  the  local 
assets  of  a  foreign  corporation  that  has  been  dissolved 
and  against  which  an  action  can  not  be  maintained."^ 


sought.  Such  a  receiver  does  not 
take  title  to  debts  due  from  non- 
residents even  though  they  may  be 
payable  within  the  state.  Hol- 
brook  V.  Ford,  153  111.  633,  46  Am. 
St.  Rep.  917,  27  L.  R.  A.  324,  39 
N.  E.  1091.  A  receiver  of  a  foreign 
corporation  will  not  be  appointed 
where  his  appointment  would 
serve  no  useful  purpose  and  would 
in  fact  be  against  the  interests  of 
citizens  of  the  forum.  Thornley  v. 
Walsh  Co.,  200  Mass.  179,  86  N.  E. 
355;  Borton  v.  Brines-Chase  Co., 
175  Pa.  St.  209,  34  Atl.  597. 

If,  however,  a  judgment  creditor 
has  obtained  his  judgment  in  the 
state  in  which  the  corporation  was 
created  and  also  obtained  a  re- 
ceiver in  that  jurisdiction  in  aid 
of  his  judgment  but  the  corpora- 
tion has  transferred  its  property 
to  a  corporation  in  another  state 
without  any  consideration  other 
than  shares  of  stock  in  the  latter 
corporation,  the  courts  of  the  state 
of  the  latter  corporation  will  ap- 
point a  receiver  in  aid  of  the  judg- 
ment. Barclay  v.  Quicksilver  Min. 
Co.,  9  Abb.  Prac.  N.  S.  (N.  Y.)  283. 
The  provisions  of  R.  L.  1905, 
§  3173,  authorizing  the  appoint- 
ment of  a  receiver  of  "the  stock, 


property,  things  in  action  and 
effects"  of  a  company  applies  to 
property  in  the  state  belonging  to 
a  foreign  corporation.  Rittle  v. 
J.  L.  Owens  Mfg.  Co.,  136  Minn. 
93    161  N.  W.  401. 

3  Parks  V.  United  States  Bank- 
ers' Corp.,  140  Fed.  160;  North 
American  Land  &  Timber  Co.  v. 
Watkins,  109  Fed.  101,  48  C.  C.  A. 
254;  Forsell  v.  Pittsburg  &  Mon- 
tana Copper  Co.,  42  Mont.  412,  113 
Pac.  479;  Phillip  v.  Sonora  Cop- 
per Co.,  90  App.  Div.  140,  86  N.  Y. 
Supp.  200. 

4  Leary  v.  Columbia  River  & 
P.  S.  Nav.  Co.,  82  Fed.  775. 

5  American  Tribune  New  Colony 
Co.  V.  Schuler,  34  Tex.  Civ.  App. 
560,  79  S.  W.  370;  North  American 
Land,  etc.,  Co.  v.  Watkins,  109  Fed. 
101,  48  C.  C.  A.  254. 

6  Fenton  v.  Lumberman's  Bank, 
1  Clarke  Ch.  (N.  Y.)  286;  Droppel- 
man  v.  Illinois  Surety  Co.,  95 
Wash.  476,  L.  R.  A.  1917D,  1032, 
164  Pac.  70. 

Where  a  stockholder  joins  in  a 
petition  at  the  domicile  of  a  cor- 
poration for  its  dissolution  and  its 
dissolution  is  decreed  and  its  di- 
rectors become  trustees  to  wind  up 
its  affairs,  he  can  not  afterwards 


pnlVATE   CORPORATIONS. 


§330.    When  Receivership  in  Ancillary  Jurisdiction  May  Be 
Considered  a  Primary  One. 
Wliere  a  corporation  has  had  its  principal  place  of 
business  and  most  of  its  property  in  a  jurisdiction  other 
than  that  in  .vhieh  it  ^vas  created  a  receivership  created 
in  the  former  jurisdiction,  ^vith  the  consent  of  the  coi- 
floration,  may  be  treated  as  the  primary  receivership,  tor 
the  purpose  of  winding  up  its  affairs,  and  all  others  may 
be  regarded  as  ancillary.    In  such  a  case  it  may  be  con- 
sidered that  the  fact  that  the  proceeding  was  not  begun  in 
the  domiciliary  jurisdiction  was  a  defense  that  the  cor- 
poration could  and  did  waive.-     The  assump  lou  by  a 
court  of  jurisdictional  authority  over  all  of  the  assets, 
tangible  and  intangible,  of  a  foreign  coi^oration  within 
the  iurisdiction  of  the  court,  coupled  with  an  actual  pos- 
sLn,  through  its  receiver  of  all  the  tangible  asses 
within  such  jurisdiction,  and  so  far  as  appears   all  si^h 
assets  existing  anywhere,  carries  with  it  the  ng^t  to  -n^ 
trol  an  intangible  right  of  action  of  the  company  for  a 
di°4rsion  of  a  trust  fund,  and  excludes  the  nght  of  a 
receiver  subsequently  appointed  in  the  state  of  mcorpo- 
ration  to  maintain  a  suit  in  the  same  cause  of  action.- 

Where  a  foreign  corporation  carries  on  its  principal 
business  in  another  state  where  a  large  number  of  sub- 
sidiary corporations  which  it  owned  and  controlled  were 
chartered  and  their  plants  located,  and  becomes  finan- 
cially embarrassed,  a  receiver  may  be  appointed  by  tl  e 
Federal  Court  for  it  in  the  state  where  it  so  conducts  its 
principal  business  upon  the  petition  of  a  stockholder  and 
an  answer  of  the  corporation  itself  admitting  the  receiv- 

.ave  a  receiver  appointed  in  an-  -  ^"^^^V^^^^'^  "^"  ^  "^^""^ 

other  state  even  tho,,gh  the  pro,.  '"':^ZT^-  p  eton,  218  Fed.  101. 

Prtv  of  the  corporation  is  m  the  -  i^iveiy  v.  r  -,<q  tt    q 

?  :f       J«tP       Black    V     Sullivan  citing  Porter  v.   Sabin,  149  U.   S 
latter    state.      Black    v.  ^^^^  ^^  ^^^^^    ^^    ^^^^^  3, 

Timber  Co.,  147   Ala.   3-7.  ^    ^^    ^^^     ^^^^^^  ^    ^^^^^^  212 

''I  Lewis      V.      American      Naval      U.  S.  at  pa.e  129.  29  Sup.  Ct.  230. 
Stores  Co.,  119  Fed.  391;   Walker      53  L.  Ed.  435. 


820 


LAW    OP    RECEIVERS. 


ership  facts  set  forth  in  the  petition.  Although  insol- 
vency was  not  alleged,  temporary  embarrassments 
through  inability  to  borrow  money  or  sell  its  securities 
under  the  existing  financial  market  conditions  was  set 
forth  together  with  the  fact  that  the  corporation  was 
interested  in  numerous  public  utility  corporations  which 
should  be  maintained  as  going  concerns.^ 


3  Scattergood    v.    Am.     Pipe    & 
Const.  Co.,  249  Fed.  23. 

In  the  above  case  the  court  said: 
"Under  facts  like  the  foregoing, 
does  a  District  Court  in  Pennsyl- 
vania have  power  to  appoint  a  re- 
ceiver for  a  foreign  corporation? 
In  our  opinion  the  answer  should 
be  yes;  the  reason  being  that  the 
law  of  the  state  as  interpreted  by 
its  highest  tribunal  has  given  that 
power  to  the  local  courts,  and 
therefore  according  to  the  estab- 
lished rule  a  similar  power  may 
be  exercised  by  the  Federal  courts 
within  the  state.  Clark  v.  Smith, 
13  Pet.  195,  10  L.  Ed.  123;  and 
citations  in  3  Rose's  Notes  (Rev. 
Ed.)  399.  Among  the  Pennsyl- 
vania cases  may  be  mentioned 
Bank  v.  Construction  Co.,  242  Pa. 
269,  89  Atl.  76,  where  the  state 
courts  exercised  jurisdiction  over 
a  New  Jersey  corporation  'with 
a  principal  office  in  Philadelphia, 
engaged  largely  in  building  rail- 
roads and  in  public  contracts,'  set- 
tled its  affairs,  and  wound  up  its 
business;  and  Blum  Bros.  v.  Girard 
Bank,  248  Pa.  148,  93  Atl.  940,  Ann. 
Cas.  1916D,  609,  where  the  com- 
mon pleas  court  appointed  receiv- 
ers for  a  New  Jersey  corporation 
doing  a  mercantile  business  in 
Philadelphia,  although  the  bill 
averred  that  the  corporation  was 
solvent,  being  in  possession  of  as- 
sets far  in  excess  of  its  liabilities, 


but  was  temporarily  embarrassed 
by  reason  of  a  stringent  money 
market  and  other  circumstances. 
In  the  latter  case  the  Supreme 
Court  maintains  the  right  to  ap- 
point receivers  in  the  case  of 
embarrassed  corporations  (making 
no  distinction  between  domestic 
and  foreign),     .     .     . 

"We  think  these  references  are 
enough  to  show  that  a  Pennsyl- 
vania court  (and  therefore  a  Fed- 
eral court  sitting  within  the  state) 
may  entertain  a  bill  to  appoint  re- 
ceivers for  a  corporation  finan- 
cially embarrassed;  and,  if  this  be 
true,  the  District  Court  had  juris- 
diction of  the  subject-matter  of  the 
present  bill  as  well  as  of  the  de- 
fendant's person.  Having  thus 
complete  jurisdiction  over  the 
cause,  it  had  authority  to  decide 
all  questions  arising  therein,  and 
its  rulings  can  be  questioned  only 
by  those  properly  parties  to  the 
dispute.  Among  such  parties  we 
do  not  think  the  appellant  is  to  be 
reckoned.  The  sole  ground  for 
his  effort  to  interfere  is  that  he  is 
a  stockholder;  but,  as  the  com- 
pany has  voluntarily  submitted  its 
person  and  the  subject-matter  of 
the  suit  to  a  tribunal  having  juris- 
diction in  both  respects,  we  do  not 
see  by  what  right  a  single  stock- 
holder relying  merely  on  that  char- 
lacter  can  attack  such  valid  and 
voluntary  action,  and  can  success- 


PRIVATE    CORPORATIONS. 


821 


R331.     Necessity  for  the  Existence  of  Property  in  the  Ancil- 
lary Jurisdiction. 
One  of  the  general  rules  of  receiverships  is  that  the  re- 
ceivership must  be  effective  for  some  purpose.    In  order 
for  it  to  be  useful  there  must  be  property  of  some  char- 
acter upon  which  it  can  act.  Hence,  where  a  foreign  cor- 
poration has  no  property  within  the  state  the  court  wil 
not  in  proceedings  supplementary  to  execution  appoint 
a  receiver  and  require  the  corporation  to  convey  its  prop- 
erty to  him '    It  is  not  necessary  that  the  foreign  cor- 
poration be  doing  business  in  the  state  provided  that  it 
has  property  therein.^    Where  a  corporation  is  a  subsid- 
iary of  a  foreign  corporation  and  has  a  claim  against  it 


fully  undertake  to  conduct  the  pro- 
ceedings as  if  he  and  not  the  com- 
pany were  the  real  defendant.  For 
example,  much  of  his  argument 
<)bjects  to  the  bill  as  if  it  had  been 
before  the  court  on  demurrer. 

"We  do  not  think  our  conclusion 
i-s  in  real  conflict  with  Maguire  v. 
Mortgage  Co.,  203  Fed.  858,  122  C. 
C.  A.  83,  where  the  Court  of  Ap- 
peals for  the  Second  Circuit  recog- 
nizes   that   if   state   statutes   'pro- 
vide   for    the    liquidation    of    the 
affairs  of  corporations  through  re- 
ceivers    ...     the  courts  within 
the  appropriate  jurisdictions  may 
enforce  them.'     But  no  such  stat- 
xite  was  there  presented,  and  this 
we  think  sufficiently  distinguishes 
the  case  now  before  us." 

The  voluntary  appearance  and 
answer  of  a  company  waives  the 
question  of  jurisdiction  of  the 
person.  Central  Trust  Co.  v.  Mc- 
George,  151  U.  S.  129,  38  L.  Ed.  98, 
14  Sup.  Ct.  286.  See  also  Lewis  v. 
American  Naval  Stores  Co.,  119 
Fed.  391. 


1  Bennett  v.  Valley  Min.  Co.,  142 
Iowa  53,  120  N.  W.  654. 

Where  there  is  no  property  in 
the  state  a  federal  court  will  not 
appoint  a  receiver  over  a  foreign 
corporation  at  the  instance  of  two 
directors   who  also   are   creditors, 
and  notwithstanding  that  the  other 
directors  consent  to  the  making  of 
the   appointment.    Kirwin  v.   Bos- 
ton,  etc.,  Min.   Co.,   171   Fed.   900. 
See,   also,   Bluefields   S.   S.   Co.  v. 
Steele,  184  Fed.  584,  106  C.  C.  A. 
564. 

Where  there  are  no  debts  owing 
by  a  corporation  organized  under 
the  laws  of  Maine,  a  federal  court 
of  New  York  will  not  appoint  a 
receiver  at  the  instance  of  stock- 
holders seeking  its  dissolution. 
Parks  V.  United  States,  etc.,  Corp., 
140  Fed.  160. 

2  A  receiver  in  supplementary 
proceedings  may  be  appointed  in 
New  York  over  property  in  the 
state  although  the  corporation  has 
no  agent  in  the  state  and  is  not 
engaged  in  doing  business  therein. 
Logan  V.  McCall  Pub.  Co.,  140 
N.  Y.  447,  35  N.  E.  655. 


822 


LAW    OP    RECEIVERS. 


wliicli  it  will  not  enforce   for   the   benefit  of  resident 
creditors,  the  court  may  appoint  a  receiver  to  do  so.^ 

§332.     Federal  Courts  Not  Affected  by  Diversity  Citizenship 
Rule. 

The  appointment  of  an  ancillary  receiver  by  a  federal 
court  in  a  case  in  which  it  already  has  a  primary  receiver- 
ship is  in  aid  of  the  primary  receivership  and  is  not  de- 
pendent upon  the  existence  of  the  same  jurisdictional 
facts  as  the  original  proceeding.  Hence,  the  right  of  a 
federal  court  to  appoint  an  ancillary  receiver  to  a  re- 
ceivership in  another  district  is  not  dependent  upon  the 
diversity  of  citizenship  of  the  parties  in  the  ancillary 
suit.^ 

§333.     General  Status  and  Rights  of  the  Primary  Receiver  in 
Another  Jurisdiction. 

An  ordinary  chancery  receiver  is  a  mere  custodian  for 
the  court  and  has  no  estate  in  the  property  and  for  that 
reason  comity  does  not  authorize  such  a  receiver  to  sue 
in  a  foreign  jurisdiction.^    But  although  such  a  receiver 


3  Where  a  corporation  w^hich  is 
a  subsidiary  of  another  corpora- 
tion in  a  foreign  jurisdiction,  has 
a  claim  against  the  primary  cor- 
poration but  refuses  to  enforce  it, 
the  court  will  at  the  instance  of  a 
minority  stockholder  in  the  sub- 
sidiary company,  appoint  a  re- 
ceiver over  it  for  the  purpose  of 
commencing  suit  and  the  receiver 
may  thereupon  have  an  ancillary 
receiver  appointed  to  sue  the  for- 
eign corporation  in  its  domicile. 
Bluefields  S.  S.  Co.  v.  Steele,  192 
Fed.  23,  112  C.  C.  A.  411. 

1  Bluefields  S.  S.  Co.  v.  Steele, 
184  Fed.   584,  106  C.  C.  A.  564. 

1  Great  Western  Min.,  etc.,  Co.  v. 
Harris,  198  U.  S.  561,  49  L.  Ed. 
1163,  25  Sup.  Ct.  770. 


See,  also,  the  leading  case  of 
Booth  V.  Clark,  17  How.  (U.  S.) 
322,  15  L.  Ed.  164. 

An  auxiliary  receiver  of  a  for- 
eign corporation  is  a  mere  cus- 
todian of  the  property  to  preserve 
the  same,  and  has  only  the  power 
conferred  by  the  order  appointing. 
Buckley  v.  Harrison,  10  Misc.  Rep. 
683,  31  N.  Y.  Supp.  999. 

"Comity  is  not  a  rule  of  law,  but 
one  of  practice,  convenience  and 
expediency.  It  persuades,  but  it 
does  not  command."  Bluefields 
S.  S.  Co.  V.  Steele,  184  Fed.  584, 
106  C.  C.  A.  564,  citing  Mast,  Foos 
&  Co.  V.  Stover  Mfg.  Co.,  177  U.  S. 
485,  488,  44  L.  Ed.  856,  20  Sup.  Ct. 
708. 


PRIVATE    CORPORATIONS. 


823 


lias  no  absolute  right  to  sue  outside  of  his  own  jurisdic- 
tion he  frequently  is  permitted  to  do  so.^ 

A  receiver  who  is  in  effect  an  assignee  of  a  foreign 
insolvent  corporation  in  the  state  wherein  the  corpora- 
tion has  its  domicile  has  a  standing  to  intervene  m  a 
foreign  jurisdiction  and  be  heard  on  a  proceeding  for  the 
appointment  of  a  receiver  of  the  property  of  the  cor- 
poration in  such  state.^^    Where  the  primary  receiver  is 
a  quasi  assignee  he  stands  in  the  position  of  the  corpora- 
tion itself  in  respect  to  its  property  and  will  be  permitted 
to  sue  in  other  jurisdictions  and  his  right  to  do  so  is 
protected  by  the  full  faith  and  credit  clause  of  the  federal 
constitution.^     Of  course,  if  the  o^^^ler  of  the  property 
has  transferred  the  title  to  the  property  to  the  receiver, 
he  has  the  same  rights  as  the  owner  to  sue  m  a  foreign 
jurisdiction.^ 


2  Barley    v.    Gittings,    15    App. 
D.   C.   427;    Metzner  v.   Bauer,  98 
Ind.  425;  McAlpin  v.  Jones,  10  La. 
Ann.    552;    Howarth   v.   Lombard, 
175  Mass.  570,  49  L.  R.  A.  301,  56 
N.  E.  888;  Comstock  v.  Frederick- 
son,  51  Minn.  350,  53  N.  W.  713; 
Falk  V.  James,  49  N.  J.  Eq.  484,  23 
Atl.    813;    Howarth  v.   Angle,   162 
N.  Y.  179,  47  L.  R.  A.  725,  56  N.  E. 
489;  Bagby  v.  Atlantic  M.  &  O.  R. 
Co.,    86    Pa.    St.    291;    Hazlett    v. 
Woodhead,    28   R.    I.    452,    67    Atl. 
736,  737;    Lycoming  Fire  Ins.  Co. 
V.  Wright,  55  Vt.  526;    Oilman  v. 
Ketcham,  84  Wis.  60,  36  Am.  St. 
Rep.  899,  23  L.  R.  A.  52,  54  N.  W. 
395;    Kirtley  v.  Holmes,  107  Fed. 
1,    46    C.    C.   A.    102,    52    L.    R.    A. 
738. 

In  Bluefields  S.  S.  Co.  v.  Steele, 
184  Fed.  584,  106  C.  C.  A.  564,  the 
court  said:  "W^here  a  court,  hav- 
ing jurisdiction  of  the  person  of  a 
defendant  corporation,  has  deter- 


mined by  its  decree  to  take  pos- 
session of  that  corporation's  prop- 
erty for  the  purpose  of  winding  up 
its    affairs,    and   has    appointed    a 
receiver  to  act  as  its  officer  in  that 
behalf,    such    receiver    has    often 
been  permitted,  in  cases  not  con- 
flicting  with   local   policy   or   the 
rights  of  local  creditors,  to  prose- 
cute suits  in  other  jurisdictions  for 
the   recovery   of   debts   or   assets. 
Kirtley  v.  Holmes,  107  Fed.  1,  46  C. 
C.  A.  102,  52  L.  R.  A.  738;  Hurd  v. 
Elizabeth,  41  N.  J.  L.  1;  Mabon  v. 
Ongley  Electric  Co.,  156  N.  Y.  196, 
50  N.  E.  805;   Lewis  v.  Clark,  129 
Fed.  570,  64  C.  C.  A.  138;  Converse 
V.  Mears  (C.  C),  162  Fed.  767."      . 
3  Buswell  V.  Supreme  Sitting  of 
Order  of  the  Iron  Hall,  161  Mass. 
224,  23  L.  R.  A.  846,  36  N.  E.  1065. 
i  Converse     v.     Hamilton,     224 
U.   S.   243,  Ann.   Cas.   1913D,   1292, 
56  L.  Ed.  749,  32  Sup.  Ct.  415. 

5lglehart  v.  Bierce,  36  111.  133; 
Graydon  v.  Church,  7  Mich.  36. 


824  LAW    OF    RECEIVERS. 

Tlie  exemption  from  being  sued  out  of  the  district  of 
its  domicile  provided  by  the  statute,  is  a  personal  privi- 
lege which  may  be  waived  and  which  is  waived  by  plead- 
ing to  the  merits.  x\nd  this  is  true  regardless  of  the 
fact  that  neither  the  plaintiff  nor  the  defendant  resides  in 
the  judicial  district  in  which  the  suit  is  brought.^ 

An  ancillary  receiver  will  not  be  appointed  where  the 
foreigTi  receiver  is  under  the  statutes  of  his  own  juris- 
diction vested  with  the  title  to  all  of  the  property  of  the 
corporation."^ 

§334.     General   Powers   and  Purposes   of  the   Ancillary  Re- 
ceivership. 

The  courts  of  a  state  proceed  upon  the  theory  that  they 
^vill  do  justice  to  its  own  citizens  so  far  as  it  can  be  done 
by  administering  upon  property  within  its  own  juris- 
diction and  will  yield  to  the  doctrine  of  comity  only  to 
the  extent  that  it  can  be  done  without  impairing  the 
remedies  or  lessening  the  securities  which  its  own  laws 
give  to  its  own  citizens.^ 

An  ancillary  receiver  should  not  transmit  the  assets  in 
his  jurisdiction  to  the  primary  receiver  until  provisions 
have  been  made  regarding  the  claims  of  creditors  in  the 
ancillary  proceeding. ^ 

6  Central  Trust  Co.  v.  McGeorge,  fields  S.  S.  Co.  v.  Steele,  184  Fed. 

151  U.  S.  129,  38  L.  Ed.  98,  14  Sup.  584,  106  C.  C.  A.  564. 

Ct.  286.  '  Chicago  Title,  etc.,  Co.  v.  Ger- 

Where   the   defendant  company  man  Ins.   Co.,  119   App.   Div.   347, 

in    a    suit    in    which    the    appoint-  104  N.  Y.  Supp.  253. 

ment  of  a  receiver  is  sought  in  a  i  Willitts  v.  Waite,  25  N.  Y.  577, 

district  which  is  not  the  residence  587. 

of  either  the  plaintiff  or  defendant,  2  Thornley  v.   J.   C.  Walsh   Co., 

appears  and  moves  to  vacate  the  200  Mass.  179,  86  N.  E.  355. 

appointment   upon   the   ground   of  The  ancillary  court  may  protect 

the  wrong  district  and  also  upon  its    local    creditors    in    respect    to 

grounds    going    to    the    substance  the  final  distribution  by  requiring 

and  merits  of  the  bill,  it  waives  the  representation  of  the  domicil- 

the   point   that  the   court   had   no  iary  administration  to  secure  them 

jurisdiction   of  its    person.      Blue-  by  a  bond  before  allowing  the  local 


PRIVATE.  COrxPURATIONS. 


825 


Where  an  application  in  an  ancillary  receivership  for 
a  distribntion  of  the  fund  in  court  might  affect  the  ulti- 
mate orderly  administration  and  just  distribution  of  the 
fund,  the  court  should  refer  the  matter  to  the  court  of 
primary  jurisdiction.  In  other  words,  to  secure  an  orderly 
and  just  distribution,  claims  and  assets  are  both  re- 
ferred to  the  primary  court  for  the  purpose  of  distribu- 
tion. But  from  this  it  does  not  follow  that  the  ancillary 
court  should  not  entertain  a  petition  by  a  creditor  within 
its  jurisdiction  seeking  merely  the  allowance  and  adjudi- 
cation of  his  claims.  Where  the  jurisdiction  is  exercised 
in  the  ancillary  proceedings  to  aid  in  preserving  the 
assets  in  order  that  the  ultimate  purpose  disclosed  by 
the  bill  may  be  accomplished,  those  claiming  to  be  cred- 
itors and  who  are  thus  deprived  of  the  right  to  proceed 
in  the  usual  way  ought  to  have  some  benefit  of  the  pro- 
ceedings, and  the  right  to  appear  in  the  district  of  their 
residence  and  establish  their  status  as  creditors  should 
be  accorded  them  unless  likely  to  cause  confusion  or  to 
embarrass  the  orderly  and  harmonious  administration  or 
distribution  of  the  estate.  The  determination  of  the  single 
question  whether  the  foreign  corporation  is  indebted  to 

assets  to  be  withdrawn  from  the  that  as  a  general  rule  ancillary  re- 
state. People  V.  Granite  State  ceivership  proceedings  should  be 
Provident  Assn.,  161  N.  Y.  492,  55  compared  to  conserving  the  prop- 
N.  E.  1053.  erty  of  the  corporation  within  the 

Courts  of  the  local  or  ancillary  jurisdiction  of  the  court  and  trans- 
jurisdiction  should  before  allowing  mitting  the  moneys  into  which  it 
a  domiciliary  receiver  or  other  rep-  may  be  converted  for  distribution 
resentative  of  such  corporation  to  in  the  original  or  primary  proceed- 
withdraw  the  funds  sequestrated  ing.  And  where  the  corporation 
there  protect  the  resident  domes-  is  a  purely  private  one  and  has 
tic  creditors  out  of  such  funds  or  no  public  duties  to  perform  and 
otherwise  to  the  extent  of  their  no  public  functions  to  serve,  the 
distributive  shares  in  the  whole  interference  of  a  court  with  its 
estate  of  the  insolvent  corporation.  affairs  should  be  confined,  as  far 
Brunner  v.  York  Bridge  Co.,  78  W.  as  possible,  to  the  strictly  legal 
Va.  702,  90  S.  E.  233.  purposes  of  receiverships,  leaving 

In  Way  v.   J.   H.   Way   &    Sons  its  business  affairs  to  those  most 

Co.,    216    Fed.    719,    it   was   stated  concerned. 


y26  LAW    OF    RECEIVERS. 

a  claimant  involves  no  considerations  affecting  tlie  pres- 
ent administration  of  the  property  and  especially  so 
where  no  claim  for  lien  or  preference  is  made.^ 

In  Massachusetts  the  rule  is  laid  down  that  in  an  an- 
cillary receivership  preference  will  not  be  given  to 
domestic  creditors  unless  it  appears  that  there  is  a  dan- 
ger of  discrimination  against  them  in  the  forum  of  the 
principal  receivership,  and  then  only  so  far  as  is  neces- 
sary to  counteract  such  discrimination.  And  the  court 
in  order  to  secure  equality  of  distribution  among  all 
creditors,  may  allow  foreign  creditors  to  prove  their 
claims  in  the  same  way  as  creditors  residing  in  Massa- 
chusetts were  allowed  to  prove  their  claims  in  the  prin- 
cipal proceedings.'^ 

It  must  be  noted,  however,  that  the  court  appointing 
an  ancillary  receivership  in  accordance  with  the  general 
rule  assumes  full  and  exclusive  jurisdiction  over  all  the 
property  of  the  receivership  within  the  limits  of  its 
jurisdiction.^ 

The  right  of  an  ancillary  receiver  to  take  possession 
of  the  property  of  the  corporation  which  is  the  subject  of 
the  receivership  is  derived  from  the  court  which  appoints 
him  and  is  not  a  result  of  mere  comity.  He  acts  in  respect 
to  such  property  in  accordance  with  the  directions  of  the 
court.® 

And  the  courts  of  a  foreign  state  are  not  permitted 
to  remove  from  another  state  property  belonging  to  a 

3  Pfahler  v.  McCrum-Howell  Co.,  ceiver  of  the  property  has  been 
197  Fed.  684.  appointed  and  has  duly  qualified, 

4  Thornley  v.  J.  C.  Walsh  Co.,  even  though  he  has  not  taken  ac- 
207  Mass.  62,  92  N.  E.  1007.  tual    possession    of   the    property, 

5  Reynolds  v.  Stockton,  140  U.  S.  and  in  such  circumstances  a  fed- 
254    35  L.  Ed.  464,  11  Sup.  Ct.  773.  eral  court  can  not  interfere.  Palmer 

o'sands  v.  E.  S.  Greeley  &  Co.,  v.  Texas,  212  U.  S.  118,  53  L.  Ed. 

88  Fed.  130,  31  C.  C.  A.  424.  435,    29    Sup.    Ct.    230.      See    also 

The  jurisdiction  of  a  state  court  Farmers'  Loan   &   T.  Co.  v.  Lake 

of  the  property  of  a  foreign  cor-  Street  Electric  Ry.  Co.,  177  U.  S. 

poration  attaches  as  soon  as  a  re-  51,  44  L.  Ed.  667,  20  Sup.  Ct.  564. 


PRIVATE    CORPORATIONS.  O-' 

debtor  without  the  approval,  directly  or  indirectly,  of  the 
courts  of  such  stateJ 

§  335.     Exclusive  Character  of  Jurisdiction  of  Primary  Receiv- 
ership Created  in  Place  Outside  of  Domiciliary. 

As  has  been  stated  before/  the  courts  of  a  state  or 
jurisdiction  wherein  a  foreign  corporation  is  doing  busi- 
ness or  owns  property  may,  under  certain  circumstances, 
place  a  receiver  over  its  property.     Such  a  receivership 
may  be  frequently  appointed  under  statutes  which  pro- 
vide that  where  a  foreig-n  corporation  doing  business 
within  the  state  becomes  unable  to  pay  its  obligations  m 
due  course  of  business  or  for  other  reasons  is  in  such  a 
condition  that  its   assets   should  be  preserved  for  the 
benefit  of  its  creditors,  the  court  may  appoint  a  receiver 
for  such  purpose.-     In  such  circumstances  it  sometimes 
happens  that  several  bills  will  be  filed  for  receiverships, 
one  in  a  state  court  and  another  in  a  federal  court,  and 
the  question  arises  which  court  has  acquired  jurisdiction 
in  the  matter.     The  rule  governing  cases  of  this  char- 
acter was  stated  by  Mr.  Justice  Day  in  an  important 
case,^  as  follows : 

"If  the  state  court  had  acquired  jurisdiction  over  the 
property  by  the  proceedings  for  the  appointment  of  its 
receiver,  and  had  not  lost  the  same  by  the  subsequent 
proceedings,  then,  upon  well-settled  principles,  often 
recognized  and  enforced  in  this  court,  there  should  be  no 
interference  with  the  action  of  the  state  courts  while  thus 
exercising  its  authorized  jurisdiction.  The  federal  and 
state  courts  exercise  jurisdiction  within  the  same  terri- 

7  Great  Western   Min.,  etc..  Co.  2  See  the  case  of  Holshouser  Co. 

V  Harris  198  U  S  561,  49  L.  Ed.  v.  Gold  Hill  Copper  Co.,  138  N.  C. 
1163  25  Sup.  Ct.  770;  Fowler  v.  248,  70  L.  R.  A.  183,  50  S.  E.  650. 
Osgood,  141  Fed.  20,  72  C.  C.  A.  Also  see  section  328  for  other  cases 
270   4  L   R   A    (N   S)  824;  Morrill  under  statutory  authorization. 

V  American."  etc'..  Bond  Co.,  151  3  Palmer  v.  Texas.  212  U.  S.  118, 
Pg^    305                                                         53  L.  Ed.  435,  29  Sup.  Ct.  230. 

1  See  §  327,  supra. 


828  LAW   OP    RECEIVERS. 

tory,  derived  from  and  controlled  by  separate  and  dis- 
tinct authority,  and  are  therefore  required,  upon  every 
principle  of  justice  and  propriety,  to  respect  the  jurisdic- 
tion once  acquired  over  property  by  a  court  of  the  other 
sovereignty.  If  a  court  of  competent  jurisdiction,  federal 
or  state,  has  taken  possession  of  property,  or  by  its  pro- 
cedure has  obtained  jurisdiction  over  the  same,  such 
property  is  withdrawn  from  the  jurisdiction  of  the  courts 
of  the  other  authority  as  effectually  as  if  the  property 
had  been  entirely  removed  to  the  territory  of  another 
sovereignty.  ...  If  the  courts  of  Texas  had  required 
jurisdiction  over  this  property  and  the  subsequent  pro- 
cedure amounted  to  simply  suspending  the  order  appoint- 
ing the  receiver,  then  we  are  of  opinion  that  the  federal 
court  had  no  right  to  intervene.  If  it  is  established  that 
the  state  court  had  acquired  jurisdiction  over  this  prop- 
erty bjefore  the  application  in  the  federal  court  was  made, 
the  court  of  the  state  had  the  right  to  determine  for 
itself,  wdnle  continuing  to  lawfully  exercise  its  prior  juris- 
diction, how  far  it  would  permit  any  other  court  to  inter- 
fere with  such  possession  and  jurisdiction." 

§  336,     What  Showing  Is  Necessary  to  Obtain  Appointment  of 
an  Ancillary  Receiver. 

The  decree  of  the  court  of  primary  jurisdiction  making 
the  appointment  of  the  receiver  is  evidence  in  other  juris- 
diction of  the  receivership  facts  contained  therein  but  the 
local  jurisdiction  has  the  right  to  determine  whether  these 
facts  require  the  appointment  of  a  receiver  and  the  re- 
ceiver appointed  by  it,  if  one  be  appointed,  is  its  officer 
and  subject  to  its  orders.^ 

While  the  judgments  and  decrees  of  other  courts  are 
entitled  to  full  faith  and  credit,  it  is  essential  in  order  to 
bring  the  question  of  whether  such  full  faith  and  credit 

1  Sands  v.  E.  S.  Greeley  &  Co.,  v.  United  Waterworks  Co.,  70  Fed. 
88  Fed.  130,  31  C.  C.  A.  424;   Rust       129,  17  C.  C.  A.  16. 


829 

rUIVATE    CORPORATIONS. 


l,ns  l)oen  accredited,  to  show  in  the  pleadings  befoie  he 
conrt  what  the  nature  of  the  jndgment  and  decree  of  sucU 
court  was  bv  way  of  proper  averments  showing  the  ^justi- 
fication of  the  appointment  of  an  ancillary  receiver.- 

In  a  leading  case  in  the  federal  court,=  in  speaking  of 
the  filing  of  a  hill  for  the  appointment  of  an  ancillary 
e  eiver  and  the  mode  of  procedure,  Judge  Lannuig  said : 
"Where  the  receiver  has  no  such  character,  oi  whc  e 
because  of  local  policy  or  the  rights  of  local  e-^'toi^  the 
rule  permitting  a  receiver  to  sue  -.^^^unsdict  on  other 
than  the  one  in  which  he  was  appomted  is  not  deemed 
appUcahle,  a  bill  may  be  filed  for  the  appointment  o    an 
aSlary     eceiver,  and,  on  a  proper  showing    such   a 
?ec    ver  will  be  appointed.   In  any  such  case  the  juns- 
d  ction  is  analogous  to  that  of  a  court  to  appoint  a  receiver 
on  a  proper  bill  in  a  suit  ancillary  to  another  suit  o   action 
pencUng  in  the  same  court.  In  a  suit  strictly  ancillary  to 
aLthe^  suit  pending  in  the  same  court,  no  subpcena  ai 
Zvonde.<hl  is  necessary.    The  parties  are  a  ready  in 
court.    The  service  of  a  rule  or  of  notice  is  all  that  is 
required  to  enable  the  court  to  proceed  with  the  ancillary 
2i    So   where  a  defendant  has  been  reg-ularly  brought 
nto  coui't  in  an  original  suit,  and  a  recei^ver  of  his  prop- 
erty has  been  appointed  in  that  suit,  another  court,  whose 
iurisdiction  is  invoked  in  aid  of  the  original  receivership, 
mav  proceed  on  the  service  of  a  rule  or  notice  merely. 
Sua  service  may  be  made  on  the  defendant  wherever  he 
is  found,  or  it  may  be  published,  as  is  ^e  practice  in  the 
United  States  Circuit  Court  for  the  District  o    liaine 
See  preliminary  statement  in  Conklin  v.  U.  S.  Shipbu.ld 
ta  '  Co.  (C.  C.  ,  123  Fed.  913,  and  Haydock  v.  Fisheries 
To    .'C    C  )    156  Fed.  988.     Having  been  once  brought 
into  a  court  which  has  regularly  acquired  jurisdiction  of 

.B.u.Se.ds  S.  S.  CO.  V.  Steele,      ,   =B,uefie,d,  S.  S.  Co.  v    Steele. 
,.  „_.    «i    lf,r,  C.  C.  A.  564.  184  Fed.  584.  106  C.  C.  A.  5b4. 


181  Fed.  584,  106  C.  C.  A.  564, 


830  LAW   OF    RECEIVERS. 

his  person  in  an  original  suit,  and  having  there  had  a 
decree  entered  against  him  appointing  a  receiver  to  take 
possession  of  all  his  property  wherever  situate,  the  court 
in  which  the  appointment  of  an  ancillary  receiver  is 
sought  will  take  jurisdiction  of  his  person  upon  the 
service  of  a  rule  or  notice,  precisely  as  if  the  original  suit 
were  pending  in  that  court.  Otherwise,  the  prevailing 
practice  in  the  federal  courts  of  appointing  ancillary  re- 
ceivers in  railroad  and  other  cases  of  insolvent  corpora- 
tions whose  property  extends  through  or  exists  in  differ- 
ent judicial  districts  and  states  is  wrong.  While  an 
ancillary  proceeding  of  the  kind  here  considered  will  be 
controlled  by  the  court  before  which  it  is  prosecuted,  and 
in  that  sense  is  an  independent  proceeding,  its  ultimate 
object  is  to  aid  the  purpose  of  the  original  suit,  and  in 
that  sense  it  is  ancillary.  Jurisdiction  in  such  an  ancillary 
suit  therefore  no  more  depends  on  diversity  of  citizenship 
than  it  does  in  a  suit  ancillary  to  an  original  suit  pending 
in  the  same  court.  It  depends  alone  on  the  existence  of 
an  original  suit  in  one  court  which  may  properly  be  aided 
by  proceedings  in  another  court.  .  .  .  But  the  court 
whose  aid  is  invoked  must  alone  determine  whether  the 
case  is  a  proper  one  for  the  appointment  of  an  ancillarj^ 
receiver.  It  can  not  act  intelligently,  and  therefore  can 
not  tell  wdiat,  in  comity,  it  ought  to  do  unless  reasonable 
information  has  been  communicated  to  it  concerning  the 
object  which  it  is  requested  to  aid.  It  follows  that  a  bill 
seeking  the  appointment  of  an  ancillary  receiver  should 
disclose  the  nature  of  the  proceeding  in  which  the  re- 
ceiver was  appointed  in  the  court  of  primary  jurisdic- 
tion." 


PRIVATE    CORPOKATIONS.  531 

11.    Administration  of  the  Estate. 

«    Fielaiion  of  Receiver  and  Officers  of  the  Corporation  to  the 

Estate. 

§337.     General  Relation  of  the  Receiver  to  the  Estate  and 
Court. 

As  pointed  out  in  an  earlier  portion  of  this  chapter/ 
the  distinctive  characteristic  of  a  receiver  appointed 
over  the  affairs  of  a  corporation  is  that  he  takes  posses- 
sion of  all  the  assets  of  the  corporation  to  preserve  and 
administer  them  for  the  benefit  of  all  persons  who  may.. 
be  interested  therein.  It  is  manifest  that  this  situation 
makes  many  differences,  as  far  as  the  necessary  powers 
and  duties  that  devolve  upon  him  are  concerned,  between 
such  a  receiver  and  any  of  the  receivers  appointed  for 
special  purposes  as  mentioned  in  preceding  cliapters. 

One  of  these  differences  lies  in  the  fact  that  the  corpo- 
ration receiver  must  have  in  mind  many  persons  in  addi- 
tion to  the  formal,  or  nominal,  parties  to  the  action.    The 
nominal  plaintiff  in  the  action  out  of  which  the  receiver- 
ship grows  may  be  a  single  stockholder  or  a  single  cred- 
itor; in  some   statutory  proceedings  the  plaintiff  may 
be  a  state  official,  such  as  the  attorney  general  or   a 
corporation  commissioner,  having  no  beneficial  interest 
in  the  assets  of  the  company  at  all.    Whoever  the  plain- 
tiff is,  so  far  as  beneficial  interests  in  the  property  are 
concerned,  he  acts  in  a  general  representative  capacity. 
The  action  calls  before  the  court  all  those  who  are  bene- 
ficiallv  concerned.    It  may  be  that  the  corporation  itself 
will  continue  to  be  interested  in  the  property  after  the 
receivership  has  been  closed,  although  many  of  the  statu- 
tory proceedings,  such  as  those  looking  toward  dissolu- 
tion of  the  corporation,  are  instituted  with  the  express 
purpose  of  ending  not  only  the  practical,  but  also  the 
technical,  existence  of  the  company.     The  receiver  then 

1  See  §  293,  supra. 


832  LAW    OF   RECEIVERS. 

represents,  or  acts  for  the  protection  of,  all  of  these 
parties,  both  nominal  and  real — the  corporation,  the 
stockholders,  and  the  creditors.  The  corporation,  of 
course,  is  always  a  formal  party.  Stockholders  are 
represented  by  the  corporation  and  in  that  way  are 
parties,  and  bound  by  the  proceedings,  even  if  they  do 
not  intervene  or  are  not,  in  some  other  way,  brought 
personally  before  the  court.  Lien  creditors  need  not  ap- 
pear and  are  not  bound  by  the  proceedings  if  their  in- 
terests are  not  brought  within  the  jurisdiction  of  the 
court  in  some  formal  way.  General  creditors  are  pre- 
sumed to  know  of  the  action,  are  usually,  though  in  a 
general  way,  given  notice  of  those  phases  of  the  proceed- 
ings in  which  they  are  particularly  interested,  such  as 
the  filing  and  the  allowance  of  claims,  and  are  bound 
by  the  proceedings.^ 

Administering  the  estate  of  a  so-called  private,  indus- 
trial or  commercial,  corporation^  through  a  receivership, 
usually  involves  conducting  the  corporate  business.  Re- 
ceiverships created  at  the  instance  of  stockholders  or 
creditors  on  the  score  of  dissensions  within  the  corpo- 
ration, or  mismanagement  on  the  part  of  the  directors,  or 
other  similar  cause,  are  usually  expected  to  terminate  in 
the  restoration  of  the  property  and  business  to  corporate 
control  and  it  is  necessary  to  preserve  and  hold  the  prop- 
erty and  business  together  until  the  situation  has  been 
prepared  for  such  an  outcome;  but  even  in  these  cases, 
iin  eventual  sale  of  the  assets  may  be  necessary.  Equity 
insolvency  proceedings  usually,  and  statutory  insolvency 
and  dissolution  proceedings  almost  always,  look  to  a  sale 
of  the  assets  and  a  transfer  thereof  to  another  owner. 
In  any  event,  where  a  sale  is  likely  or  bound  to  occur, 
it  is  realized  that  the  proceeds  of  a  sale  will  be  greater 
if  the  sale  is  that  of  a  going  rather  than  a  non-going  con- 

2  See  Guaranty  State  Bank,  etc.,  3  For  Railroads  and  Other  Pub- 

Co.  V.  Thompson  (Tex.  Civ.  App.),      lie  Utility  Corporations,  see  Chap- 
195  S.  W.  960.  ter  XIV,  infra. 


PRIVATE    COKPORATIOXS.  833 

cern.  The  rules  and  principles  that  have  been  developed 
with  reference  to  a  corporation  receivership  are  such  as 
are  equitably  designed  for  an  administration  whose  ulti- 
mate purpose  is  to  dispose  of  the  assets  as  a  whole  while 
the  business  is  in  full  running  order.  If  the  receivership 
stops  short  of  this  the  rights  of  all  interested  parties  are 
equitably  determined  and  protected  as  they  exist  at  the 
time  the  judicial  administration  closes. 

While  a  corporation  receivership  has  these  important 
peculiarities  there  are  still  many  respects  in  regard  to 
which  a  corporation  receiver  is  similar  to  any  other  re- 
ceiver. One  of  these  points  of  similarity  respects  the 
receiver's  relation  to  the  appointing  court.  This  point 
has  been  stated  as  follows:  "We  think  the  receiver  is 
not  an  assignee  of  the  corporation,  nor  a  person  claim- 
ing under  it,  in  the  ordinary  sense  of  the  terms,  or  within 
the  meaning  of  the  statute,  and  so  not  within  the  prohibi- 
tion. The  receiver  derives  his  authority  and  possessory 
rights  in  the  property  from  the  court  appointing  him,  and 
not  from  any  act  of  the  corporation.  Murtey  v.  Allen, 
71  Vt.  377,  45  Atl.  752,  76  Am.  St.  Rep.  779.  His  posses- 
sion of  the  property  is  the  possession  of  the  court  by  him 
as  its  officer.  Thompson  v.  Phoenix  Ins.  Co.,  136  U.  S. 
287,  34  L.  Ed.  408,  10  Sup.  Ct.  1019.  The  ordinary  chan- 
cery receiver  is  not  an  assignee,  but  a  ministerial  officer 
appointed  by  the  court  to  take  possession  of  and  preserve 
the  fund  or  property  in  litigation.  Quincy,  etc.,  R.  R. 
Co.  V.  Humphreys,  145  U.  S.  82,  36  L.  Ed.  632,  12  Sup.  Ct. 
787 ;  New  York,  etc.,  R.  R.  Co.  v.  New  York,  etc.,  R.  R. 
Co.  (C.  C.)  58  Fed.  268.  If  the  defendant  had  been  called 
upon  in  the  first  instance  to  answer  to  this  claim  in  a  suit 
in  which  the  corporation  was  named  as  the  plaintiff,  it 
would  not  have  been  a  suit  brought  by  the  corporation, 
but  a  suit  brought  in  the  name  of  the  corporation  by  one 
whose  rights  therein  were  independent  of  the  legal  title. 
When  a  suit  is  brought  in  the  name  of  the  one  having  the 

I  Rec— 53 


834  LAW    OF    RECEIVERS. 

legal  title  to  meet  the  technical  requirement  of  our  law, 
the  plaintiff  is  but  a  nominal  party,  without  power  to 
control  the  suit.  When  the  receiver  of  a  corporation  sues 
in  its  name,  the  corporation  does  not  have  even  the  stand- 
ing of  a  nominal  party  in  an  ordinary  suit,  for  no  ques- 
tion can  be  made  against  the  receiver  regarding  costs. 
So  the  question  of  amendment  is  not  involved  in  the 
statutory  provision  affecting  the  right  to  maintain  an 
action.  It  may  be  said,  further,  that  this  suit  is  primarily, 
and  perhaps  wholly,  for  the  benefit  of  the  creditors,  who 
are  in  no  way  within  the  condemnation  of  the  statute.'" 

The  statute  referred  to  in  the  foregoing  quotation  was 
one  requiring  certain  formalities  in  the  way  of  paying  a 
tax  and  securing  a  certain  certificate  from  the  secretar}^ 
of  state  on  the  part  of  a  foreign  corporation  proposing 
to  do  business  in  the  state ;  the  prohibition  referred  to 
was  one  provided  in  the  statute  to  the  effect  that  in  de- 
fault of  a  compliance  with  the  requirements  of  the  statute 
no  action  within  the  state  upon  contracts  made  wdthin  the 
state  could  be  maintained  by  the  corporation,  or  by  an 
assignee  of  the  corporation,  or  by  any  person  claiming 
under  such  assignee  or  corporation.  The  receiver  had 
commenced  an  action  in  his  own  name  and  the  amend- 
ment referred  to  was  one  substituting  the  corporation 
as  the  nominal  plaintiff.  The  point  of  the  quotation  is 
that  the  receiver  is  an  officer  of  the  court. 

The  quotation  shows  one  application  of  the  proposi- 
tion, or  principle,  that  the  receiver  is  an  officer  of  the 
court,  but  it  is  to  be  remembered  that  that  principle  is 
always  present  and  determines  the  relation  of  the  re- 
ceiver generally  to  the  estate  and  to  those  interested 
therein. 

Because  he  is  an  officer  of  the  court,  the  receiver  is 

4  Underbill  V.  Rutland  R.  Co.,  90  Beggs  Co.,  171  Fed.  157;  In  re 
Vt.  462,  98  Atl.  1017.  Frederica  Water,  etc.,  Co.,  10  Del. 

See:      Hamilton     v.     David     C.      Ch.  362,  93  Atl.  376. 


PRIVATE    CORPORATIONS. 


835 


not  tlie  agent,  nor  representative,  of  any  of  the  interested 
parties.  He  is,  in  a  sense,  the  trustee  for  all  of  them. 
As  among  the  members  of  any  particular  class  of  inter- 
ested parties  his  attitude  is  that  of  an  impartial  custo- 
dian, generally;  and  this  is  his  general  attitude  among 
the  various  classes  of  interested  parties,  though  in  some 
instances,  as  we  shall  see  later, ^  he  is  called  upon  to  act 
in  the  interest  of  creditors  in  such  a  way  as  to  be  placed 
in  apparent  hostility  to  stockholders.** 

Because  he  is  an  officer  of  the  court,  the  receiver  is 
always  under  its  control,  and,  in  fact,  has  no  authority 
except  such  as  the  court  may  bestow  upon  him.  To 
justify  any  of  his  acts  the  receiver  must  be  able  to  point 
to  some  order  of  the  court  bestowing  either  expressly  or 
impliedly  the  right  to  do  the  act.^  Those  who  deal 
with  the  receiver  as  such  are  bound  to  know  this  rule.* 


5  See  §§  340  and  341,  this  chapter. 

6  Patrick  v.  Eells,  30  Kan.  680, 
2  Pac.  116;  First  National  Bank 
of  Detroit  v.  E.  T.  Barnum  Wire, 
etc.,  Works,  58  Mich.  124,  315,  24 
N.  W.  543,  25  N.  W.  202;  Hol- 
brook,  etc.,  v.  American  Fire  Ins. 
Co.,  6  Paige  (N.  Y.)  220;  Re  Van 
Allen,  37  Barb.  (N.  Y.)  225,  230; 
Ardmore  Nat.  Bank  v.  Briggs  Ma- 
chinery, etc.,  Co.,  20  Okla.  427,  129 
Am.  St.  Rep.  747,  16  Ann.  Cas.  133, 
23  L.  R.  A.  (N.  S.)  1074,  94  Pac. 
533. 

Where  the  receiver's  company 
owns  the  controlling  interest  in 
the  stock  of  another  corporation 
and  the  receiver  votes  this  stock 
at  an  election  of  directors,  it  is 
proper  for  him  to  vote  the  stock 
so  as  to  give  the  minority  of  rival 
factions  representation  on  the 
board.  Bull  v.  International  P. 
Co.,  86  N.  J.  Eq.  275,  98  Atl.  382. 

See  Marion  Trust  Co.  v.  Blish, 


170  Ind.  686,  84  N.  E.  814,  85  N.  E. 
344. 

^  St.  Joseph  Gas  Co.  v.  Barker, 
243  Fed.  206.  (Receiver  can  not 
vv'ithout  an  order  of  court  make 
a  binding  agreement  concerning 
an  existing  corporate  contract.) 

Gay  V.  Hudson  River,  etc.. 
Power  Co.  (184  Fed.  631  modified), 
186  Fed.  1022,  108  C.  C.  A.  663; 
Fields  V.  United  States,  27  App. 
Cas.  (D.  C.)  433;  certiorari  denied, 
205  U.  S.  292,  51  L.  Ed.  807,  27 
Sup.  Ct.  543.  (Can  not  pay  out 
money  without  order  of  court.) 

The  control  of  the  court  over 
the  receiver  is  co-extensive  with 
the  duties  imposed  upon  him. 
Denver  City  Waterworks  Co.  v. 
American  Waterworks  Co.  (N  J. 
Eq.),  88  Atl.  1052.  (Order  to  dis- 
continue suit  already  commenced 
by  receiver.) 

8  "Every  one  who  deals  with  a 
receiver    knows    that   he   has    the 


836  LAW    OF    RECEIVERS. 

Tlie  receiver  may  apply  to  the  court  for  instructions  as 
to  how  to  act  in  regard  to  any  detail  of  the  administra- 
tion,^ and  in  regard  to  important  matters  it  is  his  duty  to 
do  so.^"  It  is  the  duty  of  the  receiver  to  use  the  utmost 
care  not  to  contract  bills  which  he  may  be  unable  to  pay 
from  the  property  in  his  hands ;  and  even  though  he  acts 
under  general  orders,  giving  him  large  discretion,  and 
even  though  he  acts  with  the  consent  of  creditors,  he 
may  place  himself  in  such  a  position  that  equity  would 
require  him  to  lose  his  compensation  rather  than  that 
-creditors  should  suffer  lossJ^The  principle  that  the  re- 
ceiver is  an  officer  of  tHe  court  really  means  that  when 
the  receiver  acts  it  is  the  court  acting  through  the  re- 
ceiver ;  when  we  speak  of  the  powers  and  duties  of  the 
receiver  we  really  mean  the  jurisdiction  of  the  court  to 
do  this  thing  or  that  thing  in  the  way  of  conserving  the 
assets  of  the  corporation  or  conducting  its  business.';  In 
both  of  these  aspects  it  may  be  generally  said  that  the 
court  has  power  to  do  anything  and  everything  that  the 
corporation  could  do  or  would  do  under  a  prudent  man- 
agement, except  in  so  far  as  the  court  is  bound  not  to 
disturb  the  vested  rights  of  lien  claimants  without  their 
consent.  Many  matters  of  detail  are  being  constantly 
called  to  a  court's  attention  for  action,  in  the  adminis- 
tration of  a  large  estate,  that  it  is  impractical  to  set  forth 
here.  It  is  our  purpose  to  consider  here  only  those  mat- 
power  to  charge  his  estate  only  Glass  Co.,  18  Ind.  App.  174,  63  Am. 
as  the  court  may  authorize  him  St.  Rep.  339,  47  N.  E.  686. 
and,  if  a  prospective  creditor  fails  9  Bull  v.  International  P.  Co.,  86 

to  inquire  how  far  the  assets  may      N.  J.  Eq.  275,  98  Atl.  382;    Conti- 
be    already    incumbered    he    takes      nental  Trust  Co.  v.  Toledo,  St.  L. 
the  risk."     Bell  v.  Improved  Prop-      &  K.  C.  R.  Co.,  59  Fed.  514. 
erty,   etc.,   Co.,    247   Fed.    645,    159  lo  Guaranty  Trust   Co.   v.  Inter- 

C.  C.  A.  547.  "  national    Steam    P.    Co.,    231    Fed. 

Persons  dealing  with  a  receiver      594,  145  C.  C.  A.  480.     (Paying  in- 
must  take  notice  that  his  powers      terest    on    mortgage    in    order    to 
are  limited   and  he   is   constantly      forestall  foreclosure.) 
subject  to  the  orders  of  the  court.  n  Atkinson  &  Co.  v.  Aldrich  C. 

Brunner,   Mond    &   Co.   v.   Central      Co.,  248  Fed.  134. 


PRIVATE    CORPORATIONS. 


837 


ters  of  wider  importance  and  of  sucli  general  occurrence 
and  frequent  recurrence  as  to  make  it  possible  to  consider 
them  in  the  light  of  principles  of  general  application.^^ 
Having  assumed  jurisdiction  of  the  action  and  ap- 
pointed a  receiver,  the  court  has,  thenceforth,  full  and 
exclusive  control  of  the  administration  of  the  estate.  The 
possession  of  the  receiver  terminates  the  control  of  the 
directors  over  the  property  of  the  corporation.^^^  If  the 
court  otherwise  has  jurisdiction  of  the  subject  matter 
and  of  the  persons  interested,  any  matter  ancillary  to  the 


12  The  court  may  authorize  the 
receiver  to  buy  a  mortgage  senior 
to  one  owned  by  the  receivership 
estate  and  to  hold  the  purchased 
mortgage  as  special  security  for 
money  borrowed  to  make  the  pur- 
chase. Beaton  v.  Seaboard  Port- 
land Cement  Co.,  211  Fed.  84,  127 
C.  C.  A.  508. 

The  court  may  direct  the  re- 
ceiver to  compi'omise  a  claim 
against  an  officer  of  the  corpora- 
tion. Brown  v.  AUebach,  166  Fed. 
488. 

See  Spencer  v.  Alki  Point  Transp. 
Co.,  53  Wash.  77,  132  Am.  St.  Rep. 
1058,  101  Pac.  509. 

The  court  may  authorize  the  re- 
ceiver to  borrow  money  to  com- 
promise a  claim;  and  the  order  of 
compromise  having  been  carried 
out  will  not  revoke  the  order  when 
it  is  impossible  to  restore  the 
other  party  to  the  position  that 
he  was  in  before  the  compromise 
•was  effected.  Missouri  Valley 
Bridge,  etc.,  Co.  v.  Blake,  231  Fed. 
417,  145  C.  C.  A.  411. 

The  court  may  refuse  to  author- 
ize the  receiver  to  appeal  from  an 
adverse  judgment  or  to  pursue 
litigation  unless  the  creditors,  de- 
sirous of  having  such  action  taken, 


agree  to  pay  the  costs  and  ex- 
penses. Gay  V.  Hudson  River, 
etc..  Power  Co.,  186  Fed.  1022,  108 
CCA.  663;  Miller  v.  Kansas  City 
Brick,  etc.,  Co.,  195  Mo.  App.  357, 
191  S.  W.  1092. 

The  court  may  order  the  re- 
ceiver to  pay  taxes  on  property 
belonging  to  the  estate.  Hopkins 
V.  Taylor,  87  111.  436. 

The  court  may  authorize  the  re- 
ceiver to  redeem  property  of  the 
corporation  that  had  formerly 
been  sold  at  judicial  sale.  Cas- 
serly  v.  Witherbee,  119  N.  Y.  522, 
23  N.  E.  1000;  Chamberlain  v. 
Greenleaf,  4  Abb.  N.  C  (N.  Y  ) 
178. 

See  Re  Oak  Pits  Colliery  Co., 
L.  R.  21  Ch.  Div.  322;  Common- 
wealth V.  Franklin  Ins.  Co.,  115 
Mass.  278. 

The  receiver  having  possession 
of  the  books  of  the  corporation, 
may  be  authorized  to  enter  an 
assignment  of  stock.  People  v. 
California,  etc..  Trust  Co.,  18  Cal, 
App.  732,  124  Pac.  558. 

13  State  V.  District  Court,  50 
Mont.  259,  146  Pac.  539;  Planten 
V.  National  Nassau  Bank  of  New 
York,  93  Misc.  Rep.  344,  157  N.  Y. 
Supp.  31. 


838  LAW    OF    RECEIVERS. 

administration  of  the  estate  may  be  heard  in  the  receiver- 
ship court,  either  in  the  receivership  proceedings  them- 
selves, or  in  a  separate  suit;  and  the  authority  of  the 
court  in  this  behalf  will  overrule  any  objection  to  its 
jurisdiction  that  there  might  otherwise  be  on  the  score 
of  the  citizenship  of  the  parties.^^  The  court  has  full 
power  to  protect  its  officer,  the  receiver,  in  his  possession 
and  administration  of  the  estate.  Actions  against  him 
may  not  be  commenced  without  the  consent  of  the  court. 
One  purpose  usually  sought  in  creating  corporation  re- 
ceiverships is  to  prevent  sacrifice  of  the  assets  by  numer- 
ous small  suits  and  judicial  sales  of  minor  portions  of  the 
corporate  property  and  this  purpose  could  not  be  effected 
if  claimants  could  pursue  their  own  objects  by  litigation 
without  the  consent  of  the  court.  This  right  of  the  court 
may  be  protected  and  enforced  through  either  its  in- 
junctive powers  or  its  power  to  punish  for  contempt. ^^ 
Litigation  necessary  to  protect  or  recover  assets  of  the 
estate  is  in  the  first  instance  under  the  control  of  the 
receiver  and  neither  the  stockholders  nor  the  creditors 
may  undertake  or  interfere  with  such  litigation  without 
the  consent  of  the  receivership  court. ^'^  The  principle 
here  referred  to  has  been  stated  as  follows:    "While  it 

i4Vallery    v.    Denver,    etc.,    R.  Mfg.  Co.  v.  Langdon,  44  Minn.  37, 

Co.,  236  Fed.  176,  177,  149  C.  C.  A.  46    N.    W.    310;    Merchants'    Nat. 

366;     Owen    v.    Clifton,    232    Fed.  Bank  v.   Nortliwestern  Mfg.,   etc., 

136,'  146  C.  C.  A.  328.  Co.,  48  Minn.  361,  51  N.  W.  119. 

15  In  re  French,  181  App.  Div.  When  a  receiver  is  in  posses- 
719,  168  N.  Y.  Supp.  988;  Pelletier  sion,  a  mortgagee,  whose  mort- 
V.  Greenville  L.  Co.,  123  N.  C.  596,  gage  gives  him  the  right  to  take 
68  Am.  St.  Rep.  837,  31  S.  E.  855.  possession  on  default,  can  not,  on 

16  Du  Pont  v.  Standard  Arms  an  ex  parte  hearing  and  without 
Co.,  9  Del.  Ch.  324,  82  Atl.  692;  opportunity  for  other  creditors  or 
Big  Creek  Stone  Co.  v.  Seward,  the  stockholders  to  be  heard,  be 
144  Ind.  205,  42  N.  E.  464,  43  N.  E.  given  permission  to  take  posses- 
5;  Wenar  v.  Leon  L.  Schwartz,  sion  on  a  showing  that  a  default 
120  La.  1,  44  So.  902;  Jacobs  v.  E.  has  occurred.  City  Bank  and 
Bement's  Sons,  161  Mich.  415,  126  Trust  Co.  v.  Leonard,  168  Ala.  404, 
N.  W.  1043;    Minnesota  Thresher  53  So.  71. 


private:  corporations. 


839 


is  true  that  it  is  a  contempt  of  the  appointing  court  to 
make  its  receiver  a  party  defendant  to  a  suit  without 
leave  first  obtained  for  that  purpose,  it  does  not  neces- 
sarily follow  that  the  court  in  which  suit  is  brought  is 
without  jurisdiction.  The  appointing  court  may  protect 
its  officer  either  by  punishing  the  party  bringing  the  suit 
for  contempt,  or  by  enjoining  him  from  bringing  .suit. 
But  the  failure  to  obtain  leave  is  no  bar  to  the  juris- 
diction of  the  court  in  which  the  suit  is  brought.  This  is 
certainly  true  in  all  cases  where  there  is  no  attempt  to 
interfere  with  the  actual  possession  of  the  property  held 
by  the  receiver.  "^^ 

Since  the  court  can  neither  make  nor  destroy  title  the 
corporate  assets  pass  into  the  receivership  subject  to 
all  valid  existing  liens  created  against  it  by  the  corpo- 
ration.^^   A  person  in  possession  of  property  and  claim- 


17  Mulcahey  v.  Strauss,  151  111. 
70,  37  N.  E.  702. 

An  action  to  foreclose  a  chat- 
tel mortgage  having  been  com- 
menced against  a  corporation  un- 
der receivership  without  leave  of 
the  receivership  court,  and  the 
latter  court  having  denied  the  re- 
ceiver's application  for  an  injunc- 
tion against  the  prosecution  of  the 
action,  it  \v?,s  held  that  the  court's 
denial  of  the  injunction  was  tanta- 
mount to  an  order  consenting  that 
the  action  might  proceed;  and 
that  whatever  infirmity  might 
have  been  present  at  the  outset 
because  of  the  want  of  the  re- 
ceivership court's  permission  was 
cured.  Schwabacher  Bros.  &  Co. 
V.  Schade,  etc.,  Co.,  99  Wash.  271, 
169  Pac.  783. 

Stockholders  having  commenced 
a  representative  action  against 
directors  for  losses  caused  the 
corporation  by  their  misfeasance 
before   a    receiver   was   appointed 


and  the  receiver,  after  his  ap- 
pointment, having  been  joined  as 
a  party  defendant  with  the  con- 
sent of  the  receivership  court,  it 
was  held  that  the  action  did  not 
abate  and  might  be  continued, 
providing  another  action  com- 
menced by  the  receiver  against 
the  same  directors  and  for  the 
same  purpose  was  not  also  prose- 
cuted. Seagrist  v.  Reid,  171  App. 
Div.  755,  157  N.  Y.  Supp.  979  (see 
dissenting  opinion). 

Even  if  stockholders  or  credi- 
tors, with  the  consent  of  the  re- 
ceivership court,  intervene  in  liti- 
gation over  which  the  receiver 
has  control  they  are  bound  by  a 
stipulation  made  by  the  receiver 
and  sanctioned  by  the  court. 
Spencer  v.  Alki  Point,  etc.,  Co.,  53 
Wash.  77,  132  Am.  St.  Rep.  1058, 
101  Pac.  509.  See  Robinson  v. 
Mutual,  etc.,  Ins.  Co.,  182  Fed.  850. 

18  Schmidtman  v.  Atlantic  Phos- 
phate &   Oil   Corp.,   230   Fed.   769, 


840 


LAW    OF    RECEIVERS. 


ing  either  title  or  tlie  right  of  possession  as  against  tlie 
corporation  can  not  be  dispossessed  without  a  proper 
judicial  determination  of  his  rights.^^     Valid  executed 


145  C.  C.  A.  79;  Ford  v.  Judsonia 
M.  Co.,  52  Ark.  426,  20  Am.  St.  Rep. 
192,  6  L.  R.  A.  714,  12  S.  W.  876; 
Brackett  v.  Middlesex  Banking 
Co.,  89  Conn.  645,  95  Atl.  12; 
Shopert  v.  Indiana  Nat.  Bank,  47 
Ind.  App.  474,  83  N.  E.  515;  In  re 
Frederica  Water,  Light  &  Power 
Co.,  10  Del.  Ch.  362,  93  Atl.  376; 
James  Bradford  Co.  v.  United 
Leather  Co.  (Del.  Ch.),  95  Atl.  308; 
Young  V.  Stevenson,  81  111.  App. 
40;  Williams  v.  Old  Colony  Trust 
Co.,  222  Mass.  378,  110  N.  E.  1029; 
Ardmore  Nat.  Bank  v.  Briggs  Ma- 
chinery &  Supply  Co.,  20  Okla.  427, 
129  Am.  St.  Rep.  747,  16  Ann.  Cas. 
133,  23  L.  R.  A.  (N.  S.)  1074,  94 
Pac.  533;  Philadelphia  Trust  Co. 
V.  Northumberland  County  Trac- 
tion Co.,  258  Pa.  St.  152,  101  Atl. 
970;  Potts  V.  New  Jersey  Arms, 
etc.,  Co.,  17  N.  J.  Eq.  516. 

19  A  valid  equitable  assignment 
by  the  corporation  of  a  judgment 
to  be  obtained  against  stockhold- 
ers is  not  destroyed  by  the  ap- 
pointment of  a  receiver.  Clark  v. 
Sigua  Iron  Co.,  81  Fed.  310,  26 
C.  C.  A.  423. 

A  corporation  which  has  allowed 
its  equity  under  a  trust  deed 
given  to  secure  prefei'red  stock- 
holders to  be  sold  at  judicial  sale 
and  has  failed  to  make  redemp- 
tion within  the  period  allowed  by 
law  and  has  thus  lost  its  equity 
before  the  appointment  of  a  re- 
ceiver conveys  nothing  to  the  re- 
ceiver by  a  transfer  executed  in 
his  favor.  Fitch  v.  Wetherbee, 
110  111.  475. 


One  who  obtains  title  to  corpo- 
rate property  by  purchase  at  a  tax 
sale  is  not  within  the  terms  of  an 
order  of  the  court  enjoining  credi- 
tors from  interfering  with  the  re- 
ceiver's possession.  Yurann  v. 
Hamilton,  82  Kan.  528, 108  Pac.  822. 

Where  a  mortgagee,  pursuant  to 
a  state  statute,  has  foreclosed  the 
mortgage  by  process  against  the 
receiver  and  had  the  property  sold 
by  the  coroner,  the  receivership 
court  has  not  authority  to  order 
the  proceeds  paid  over  to  the  re- 
ceiver for  the  purpose  of  satisfy- 
ing liens  evidenced  by  receiver's 
certificates.  Interstate  Trust,  etc., 
Co.  V.  Powell  Bros.,  etc.,  Co.,  128 
La.  1004,  55  So.  654. 

Since  a  receiver  represents  the 
creditors  of  a  corporation  he  takes 
its  property,  on  their  behalf,  free 
of  a  trust  deed,  executed  by  the 
corporation,  which  is  void  as  to 
them  under  a  statute.  Withrell  v. 
Murphy,  154  N.  C.  82,  69  S.  E.  748. 

Where  stockholders  claim  to  be 
the  owners  of  secret  formulae 
usable  in  the  corporate  business 
an  order  can  not  be  made  direct- 
ing them  to  turn  the  formulae 
over  to  the  receiver  without  a 
proper  determination  of  the  issue 
as  to  title.  Brewster  v.  F.  G. 
Brewster  Co.,  145  App.  Div.  812, 
130  N.  Y.   Supp.  654. 

The  possession  of  an  assignee 
for  creditors  can  not  be  disturbed 
by  a  temporary  receiver  without 
a  proper  determination  of  the 
validity  of  the  assignment  and  the 
rights  of  the  assignee.     Rump  v. 


PRIVATE    CORPORATIONS. 


841 


contracts  of  the  corporation,  where  nothing  remains  but 
tiie  passing  over  of  the  consideration  from  the  company, 
are  binding  upon  the  receiver.-*'  The  receiver  is  bound 
by  the  charter  of  the  corporation.^^  An  injunction 
against  the  corporation,  issued  before  the  appointment, 
is  likewise  binding  upon  the  receiver. -- 

Under  the  general  equity  rule,  the  time  when  the  title, 
or  the  right  of  possession  and  control  of  the  receiver 
attaches  so  as  to  fix  the  time,  as  of  which  equities  are  to 
be  determined  upon  distribution,  is  the  date  of  the  ap- 
pointment, without  regard  to  the  time  when  the  receiver 
qualifies  and  actually  takes  possession.-^  ''It  is  gener- 
ally held  that  after  the  appointment  of  the  receiver  in  a 
proceeding  which  contemplates  the  administration  and 
sale  of  the  property  for  the  benefit  of  those  interested 
therein  no  one  will  be  permitted  to  acquire  a  lien  thereon 
by  attachment,  judgment,  or  otherwise."-^     Up  to  that 


Van  Rensselaer,  etc.,  Co.,  138  App. 
Div.  289,  122  N.  Y.  Siipp.  912. 

20  Butler  v.  Beach,  82  Conn.  417, 
74  Atl.  748;  Watson  v.  President, 
etc.,  of  Phoenix  Bank,  8  Met. 
(Mass.)   217,  41  Am.  Dec.  500. 

A  statutory  right  of  set-off  is 
not  affected  by  the  appointment 
of  a  receiver.  Greif  v.  James  H. 
Wright  Co.,  10  Del.  Ch.  308,  91 
Atl.  205. 

As  to  executory  contracts  see 
§  359,  infra. 

For  the  purposes  of  set-off  a 
claim  against  a  corporation  may 
be  acquired  any  time  before  the 
title,  or  the  right  of  possession 
and  control,  of  the  receiver  vests. 
ITnited  States  Brick  Co.  v.  Middle- 
town  Shale  Brick  Co.,  228  Pa.  St. 
81,  77  Atl.  395. 

21  People  V.  Troy  Steel,  etc.,  Co., 
82  Hun  303,  31  N.  Y.  Supp.  337; 
Safford  v.  People,  85  111.  558. 


22  Steel  V.  Gordon,  14  Wash. 
521,  45  Pac.  151;  Safford  v.  Peo- 
ple, 85  111.   558. 

23  This  time  is,  however,  vari- 
ously fixed  by  state  statutes  as  of 
the  date  of  the  commencement  of 
proceedings  [Merrill  v.  Common- 
wealth, etc.,  Co.,  166  Mass.  238, 
44  N.  E.  144;  Williams  v.  United 
W.  Tel.  Co.,  131  N.  Y.  Supp.  41], 
or  of  the  filing  of  security  [Travis 
V.  McBride,  166  Mich.  126,  131  N. 
W.  520],  or  of  an  adjudication  of 
insolvency  or  the  appointment  of 
a  receiver  [Squire  v.  Princeton  L. 
Co.,  72  N.  J.  Eq.  883,  15  L.  R.  A. 
(N.  S.)  657,  68  Atl.  176],  or  of  the 
tiling  of  the  bill,  or  of  issuance  or 
serving  of  process  [Cobb  v.  Cam- 
den S.  Band,  106  Me.  178,  20  Ann. 
Cas.  547,  76  Atl.  667]. 

24  Guaranty  State  Bank,  etc., 
Co.,  V.  Thompson  (Tex.  Civ.  App.), 
195  S.  W.  960;   Mutual  Inv.  Co.  v. 


842 


LAW    OF    RECEIVERS. 


time  tlie  assets  of  a  corporation  "do  not  become  a  trust 
fund  to  be  administered"-^  for  the  benefit  of  those  in- 
terested therein;  but  at  that  time  they  do  become  such 
a  trust  fund  and  thereafter  new  liens,  or  priorities,  can 
not  be  created.-*^  Liens  established  before  this  time  are 
valid,  even  though  created  during  the  pendency  of  the 
proceedings.-'  After  that  time  the  corporation  itself 
can  not  create  new  liens  nor  ratify  nor  make  valid 
previous  transfers  or  liens  that  for  any  reason  were  in- 
valid or  imperfect.-^  Nor  can  a  creditor  by  any  m 
invitum  process  acquire  or  perfect  a  lien.  "The  title  of 
the  receiver  is  of  the  date  at  which  it  is  ordered  that  a 
receiver  be  appointed.     Then  the  title  of  the  parties  to 

298, 


Walton  Mach.  Co.,  91  Wash 
157  Pac.  682. 

25  See  Wheeler  v.  Matthews,  70 
Fla.  317,  70  So.  416. 

2G  McManus-Kelly  Co.  v.  Pope 
Mfg.  Co.  (N.  J.),  70  Atl.  297.  (Notes 
of  the  corporation  not  yet  due  can' 
not  be  set-off  against  a  claim  of 
the  corporation  already  accrued.) ; 
In  re  Lenox  Corp.,  57  App.  Div. 
515,  68  N.  Y.  Supp.  103,  167  N.  Y. 
623,  60  N.  E.  1115;  Ardmore  Nat. 
Bank  v.  Briggs  M.  &  S.  Co.,  20 
Okla.  427,  129  Am.  St.  Rep.  747,  16 
Ann.  Cas.  133,  23  L.  R.  A.  (N.  S.) 
1074,  94  Pac.  533;  Riesner  v.  Gulf 
C,  etc.,  Ry.  Co.,  89  Tex.  656,  59 
Am.  St.  Rep.  84,  33  L.  R.  A.  171, 
36  S.  W.  53;  Ellis  v.  Vernon  Ice, 
etc.,  Co.,  86  Tex.  109,  23  S.  W. 
858;  Cowan  v.  Pennsylvania  P., 
etc.,  Co.,  184  Pa.  1,  38  Atl.  1075; 
Fidelity  Ins.,  etc.,  Co  v.  Roanoke 
Iron  Co.,  81  Fed.  439,  448;  Temple 
V.  Glasgow,  80  Fed.  441,  447,  25 
C.  C.  A.  540;  Clyde  v.  Richmond. 
etc.,  R.  Co.,  56  Fed.  539;  Attorney 
General  v.  Atlantic  M.,  etc.,  Ins. 
Co.,   100  N.   Y.   279,   3  N.   E.   193; 


Watkins  v.  Minnesota  T.,  etc.,  Co., 
41  Minn.  150,  42  N.  W.  862;  Texas 
Trunk  Ry.  Co.  v.  Lewis,  81  Tex.  1, 
26  Am.  St.  Rep.  776,  16  S.  W.  647 
(attachment  filed  same  day  re- 
ceiver was  appointed  did  not  give 
a  lien) ;  see  Central  Coal,  etc.,  Co. 
v.  Southern  Nat.  Bank,  12  Tex. 
Civ.  App.  334,  34  S.  W.  383; 
Waggy  V.  Jane  Lew  Lumber  Co., 
69  W.  Va.  666,  72  S.  E.  778. 

The  lien  of  a  bank  upon  a  note 
deposited  for  collection  as  against 
a  receiver  is  limited  to  indebted- 
ness then  existing,  and  not  that 
which  may  become  due.  Smith  v. 
Eighth  Ward  Bank,  31  App.  Div. 
6,  7,  52  N.  Y.  Supp.  290. 

27  Travis  v.  McBride,  166  Mich. 
126,  131  N.  W.  520;  Squier  v. 
Princeton  L.  Co.  (N.  J.),  64  Atl. 
474  reversed;  Squier  v.  Princeton 
Lighting  Co.,  72  N.  J.  Eq.  883,  15 
L.  R.  A.  (N.  S.)  657,  68  Atl.  176. 

2S  Barker  v.  Southern  Building 
&  Loan  Assn.,  181  Fed.  636;  Lin- 
ville  V.  Hadden,  88  Md.  594,  43 
L.  R.  A.  222,  41  Atl.  1097;  Mutual 
Inv.  Co.  V.  Walton  Mach.  Co.,  91 
Wash.  298,  157  Pac.  682. 


TRIVATE   CORPORATIONS. 


843 


control  dies  and  then  the  title  of  the  court  and  its  agent 
and  officer  immediately  succeeds.  .  .  .  The  order  of 
the  court  either  impliedly  or  expressly  takes  the  title 
from  the  parties  and  vests  it  in  the  receiver  from  that 
moment.  It  is  enough,  hovrever,  if  it  took  it  from  the 
parties;  after  that  no  execution  against  them  could  be 
levied  upon  it."-"  The  principle  that  the  receiver  has 
control  of  the  assets  of  a  corporation  from  the  time  of 
his  appointment  applies  to  debtors  as  well  as  to  creditors 
of  the  corporation.  The  receiver  is  the  only  one  author- 
ized to  collect  a  debt  that  remains  unpaid  at  the  time  his 
right  to  control  attaches.  Persons  dealing  with  the  cor- 
poration are  bound  to  know  of  the  appointment  and, 
unless  special  equities  intervene,  can  not  escape  liability 
to  the  receiver  by  settling  with  the  corporation.^^'^ 

The  receiver's  control  of  the  administration  of  the 
estate  gives  him  the  right  to  the  custody  of  the  books 
of  the  corporation,^!  free  even  from. the  generally  recog- 
nized right  of  creditors  and  stockholders  to  inspect  and 
make  extracts  from  them  when  the  corporation  itself  is 
in  charge  of  its  affairs,  except  with  the  permission  of 
the  court. ^^ 

20  Steele  v.  Sturges,  5  Abb.  Prac.  cantile  Securities  Co.,  242  III.  584, 

(N   Y.)  442.  30  L.  R.  A.  725,  90  N.  B.  238. 

It  is  to  be  understood  that  this  If  books  and  records  of  a  corpo- 
quotation,  as  likewise  our  text,  is  ration  are  removed  from  the  state 
speaking  of  the  time  as  fixed  by  in  disobedience  to  an  injunction 
the  general  equity  rule,  where  issued  while  an  action  for  the  ap- 
there  is  no  controUing  statute.  pointment  of  a  receiver  is  pend- 
If  the  statute  fixes  a  different  ing,  a  mandatory  injunction  direct- 
time,  then  what  is  said  in  the  quo-  ing  their  return  will  issue,  even 
tation  and  the  text  applies  as  of  before  a  receiver  is  appointed,  in 
that  time.     See  note  21,  supra.  order  that  they  may  be  open  for 

30  Buchanan   v.    Hicks,    98    Ark.  inspection   by   those   who   have   a 

370,  34  L.  R.  A.  (N.  S.)   1200,  136  statutory  right  thereto.     Baillie  v. 

S    W    177;   Laberee  v.  Stewart,  4  Columbia  G.  M.  Co.,  86  Ore.  1,  166 

Alaska  69.  P»c.  965,  167  Pac.  1167. 

;n  Wheeler  v.  Matthews,  70  Fla.  32  Matter   of   Tiebout,   19   N.   Y. 

317,  70  So.  416;    Manning  v.  Mer-  W^eekly  Dig.  570;    People  v.  Cata- 


S44  LAW    OF    RECEIVERS. 

An  order  appointing  a  receiver  Las,  in  many  respects, 
the  characteristics  of  a  final  judgment  of  a  court  of 
record  and  the  principles  that  apply  to  a  collateral  at- 
tack upon  a  final  judgment  apply  to  such  an  order.^^ 

§  338.    Difference  in  Relation  to  Estate  on  Part  of  Equity  and 
Statutory  Receivers. 

It  was  pointed  out  in  earlier  sections  of  this  chapter 
that  corporation  receivers  are  at  times  appointed  by 
courts  of  equity  relying  upon  their  inherent  powers  and ' 
without  the  aid  of  any  statutory  authority  to  make  such 
appointments/  while  at  times  the  appointment  is  made 
directly  and  expressly  pursuant  to  statutory  provision. ^ 
It  is  common  usage  therefore  to  speak  of  the  former 
class  of  receivers  as  equity  or  chancery  receivers  and 
of  the  latter  as  statutory  receivers. 

It  was  pointed  out  also  that  statutes  permitting  or 
authorizing  the  appointment  of  corporation  receivers 
went  more  or  less  into  detail  concerning  the  administra- 
tion of  the  corporate  estate.^  It  may  be  said  generally 
that  the  statutes  do  not  effect  any  difference  between  the 

lact    Bank,    5    Misc.    Rep.    14,    25      pointed  while  not  informed  of  that 

N.  Y.  Supp.  129.  fact  and,  upon  being  so  informed, 

33  Lively  V  Picton.  218  Fed.  401,      concedes  that  the  receiver  should 

134  C.  C.  A.  189;   Vallery  v.  Den-      ^^''^  '^^^°  ™^^^  ^  P^^^y  and  has 

a  postponement  of  the  trial  for 
the  purpose  of  bringing  in  the  re- 
ceiver, is  not  barred  from  subse- 

Gowan  Co.  v.  Ingalls,  60  Fla.  116,      ^^^^^^^  ^^.^.^^  ^^^  p^.^^  ^^^^  ^^^ 

53  So.  932;  Paine  v.  Mueller,  150  ^^.^^^  ^^^  ^^j^  because  the  ap- 
lowa  340,  130  N.  W.  133;  Thomp-  pointing  judge  was  disqualified  to 
son  V.  Greeley,  107  Mo.  577,  17  j^^ke  it,  if  he  was  not  aware  of 
S.  W.  962;  Berryman  v.  Billings  ^^e  facts  constituting  the  disquali- 
Mut.  Heating  Co.,  44  Mont.  517,  fication  at  the  time  of  the  post- 
121  Pac.  280;  Guaranty  State  Bank,  ponement.  Davis  Colliery  Co.  v. 
etc.,  Co.  V.  Thompson  (Tex.  Civ.  Charlevoix,  etc.,  Co.,  155  Mich. 
App.),  195,  S.  W.  960.  228,  118  N.  W.  929. 

A  plaintiff   who  commences   an  i  See  §§  298  to  304,  supra, 

action  against  a  corporation  over  2  See  §  310,  supra, 

which    a    receiver    has    been    ap-  3  See  §  310  et  seq.,  supra. 


ver  &  R.  G.  R.  Co.,  236  Fed.  176, 
177,  149  C.  C.  A.  366;  John  H.  Mc- 


PRIVATE    CORPORATIONS.  845 

two  classes  respecting  their  general  relation  to  the  court 
and  estate  as  set  forth  in  the  preceding  section.  Prac- 
tically the  only  difference  of  importance  between  the  two 
depends  upon  the  question  as  to  whether  or  not  the  statu- 
tory receiver  takes  the  legal  title  to  the  corporate  assets. 
It  is  customary  to  speak  of  the  title  of  a  receiver,  but 
with  reference  to  an  equity  receiver  the  expression  is 
not  strictly  accurate  and  denotes  simply  the  receiver's 
right  to  have  possession  of  the  property  involved  in  the 
receivership  and  in  the  case  of  a  corporation  receiver  to 
manage  and  operate  it  pending  the  receivership.  In  the 
case  of  an  equity  receiver  appointed  on  behalf  of  a  judg- 
ment creditor  seeking  to  satisfy  his  judgment  out  of  the 
equitable  or  concealed  assets  of  the  debtor  it  is  held  that 
the  legal  title  to  such  assets  vests  in  the  receiver  upon 
his  appointment  or  it  is  the  regular  practice  for  the  court 
to  compel  the  debtor  to  assign  the  title  to  the  receiver.^ 
This,  however,  is  an  exception  to  the  rule,  for  an  equity 
receiver  is  regarded  as  a  mere  custodian  of  the  property 
entrusted  to  his  care  and  does  not  take  the  legal  title ; 
nor  is  it  the  practice  to  have  the  legal  title  bestowed  upon 
him.^  If  a  state  statute,  authorizing  the  appointment  of 
a  receiver,  does  not  expressly  provide  that  the  legal  title 
shall  pass  to  the  receiver,  then,  in  this  regard,  he  is  held 
to  be  in  the  same  position  as  an  equity  receiver.  On  the 
other  hand  many  of  the  state  statutes  expressly  provide 
that  the  legal  title  to  the  corporate  property  shall  pass 
to  a  corporation  receiver  upon  his  appointment  and  the 
expression  statutory  receiver,  when  used,  very  often  de- 
notes a  corporation  receiver  in  whom  the  legal  title  has 
been  vested  by  virtue  of  the  statute  under  which  he  was 
appointed.^ 

4  See  §  286  et  seq.,  supra.  6  See  Attorney  General  v.  Atlan- 

5  Republic  Life  Ins.  Co.  v.  Swig-      tic  M.,  etc.,  Co.,  100  N.  Y.  279,  3 
ert,  135  111.  150,  12  L.  R.  A.  328,  25      N.  E.  193, 

N.  E.  680. 


S^6  LAW   OP    RECEIVERS. 

The  ownership  of  the  title  works  to  the  convenience  of 
the  receiver  in  many  of  the  details  of  his  administration,'^ 
and  especially  in  respect  to  his  administration  of  the 
property  outside  of  his  jurisdiction.  But,  again,  as  far 
as  the  domiciliary  administration  of  the  estate  by  a 
domiciliary  receiver  is  concerned,  the  practical  impor- 
tance of  this  distinction  between  the  two  classes  of  re- 
ceivers revolves  around  a  single  point,  namely,  the  ques- 
tion as  to  whether  suits  concerning  matters  originating 
under  the  company's  management  shall  be  instituted  and 
prosecuted  by  or  against  the  company  or  the  receiver,^ 
The  question  also  arises  in  respect  to  the  collection  of 
certain  statutory  assessments  against  stockholders  as 
will  be  seen  later  on. 

§  339.     Effect  Where  Receivership  Does  Not  Involve  All  of  the 
Corporate  Property. 

Of  course  where  the  receivership  is  of  such  a  sort  that 
it  does  not  involve  all  of  the  assets  of  a  company  and 
leaves  assets  free  to  be  possessed  and  managed  by  the 
company,  the  receiver  would  have  no  interest  in  nor  any 
proper  connection  with  litigation  concerning  the  non- 
receivership  property.^  Even  in  a  foreclosure  case  a 
creditor  of  the  mortgagor  might  seek  judgment  against 
it  hoping  to  satisfy  the  judgment  out  of  an  equity  re- 
maining in  the  property;  but  if  he  obtained  a  judgment 
and  asked  the  court  to  protect  him  as  to  his  rights  in  the 
equity,  the  only  party  that  would  be  interested  in  that 
matter  would  be  the  mortgagor;  the  receiver  would  have 
no  interest  in  it.  Much  of  the  confusion  that  has  arisen 
over  the  instant  question  has  been  due  to  failure  to  have 

7  See  Teninga  v.  Glos,  226  111.  i  Heath  v.  Missouri,  etc.,  Ry., 
121,  107  N.  E.  126.  Co.,    83   Mo.    617,    621;    St.    Louis, 

8  As  to  matters  arising  during  etc.,  Ry.  Co.  v.  Whitaker,  68  Tex. 
the  receivership  itself,  see  §§337  630,  636,  5  S.  W.  448;  City  Water 
et    seq..  infra.  Co.  v.  State,  88  Tex.  600,  32  S.  W. 

1033. 


PRIVATE    CORPORATIONS. 


847 


in  mind  11) e  character  of  the  receivership  involved  and 
the  question  as  to  whether  the  receivership  court  was  • 
administering  special  property  for  a  special  purpose  or 
all  of  the  property  for  all  purposes. - 

§340.     General  Rules   Respecting  Maintenance   of  Litigation 
By  or  Against  Receiver. 

In  the  case  of  a  statutory  receiver,  taking  the  legal 
title,  we  find  no  difficulty  on  the  point  as  to  who  is  the 
proper  nominal  party  to  litigation.  Actions  begun 
against  the  company  and  not  concluded  at  the  time  of 
the  appointment  abate,  to  be  revived  only  upon  the  bring- 
ing in  of  the  receiver  as  defendant;  and  thereafter 
actions  to  establish  any  claim  against  or  adverse  in 
interest  to  the  estate  must  be  instituted  against  the  re- 
ceiver.^ Sometimes  the  statute  provides  that  the  corpo- 
ration may  continue  to  have  the  right  to  defend  actions 
or  that  the  receiver  may  prosecute  actions  in  his  own 
name  or  that  of  the  company  and  in  such  cases  the  ques- 
tion presents  no  difficulty.-  In  the  case  of  an  equity  re- 
ceiver, however,  where  the  statute  is  silent  upon  the 
subject,  there  has  probably  been  a  divergence  of  decision 
as  to  whether  an  action  should  be  instituted  against  the 
company  or  the  receiver.  In  a  federal  case  we  find  it 
said:  ''There  may  be  decisions  found,  especially  among 
the  earlier  cases,  which  would  appear  to  support  the 

2  See:  Shout  v.  United  Shoe  Ma-  Stewart  Drug  Co.,  115  Me.  2S9,  98 

chinery  Co.,  195  Fed.  313;    Henry  Atl.   809;    In  re  French,   181   App. 

V.   Epstein  '(Ind.   App.),    95   N.    E.  Div.    719,    168    N.    Y.    Supp.    988; 

275;   Leonard  v.  Hartzler,  90  Kan.  Kissenger  v.  Fitzgerald,  152  N.  C. 

386,  50  L.  R.  A.  (N.  S.)  383,  133  Pac.  247,  67  S.  E.  588;  HoUowell  v.  Nor- 

57o';  Emory  v.  Faith,  113  Md.  253,  folk,  etc.,  R.  Co.,  153  N.  C.  19.  68 

Ann.  Cas.  1912A,  586,  77  Atl.  386;  S.  E.   894;    Black  v.   Consolidated 

State  V.    Small,   272   Mo.   507,   199  Ry.  &  Power  Co.,  158  N.  C.  468,  74 

S.  W.  127;  Kincaid  v.  Dwinelle,  59  S.  E.  468. 

Tsl.  Y.  548,  553;  Decker  v.  Gardner,  2  See  Eau  Claire  Canning  Co.  v. 

124  N.  Y.  334,  11  L.  R.  A.  480,  26  Western    Brokerage    Co.,    213    111. 

N.  E.  814.       '  561,  73  N.  E.  430,  affirming  (1904) 

1  Carter,     Carter     &     Meigs     v.  115  111.  App.  71. 


848  LAW   OF    RECEIVERS. 

contention  of  the  plaintiff  as  to  the  right  to  maintain  the 
action  against  the  receiver,  though  it  accrued  prior  to 
his  appointment.  But  those  cases  are  exceptional  and 
do  not  belong  to  the  class  of  the  present  action.  In 
cases  for  personal  injuries  suffered  by  the  alleged  negli- 
gence or  wrongful  act  of  a  corporation  prior  to  the  ap- 
pointment of  any  receiver  thereof,  the  doctrine  would 
seem  to  be  settled  that  the  action  can  only  be  maintained 
against  the  offending  corporation,  and  not  against  the 
receiver  subsequently  appointed.  This  doctrine  is 
founded  upon  the  principle,  that  the  receiver  is  only 
answerable  for  the  consequences  of  the  acts  and  negli- 
gence of  his  own  servants  and  employees  operating  the 
franchise  of  the  corporation,  and  not  for  the  acts  and 
negligence  of  the  corporation  itself,  before  he  assumed 
control  and  management  of  it.  The  corporation  is 
doubtless  accountable  for  its  acts  and  negligence  before 
the  appointment  of  a  receiver,  but  it  does  not  follow 
that  such  liability  devolves  upon  a  receiver  on  his  ap- 
pointment. He  does  not  represent  the  corporation  in 
respect  to  such  transactions,  nor  does  he  assume  liability 
therefor.  The  possession  of  the  receiver  is  not  the 
possession  of  the  corporation,  but  is  adverse  and  antago- 
nistic thereto ;  and  the  corporation  does  not  in  any  man- 
ner control  either  the  receiver  or  his  employees.  The 
negligent  acts  or  wrongs  committed  by  the  corporation, 
before  the  appointment  of  the  receiver,  are  independent 
transaction,  for  which  the  corporation  is  responsible."^ 

3  McDermott  v.   Crook,  20  App.  Black     v.     Consolidated     Ry.     & 

Cas.  (D.  C.)  465;  Sundles  v.  Idaho-  Power  Co.,  158  N.  C.  468,  74  S.  E. 

Oregon    Light   &    Power    Co.,    218  468    (The  receiver  may  be  joined 

Fed.  698;  Emory  v.  Faith,  113  Md.  as  a  party  defendant  in  an  action 

253,  Ann.  Cas.   1912A,  586,  77   Atl.  pending    at    the    time    of    the    ap- 

386;    Hackett  v.  Supreme  Council  pointment). 

A.  L.  H.,  206  Mass.  139,  92  N.  E.  Lynn  v.  McCue,  94  Kan.  761,  147 

133;  Andrews  v.  Steele  City  Bank,  Pac.  808.     In  a  pending  action  in 

57  Neb.  173,  77  N.  W.  342  (the  re-  which  the  issue  is  as  to  a  conver- 

ceiver  has  the  right  to  inteivene) ;  sion   of  certain  of  the   company's 


PRIVATE    CORPORATIONS.  849 

On  tlie  other  hand  the  Missouri  Supreme  Court,  in 
sustaining  the  view  that  an  action  may  be  maintained 
against  the  receiver  of  a  corporation  for  a  tort  committed 
prior  to  the  appointment  of  tlie  receiver,  speaks  as 
follows:  ''When  a  corporation  passes  into  the  hands  of 
a  receiver,  it  is  taken  by  him  subject  to  all  the  debts 
and  liabilities  existing  against  it,  at  the  time  of  his  ap- 
pointment, whether  rising  for  contract  or  tort.  The 
court  appointing  him  ascertains  and  adjusts  these  debts 
and  liabilities  and  orders  a  distribution  of  the  assets  in 
discharge  thereof,  according  to  the  law  and  equity  gov- 
erning them.  On  application  of  the  claimant  the  court 
entertains  and  adjusts  his  rights.  It  may  exercise  the 
discretion  of  allowing  the  adjudication  of  his  demand  to 
be  made  in  an  independent  suit,  and  this  is  usually  done 
when  the  issues  can  be  more  conveniently  tried  in  the 
place  where  the  facts  arise  and  the  venue  belongs.  Before 
instituting  his  suit  the  claimant  obtains  leave  from  the 
court  of  which  the  receiver  is  an  officer  to  sue  him  in 
another  tribunal,  which  was  the  case  here.  In  respect  to 
the  past  liabilities  of  the  corporation,  it  is  not  pretended 
that  the  receiver  can  be  personally  held.     Nevertheless 

assets,  if  the  receiver  is  not  solved,  or  that  the  court,  in  ap- 
brought  in,  the  trial  court,  know-  pointing  the  receiver,  enjoined  it 
ing  of  its  appointment,  may  order  from  exercising  any  of  its  corpo- 
that  a  judgment  against  the  com-  rate  powers.  No  statute  of  this 
pany  shall  not  be  binding  upon  state  limits  the  powers  of  a 
the    receiver,    at   least    so    far    as      corporation  upon  the  appointment 

of  a  receiver,  and  those  of  the  de. 

fendant   were   restrained   only   by 

depriving  it  of  its  property.     The 
St.  Louis,  etc.,  R.  Co.  v.  Ravia      ^^^^^    ^^    ^^^^    ^^^^    ^^    ^^^^^    ^^^^ 

Granite,  etc..  Co.  (Okla.),  174  Pac.  ferred    by    the    statute,    was    re- 

252.     (In  this  case  the  point  seems  tained.       No     relief     was     asked 

not  to  have  been  mentioned.)  against  the  receiver,  and  he  was 

In  Weigen  v.  Council  Bluffs  Ins.  not  a  necessary  party,  though  he 

Co.,   104  Iowa  410,   73   N.  W.   862,  jnight,    in    the    discretion    of    the 

the    court    said:     "It    will    be    ob-  court,   be   permitted,   by   interven- 

served  that  there  is  no  allegation  ing   to    interpose    any    defense    to 

that  the  corporation  had  been  dis-  the  action." 

I  Rec— 54 


creditors  who  are  not  represented 
in  the  action  are  concerned. 


850  LAW    OF    RECEIVERS. 

he  is  the  representative  of  the  corporation,  taking  its 
place  in  respect  to  the  custody  and  administration  of  its 
estate,  and  toward  its  claimants  and  creditors  he  occupies 
a  relation  somewdiat  analogous  to  that  of  an  adminis- 
trator. The  functions  of  the  corporation  being  suspended 
as  to  its  former  managers,  the  receiver  takes  their  place 
and  holds  and  conducts  everything  in  his  own  name.  A 
suit,  therefore,  to  ascertain  and  adjust  a  liability  of  the 
company  is  properly  brought  against  the  receiver  in  his 
capacity  as  such,  somewhat  in  the  same  form  as  a  suit 
against  an  administrator  by  a  creditor  of  the  estate  of 
the  deceased.  The  judgment  goes  against  the  defendant 
in  his  capacity  as  a  receiver,  and  is  liable  out  of  the 
assets  of  the  company  in  his  hands.  Such  is  the  judg- 
ment in  this  case.  Upon  this  judgment  the  court  that 
granted  leave  to  the  plaintiff  to  sue  will  adjudge  to  him 
his  equitable  share  in  the  assets  of  the  company,  and 
order  payment  according  to  the  equities  and  priorities 
of  the  different  claimants  on  the  assets."^ 

The  point  is,  in  the  main,  purely  technical,  and  the 
decision  of  any  court  concerning  it  would  probably  de- 
pend largely  upon  how^  firmly  the  court  pursued  the 
practice  of  adhering  strictly  to  the  rules  of  equity  pro- 
cedure.^ If  the  point  that  the  proper  party  w^as  not 
before  the  court  was  seasonably  made  the  ruling  ought 
perhaps  to  be  that  the  corporation  is  at  least  the  only 
necessary  party  defendant.  It  might  be  that  because  of 
the  statute  of  limitations  some  benefit  could  be  gained  by 
delay.  Apart  from  considerations  of  that  sort,  the  im- 
portance of  the  point  is  stated  as  follows:  ''The  fact 
that  the  receiver  is  not  a  proper  party  to  an  action  for 

4  Combs    V.    Smith,    78    Md.    32.      had    been    obtained    from    the    re- 
See,    also,    Harrell    v.    Atkinson,      ceivership  court,  it  was  ruled  that 

0  Ga.  App.  150,  70  S.  E.  954.  an    action    against    the    receiver 

5  In  Kissenger  v.  Fitzgerald,  was  "in  effect"  an  action  against 
152  N.  C.  247,  67  S.  E.  588,  where      the  company. 

rerraission  to  institute  the  action 


PRIVATE    CORPORATIONS,  851 


a  tort  committed  by  a  corporation  prior  to  tlie  appoint- 
ment of  a  receiver  goes  merely  to  the  remedy  and  does 
not  preclude  the  injured  party  recovering  against  the 
company  and  collecting  his  claim  from  the  receivership 
assets.'"^  If  the  cause  of  action  arose  under  the  com- 
pany's management  the  claim  evidenced  by  a  judgment 
against  the  company  would  rank  as  a  general  creditor '^s 
claim.  If  the  cause  of  action  arose  under  the  receiver's 
administration  then  the  claim  would  have  priority  as 
being  a  receiver's  indebtedness.  If  the  action  was 
brought  with  the  consent  of  the  receivership  court,  or 
if  it ''was  one  commenced  prior  to  the  receivership  and 
the  receiver  was  made  a  party  or  intervened,  the  court 
would  know  the  rank  of  the  claim.  If  the  action  was 
commenced  and  prosecuted  without  the  knowledge  of  the 
receivership  court  then  a  judgment  against  the  company 
would  be  presumed  to  rank  as  a  general  claim. 

In  regard  to  actions  on  behalf  of  the  corporation,  or 
the  estate,  the  statutes  sometimes,  even  though  not  be- 
stowing legal  title  upon  the  receiver,  expressly  give  him 
the  right  to  institute  proceedings  in  his  own  name,  or 
the  court  itself  may  grant  him  authority  to  do  so."^  The 
practice  on  the  part  of  the  court  of  granting  this  right 
to  receivers  is  followed  especially  with  reference  to  cases 
that  may  properly  be  instituted  before  the  appointing 
court  itself,  and  it  is  sometimes  said  that  the  practice  is 
a  development  along  the  line  of  giving  increased  power 
to  equity  receivers— a  practice  which  equity  courts  may 
adopt  without  the  aid  of  statutes.^  In  the  absence  of 
such  statutory  or  court-order  provision,  the  strict  equity 
rule  undoubtedly  is  that,  although  the  receiver  conducts 
and  controls  the  litigation,  the  corporation  is  the  proper 
nominal  plaintiff.    The  rule  has  been  stated^  as  follows : 

c  In  re   Seaboard  Air  Line  Ry.,  «  Davis  v.  Gray,  16  Wall.  (U.  S.) 

166  Fed.  376.  203.  21  L.  Ed.  447. 

7  Thompson  v.  Greeley,  107  Mo.  o  Underhill  v.  Rutland  R.  Co.,  90 

C77    17  S    W.  962.  Vt.  462,  98  Atl.  1017. 


852  LAW   OF   RECEIVERS. 

''It  is  an  established  principle  of  the  common  law  and 
the  settled  doctrine  of  this  state  that  an  action  in  a  court 
of  law  for  the  enforcement  of  a  right  must  be  in  the 
name  of  the  person  having  the  legal  title.  No  exception 
exists  at  common  law  in  favor  of  a  receiver  and  we  have 
no  statute  creating  one.  Actions  brought  here  by  re- 
ceivers appointed  in  another  state  are  sustained  on  the 
ground  that  the  statutes  of  their  states  give  them  the 
legal  title." 

The  tendency  is,  however,  to  make  the  technical  point 
of  little  practical  value.  In  the  case  from  which  the 
quotation  immediately  preceding  was  taken  the  receiver 
commenced  the  action  in  his  own  name.  At  the  conclu- 
sion of  plaintiff's  evidence  the  point  that  the  proper 
plaintiff  was  not  before  the  court  was  made  the  basis  of 
a  motion  for  a  directed  verdict  in  favor  of  defendant. 
In  reply  plaintiff  asked  for  leave  to  amend  by  substitut- 
ing the  corporation  as  plaintiff.  In  suj)port  of  an  order 
granting  permission  to  do  so  this  same  court  said:  "The 
plaintiff  sues  as  receiver  of  the  Columbian  Marble  Com- 
pany. The  amended  declaration  declares  upon  a  promise 
to  the  Columbian  Marble  Company  and  in  consideration 
thereof  a  promise  to  the  plaintiff  as  receiver.  The  case 
has  been  tried  as  it  would  have  been  if  properly  brought. 
The  receiver  would  have  been  the  one  to  prosecute  the 
suit  if  brought  in  the  name  of  the  company.  He  was 
in  fact  the  only  one  who  could  enforce  the  right.  He  is 
the  one  to  receive,  hold,  and  account  for  the  damages 
recovered,  in  whichever  name  the  suit  is  prosecuted.  As 
regards  the  purpose  and  management  of  the  suit,  he  is 
the  same  as  the  company." 

In  a  Massachusetts  case,  in  which  a  similar  amendment 
was  permitted,  it  was  said:     "The  suit  is  being  prose- 

See:      Philadelphia,     etc.,     Iron  Atl.  254;   Hayward  v.  Leeson,  176 

Co.   V.    Butler,    181    Mass.    468,    63  Mass.  310,  49  L.  R.  A.  725,  57  N.  E. 

N.     E.     949;     also     Tompkins     v.  656;    Arnold  v.   Searing,   78   N.   J. 

Spcrry,   etc.,   Co.,   96   Md.    560,    54  Eq.  146,  78  Atl.  762. 


PRIVATE    CORPORATIONS. 


853 


cuted  for  those  who  by  decree  of  the  court  appointing  the 
receiver  are  entitled  to  the  proceeds  and  for  whose  bene- 
fit it  was  originally  brought.  The  substitution  of  the 
company  for  the  receiver  as  the  party  plaintiff  was  made 
to  comply  with  the  technicalities  of  our  procedure.  "''^ 

As  far  as  the  defendant  is  concerned  the  practical 
bearing  of  the  matter  is  to  avoid  the  possibility  of  having 
to  satisfy  two  judgments.    From  that  point  of  view  it  is 
his  duty  to  raise  the  question  as  to  proper  parties  by 
some  motion  effective  to  reach  the  point.^^    As  far  as  the 
receiver  is  concerned  the  bearing  of  the  matter  is  to  have 
the  recovery  inure  to  the  benefit  of  the  estate  and  not 
diverted  to  the  company  at  the  loss  of  the  estate.    It  is 
the  receiver's  duty  to  see  that  the  estate  receives  such 
benefit  as  it  is  entitled  to  from  a  favorable  outcome  of  the 
suit.     From  this  point  of  view  a  representative  action 
begun  by  certain  stockholders  on  behalf  of  the  company, 
before    the    receivership,    against    directors    to    recover 
losses  caused  the  company  by  their  misfeasance,  in  wdiich 
the    judgment   would   necessarily   not   be   paid   to    the 
nominal  parties  but  to  the  person  properly  entitled  to 
receive  it,  is  not  obnoxious  to  a  provision  in  the  order 
appointing    a    receiver    restraining    the    company,    its 
officers, ''and  all  other  persons  whomsoever    .    .    .    from 
interfering  with,  attaching,  levying  upon,  or  in  any  man- 
ner whatsoever  disturbing  the  claims,  choses  in  action, 
and  causes  of  action  of  the  said  defendant  railway  com- 
pany    ...     or  any  of  the  property  and  premises  of 
the  railway  company    ...    or  from  taking  possession 
of,  or  in  any  way  assuming  a  control  of,  or  from  inter- 

10  East   Tennessee  Land   Co.   v.  304,    65    N.    E.    396     (amendment 

Leeson,  178  Mass.,  206,  59  N.  E.  639.  after  verdict) ;  Bigelow  v.  Draper, 

See:'  Chandler  v.   Frost,   88   m.  6  N.  D.  152,  69  N.  W.  570   (amend- 

559  (amendment  pursuant  to  stat-  ment  after  verdict), 
ute      concerning      amendments);  ii  Boston    Elevated    R.    Co.    v. 

Wilson  v.  Welch,  157  Mass.  77,  31  Paul  Boyton  Co.,  211  Fed.  812,  128 

N.   E.   712;    Campbell,   etc.,   Co.   v.  C.  C.  A.  338. 
Barr,  etc.,  Engine  Co.,   182   Mass. 


g54  LAW   OF    RECEIVERS. 

fering  with,  the  said  claims,  choses  in  action,  causes  of 
action,  or  any  other  property  or  premises,  or  any  part 
thereof.  "^^ 

In  subsequent  sections  where  we  speak  of  actions 
brought  by  the  receiver  it  is  to  be  understood  that  the 
expression  is  used  merely  for  convenience  and  that,  if 
the  rule  requires  it,  the  corporation  is  to  be  made  the 
nominal  plaintiff. 

§341.     Relation  of  Directors  and  Officers  of  the  Corporation 
to  the  Estate. 

While  a  corporation  is  functioning  as  such  and  is  itself 
in  possession,  control,  and  management  of  its  property 
and  affairs,  its  directors  and  officers  are,  in  a  sense, 
trustees  for  its  stockholders  and  creditors,  and  they  are 
bound  by  both  equity  and  statutory  principles  to  exer- 
cise the  highest  good  faith  in  their  management  toward 
these  other  interests  and  are  not  permitted  to  gain  any 
undue  advantage  or  make  any  unfair  gain  from  their 
official  connection  with  the  company.  When,  how^ever,  a 
corporation  receiver  is  placed  in  control  and,  as  a  conse- 
quence the  functions  of  directors  and  officers,  as  such, 
cease  in  respect  to  its  property  and  they  may  act  with 
reference  to  the  estate  just  as  any  other  creditor  or  any 
stranger  and  have  no  greater  duty  or  obligation  relative 
to  the  estate  than  any  of  these  others. ^ 

Where  the  officers  of  the  corporation  have  not  been 
^  restrained  from  performing  their  corporate  duties  by 

12  American   Steel  Foundries  v.  i  The    mere    fact   that    some    of 

Chicago,  etc.,  R.  Co.,  231  Fed.  1003.  the  stockholders  of  a  corporation 

Where  a  receiver  appointed  un-  are     related     to     the     appointing 

der  a  statute,  represents  the  cor-  judge  does  not  make  an  order  ap- 

poration    and    not    its    creditors,  pointing  a  receiver  void.    Ex  parte 

sues    directors    for    misappropria-  Tinsley,  37  Tex.  Cr.  517,  66  Am.  St. 

tion  of  corporate  assets,  the  suit  Rep.  818,  40  S.  W.  306. 

should    be    considered    as    one    by  The    court    can    not,    on    an    ex 

the  corporation.    Folsom  v.  Smith,  parte  application,   make  an   order 

113  Me.  83,  92  Atl.  1003.  directing  a  former  manager,  who 


PRIVATE    CORPORATIONS.  855 

an  order  of  court,  they  may  hold  corporate  meetings  and 
do  such  things  as  will  not  interfere  with  the  possession 
of  the  receiver.-  Even  a  sale  of  all  of  the  property  of 
the  corporation  will  not  necessarily  terminate  its  cor- 
porate existence.^*  The  court,  however,  has  the  power 
to  control  the  corporate  actions  of  the  officers  of  a  cor- 
poration over  which  it  has  placed  a  receiver  and  usually 
does  do  so,-*  and  especially  where  their  actions  will  inter- 
fere with  the  proper  and  regular  disposition  of  the  re- 
ceivership property. 

A  director  of  a  company  who,  under  the  company  man- 
agement, has  acquired,  in  a  manner  nowise  improper,  a 
claim  against  the  company,  either  secured  or  unsecured, 
is  entitled  to  have  it  participate  in  the  distribution  of  the 
receivership  estate  just  the  same  as  if  it  were  owned 
by  a  stranger  to  the  company.^  But  a  director  of  a 
corporation  may  not,  when  the  corporation  is  insolvent, 
buy  up  for  himself,  at  a  discount,  claims  against  the  cor- 
poration and  present  them  to  the  company  for  settle- 
ment at  their  face  value ;  although,  if  a  stranger  to  the 
corporation  purchases  claims  against  it,  while  insolvent, 
at  a  discount,  before  the  receivership,  and  presents  them 
for  payment  from  the  estate,  the  fact  that  a  director  of 
the  corporation,  thoroughly  acquainted  with  the  com- 
pany's affairs,  had  acted  as  his  agent  in  making  the 
purchases  will  not  prevent  the  claims  sharing  in  the  dis- 
tribution, on  the  basis  of  their  par  value,  on  an  equality 

had  been  discharged  before  the  3  Geddes  v.  Anaconda  Copper 
receiver  was  appointed,  to  file  Mimng  Co.  245  Fed.  225.  157 
an  account  of  his  management.  ^'^^^^^^^'J^y  ^^^^^  Co.  v.  Missouri 
Farmers'  Union,  etc..  Stock  Co.  v.  ^^^  ^^_  ^^  238  Fed.  812;  David- 
Randall,  126  La.  817,  52  So.  1036.  ^^^  ^^  American  Blower  Co.,  243 
2  United  States,  etc..  Trust  Co.  y^^  ^gy^  i^q  q  C.  A.  33;  Graselli 
V.  Delaware,  etc.,  Const.  Co.  (Tex.  chemical  Co.  v.  Aetna  Explosives 
Civ.),  112  S.  W.  447.  See,  also,  Co.,  252  Fed.  456,  164  C.  C.  A.  380. 
Linn  v.  Joseph  Dixon,  etc.,  Co.,  r.  Curran  v.  Oppenheimer,  164 
59  N.  J.  L.  28,  35  Atl.  2.  App.  Div.  746,  150  N.  Y.  Supp.  369. 


856  LAW   OF    RECEIVERS. 

with  other  claims,  if,  as  a  matter  of  fact,  the  director 
himself  had  no  beneficial  interest  in  the  transaction.^ 
The  same  thing  is  true  with  reference  to  claims  pur- 
chased by  a  director  for  himself  if  the  purchase  is  made 
after  he  has  been,  by  the  appointment  of  a  corporation 
receiver,  released  from  his  fiduciary  relation  to  the  cor- 
poration and  those  interested  in  or  dealing  with  it  and 
the  consequent  restrictions  upon  his  conduct  with  refer- 
ence to  its  affairs."^  A  director,  or  an  officer,  may  become 
the  owner  of  receiver's  certificates*^  or  purchase  corpo- 
rate assets  at  a  receiver's  sale^  as  freely  and  unre- 
servedly as  a  stranger  to  the  corporation.  However,  in 
testing  any  issue  of  fraud  raised  against  the  participa- 
tion, in  any  detail  of  the  administration,  of  such  an  in- 
terested person,  his  former  connection  with  the  company 
leads  to  an  inquiry  into  the  transaction  made  more  thor- 
oughly and  with  closer  scrutiny  of  all  the  attending  cir- 
cumstances than  would  perhaps  be  necessary  in  the 
absence  of  such  a  circumstance.^*^ 

§  342.     Status  of  the  Corporation  Pending  the  Receivership. 

The  status  of  the  corporation  pending  the  receivership 
as  far  as  the  entity  of  the  corporation  is  concerned  is  one 
of  inactivity  as  far  as  conducting  its  business  affairs  and 
as  far  as  its  activity  as  a  corporate  body  is  concerned,  it 
is  dependent  upon  the  nature  of  the  proceeding  in  which 
the  receiver  is  appointed,  whether  it  is  a  dissolution  pro- 
ceeding or  other  form  of  litigation,  and  it  is  also  depen- 

6  Horner  v.  New  South  Oil  Mill  chased  at  an  unfairly  low  price 
(Ark.)    197  S.  W.  1163.  because  of  wrongful  control  over 


7  In  re  Allen,  etc.,  Co.,  227  Mass. 


the    sale,   the    sale   might   be    set 

aside  or  he  might  be  held  to  hold 

551,  116  N.  E.  875.  ^^^^^^  ^^  trustee  for  all  parties  in- 

s  McKittrick  v.   Arkansas   Cent.      terested  in  the  estate.     Broussard 

Ry.  Co.,  152  U.  S.  473,  38    L.   Ed.      ^    Mason,   187   Mo.   App.   281,   173 

518,    14    Sup.    Ct.    661;    Tiffany   v.       g.  W.  698. 

Smith,  124  N.  Y.  Supp.  85.  lo  Horner    v.     New     South     Oil 

0  If,    however,    the    officer    pur-      Mill,  130  Ark.  551,  197  S.  W.  1163. 


PRIVATE    CORPORATIONS. 


857 


dent  upon  the  scope  of  the  order  of  the  court  in  making 
the  appointment  of  the  receiver. 

Unless  prohibited  by  the  order  of  the  court,  the  ap- 
pointment of  a  receiver  does  not  prevent  the  stock  of  the 
corporation  from  being  transferred  in  like  manner  as 
before  the  appointment  of  the  receiver  or  the  holding  of 
corporate  meetings  which  do  not  interfere  with  the  oper- 
ation of  the  receivership.^  The  receivership  court  may, 
however,  control  the  holding  of  corporate  meetings  and 
may  enjoin  them  from  being  held  if  actions  are  proposed 
which  are  detrimental  to  the  purposes  of  the  receiver- 
ship.- And  if  the  books  of  the  corporation  have  been 
turned  over  to  the  receiver,  he  may  be  required  by  a 
stockholder  to  transfer  his  stock  upon  the  books.^  Like- 
wise a  receiver  may  be  compelled  to  allow  a  stockholder 
or  bondholder  to  examine  property  in  his  hands.^  Where 
under  the  statute  the  property  of  an  insolvent  corpora- 
tion immediately  vests  in  a  receiver  appointed  over  it, 
upon  his  appointment,  the  corporate  officers  should  turn 
all  of  its  property  over  to  the  receiver.^  Unless  the  court 
which  has  appointed  a  receiver  over  a  corporation  has 

1  Butler  V.  Beach,  82  Conn.  417,  mortgage  and  the  execution  of  a 

74    Atl.    748.      See,    also.    United  judgment     for     fraud.       Sims     v. 

States,  etc.,  Trust  Co.  v.  Delaware,  United    Wireless    Telegraph    Co., 

etc..    Const.    Co.    (Tex.    Civ.),    112  179  Fed.  540. 

S.  W.  447;   Linn  v.  Joseph  Dixon,  Where  not  prohibited   from  do- 

etc,  Co.,  59  N.  J.  L.  28,  35  Atl.  2.  ing  so  by  order  of  court,  a  corpo- 

Where  a  receiver  was  appointed  ration   may   issue   new    stock   and 

for  a  foreign  corporation  in  New  bonds.     United  States,  etc.,  Co.  v. 

Jersey,  and  its  powers  were  lim-  Delaware,    etc..    Const.    Co.    (Tex. 

ited  to  the  corporation's  property  Civ.),  112  S.  W.  447. 

located    within    the    state,    an    in-  2  Graselli  Chemical  Co.  v.  Aetna 

junction  which  only  restrained  the  Explosives  Co.,  252  Fed.   456,   164 

use     of     the     corporation's     fran-  C.  C.  A.  380. 

chises  in  New  Jersey  did  not  pre-  3  People  v.  California  Safe,  etc., 

vent  a  minority  stockholder  from  Co.,  18  Cal.  App.  732,  124  Pac.  558. 

suing    to   prevent    the    fraudulent  4  Henszey   v.   Langdon-Henszey, 

exercise  of  the  corporation's  fran-  etc.,  Min.  Co.,  80  Fed.  178. 

chises   in  other  states   and   to  re-  5  Generotzky    v.    Barnay    Hotel 

strain  the  foreclosure  of  a  chattel  Co.,  85  N.  J.  Eq.  63,  95  Atl.  865. 


858  LAW    OF    RECEIVERS. 

prohibited  tlie  commencement  of  suits  against  the  corpo- 
ration, such  suits  may  be  initiated.^  But  it  is  the  usual 
custom  for  the  court  to  restrain  such  suits  upon  appoint- 
ing a  receiver. 

Where  by  reason  of  a  receiver  being  appointed  over  it 
in  its  domiciliary  jurisdiction  it  can  not  maintain  a  suit 
there,  it  will  not  be  permitted  to  do  so  in  another  state."^ 

The  appointment  of  a  receiver  mil  not,  however,  pre- 
vent the  statute  of  limitations  running  in  favor  of  the 
corporation.^ 

Although  a  receiver  is  conducting  litigation  on  behalf 
of  the  corporation,  the  corporation  may  also  appear  by 
counsel  at  its  own  expense.^ 

6.    WJio  Will  Be  Appointed  Corporation  Receiver. 

§343.    Who  Will  Be  Selected  as  the  Receiver  and  Qualifica- 
tions He  Should  Possess. 

The  general  rule  is  that  a  receiver  should  be  a  person 
who  stands  indifferent  as  between  the  parties  and  is  sub- 
ject to  no  influence  other  than  to  conserve  the  property 
entrusted  to  his  management  for  the  benefit  of  those  who 
shall  finally  be  entitled  to  it.^    He  should  be  an  impartial 

6  Denton  v.  Baker,  79  Fed.  189,  under    Code    Civ.    Proc.    2441,    for 

24  C.  C.  A.  476;  Warner  V.  Imbeau,  examination    of    a    third    person. 

63  Kan.  415,  65  Pac.  648.  Howell    v.    German    Theatre,    64 

Although    a    receiver    has    been  Misc.   Rep.    110,   117   N.   Y.    Supp. 

appointed  over  a  foreign  corpora-  1124. 

tion  in  another  state,  the  corpora-  7  E.  F.  Kirwan  Mfg.  Co.  v.  Trux- 

tion  may  be  sued.    Venner  v.  Den-  ton,  2  Penne.  (Del.)  48,  44  Atl.  427. 

ver,  etc.,  Water  Co.,  40  Colo.  212,  8  Jackson   v.   Fidelity,   etc.,   Co., 

122  Am.  St.  Rep.  1036,  90  Pac.  623.  75  Fed.  359,  21  C.  C.  A.  394;  Inter- 

The  appointment  of  a  temporary  national,  etc.,  R.  Co.  v.  McCuUoch 

receiver    under    the    statute    of    a  (Tex.  Civ.),  24  S.  W.  1101. 

foreign  corporation,  pending  a  suit  9  Johnson  v.  Southern  Bldg.,  etc., 

by  a  stockholder  against  the  cor-  Assn.,  99  Fed.  646. 

poration  and  some  of  its  oflicers,  i  Kokernot  v.  Roos   (Tex.  Civ.), 

does  not  prevent  a  judgment  cred-  189  S.  W.  505;  Graham  v.  Hundley 

itor  of  the  corporation  from  main  Dry   Goods   Co.    (Mo.),   177   S.  W. 

taining  sui)plementary  proceedings  600;    Farmers'   Loan  &   Trust  Co. 


PRIVATE    CORPORATIONS. 


859 


person  who  does  not  represent  any  particular  party  to 
the  action.  He  is  the  agent  of  the  court,  or  as  has  fre- 
quently been  stated,  the  ''arm  of  the  court."  The  gen- 
eral rules  applicable  to  receiverships  in  respect  to  his 
status  toward  the  receivership  and  the  principles  appli- 
cable to  his  selection  were  discussed  in  the  earlier  jjart 
of  this  work.- 

A  corporation,  generally  a  trust  company,  has  been  ap- 
pointed in  several  instances.^  The  question  of  whom  the 
court  will  appoint  in  any  particular  case  is  one  resting 
solely  within  its  discretion,  which  will  not  be  reviewed 
except  for  an  abuse  of  it  in  accordance  with  the  general 
rules  respecting  the  exercise  of  discretionary  powers.* 
Although  the  court  generally  gives  consideration  to 
names  suggested  by  the  parties  to  the  litigation,  it  is 
under  no  obligation  to  appoint  the  persons  suggested.^ 


V.  Northern  Pac.  R.  R.  Co.  (C.  C), 
G6  Fed.  169;  Olmstead  v.  Distilling 
&  Cattle  Feeding  Co.,  67  Fed.  24. 

The  duties  of  a  receiver  are  to 
take  charge  of,  and  safely  keep 
and  account  for,  all  of  the  assets 
of  the  estate,  and  put  into  effect 
orders  of  the  court  respecting  the 
receivership  property.  Southwest- 
ern Surety  Ins.  Co.  v.  Pacific  Coast 
Casualty  Co.,  92  Wash.  654,  159 
Pac.  788. 

A  receiver  represents  all  inter- 
ests involved  in  the  litigation,  and 
under  direction  of  court  manages 
property  for  benefit  of  all  con- 
cerned. Bull  V.  International 
Power  Co.,  86  N.  J.  Eq.  275,  98  Atl. 
382. 

An  ordinary  chancery  receiver 
is  not  an  assignee,  but  a  ministe- 
rial officer  appointed  by  the  court 
to  take  possession  of  and  preserve 
the  fund  or  property  in  litigation. 
Underbill  v.  Rutland  R.  Co.,  90  Vt. 
462,  98  Atl.  1017. 


2  See  sections  26  and  62  et  seq., 
section  154  and  chapter  IV  gener- 
ally. 

3  Kimmerle  v.  Dowagiac  Mfg. 
Co.,  105  Mich.  640,  63  N.  W.  529; 
Re  Knickerbocker  Bank,  19  Barb. 
(N.  Y.)  602;  Roby  v.  Title,  etc., 
Trust  Co.,  166  111.  336,  46  N.  E. 
1110. 

■i  Mitchell  V.  Aulander  Realty 
Co.,  169  N.  C.  516,  86  S.  E.  358; 
Fisher  v.  Southern  Loan  &  Trust 
Co.,  138  N.  C.  90,  102,  50  S.  E.  592. 

5  The  court,  of  course,  need  not 
follow  the  wishes  of  the  majority 
of  stockholders  in  selecting  a  re- 
ceiver. Garig  v.  Truth  Printing, 
etc.,  Co.,  123  La.  895,  49  So.  632. 

The  best  person  should  be  ap- 
pointed without  reference  to  whom 
has  suggested  his  name.  Lespl- 
nasse  v.  Bell,  2  Jac.  &  W.  436,  37 
Eng.  Reprint  694. 

The  defendant  has  no  right  to 
choose  as  to  whom  is  to  be  ap- 
pointed receiver.     Grosch  v.  Cen- 


^ 


860  LAW    OF    RECEIVERS. 

Where  a  court  appoints  a  person  upon  the  theory  that 
all  of  the  interested  parties  have  consented  to  his  ap- 
pointment, and  it  transpires  that  such  was  not  the  fact, 
the  court  wdll  revoke  the  appointment.*'  The  fact  that 
a  person  is  a  relative  of  persons  who  are  large  stock- 
holders and  bondholders  in  the  corporation  is  no  objec- 
tion to  his  appointment  where  almost  all  of  the  interested 
parties  unite  in  praying  for  his  appointment  as  receiver 
and  he  is  familiar  with  the  receivership  property  through 
being  a  former  officer  of  the  corporation.'^  The  general 
rule  in  respect  to  appointing  parties  to  the  litigation  as 
receivers  has  been  stated  as  follows  :^ 

''While,  in  extraordinary  cases,  it  is  proper,  and  may 
be  advisable,  to  appoint  a  party  to  the  action  receiver,  it 
is  not  usual  to  do  so ;  and,  when  the  court  is  asked  to 
depart  from  the  usual  practice,  a  full,  frank,  and  com- 
plete disclosure  of  all  facts  relevant  to  the  question 
should  be  made  to  the  court. ' ' 

The  practice  in  England  is,  upon  appointing  a  party  to 
the  litigation  as  receiver,  to  expressly  direct  that  he  is 
not  to  receive  compensation.^ 

tral  Vannina,  Inc.,  7  Porto  Rico  is  one  of  discretion.  The  court 
Fed.  39.  suggested  that  if  any  embarrass- 
Sometimes  in  accordance  witli  ing  conditions  arose  the  court 
debenture  securities,  the  holders  would  either  associate  some  one 
are  given  the  right  to  select  the  else  or  appoint  another  in  his 
receiver.  Under  such  circum-  stead.  Fisher  v.  Southern  Loan 
stances  the  appointment  must  be  &  Trust  Co.,  138  N.  C.  90,  102,  50 
a  fair  one.     Re  Maskelyne  British  S.  E.  592. 

Typewriter,  Ltd.  [1898],  Ch.  133.  o  Sargant  v.  Read,   Ch.   D.   600; 

c  Wood  V.  Oregon  Development  Blakeney  v.  Dufour,   15  Beav.   40, 

Co.,  55  Fed.  901.  51    Eng.    Reprint    451;    Sutton    v. 

7  Bowling    Green    Trust    Co.    v.  Jones,    15    Ves.    Jr.    584,    33    Eng. 
Virginia,  etc.,  Co.,  133  Fed.  186.  Reprint  875. 

8  Burroughs  v.  Toxaway  Co.,  182  In   Pawley  v.   Pawley    [1905],  1 
Fed.   129.  Ch.     593,     a     defendant    was     ap- 

The  court  will   not  usually   ap-  pointed    receiver,    without    salary, 

point  as  receiver  a  person  inter-  for   the   purpose   of  providing   for 

ested  in  the  property  or  a  party  toi  the   payment  of  his   costs   out  of 

the  controversy,  but  the  question  an    income    to    which    plaintiff,    a 


PRIVATE    CORPORATIONS.  8G1 

Where  a  partv  to  the  litigation  is  appointed  receiver, 
the  general  rulers  that  he  is  not  entitled  to  compensation 
for  his  services.i^  Probably  in  most  cases  where  a  party 
to  the  litigation  is  appointed,  it  is  done  by  consent  of  all 
parties  and  for  the  purpose  of  avoiding  the  expenses  con- 
nected with  compensating  a  receiver.^^ 

But  it  has  been  declared  that  where  the  appointment 
of  a  party  as  receiver  is  made  without  determining  at  the 
time  that  he  shall  serve  without  compensation,  it  becomes 
a  question  of  discretion  with  the  court  whether  to  make 
an  allowance  under  all  the  circumstances  of  the  particular 

case.^^ 

As  stated  before,  the  question  of  the  appointment  is 
one  lying  within  the  discretion  of  the  receivership  court. 
Under  such  circumstances  if  the  business  of  the  corpora- 
tion is  one  requiring  special  knowledge  or  ability  to  con- 
duct it  as  a  going  business,  or  if  its  affairs  are  m  such 
condition  as  to  details  of  management  or  requirements 
that  it  can  be  best  conducted  by  some  one  connected  with 
the  corporation,  the  court  will  not  hesitate  to  appomt 
such  person  as  its  receiver  where  he  is  not  charged  witn 

married   woman,   "vas   entitled   as      Ann.  Cas.  1912A,  1195,  129  N.  W. 

her  separate   use.   ^^l^-[^^''-      ''Z^,^,,,  where  a  party  to  the 
tain  restraints  on  anticipation  ^.^.^^^.^^     .^     ^^^^^.^^^^     ^^^^.^^^ 

10  Meissler  v.  Meissler,   101   111.  ^^^^^^  ^^  understanding  that  he  is 

App.    256;    Brien   v.    Harriman,    1  ^^    ^^^^^    without    compensation, 

Tenn.    Ct.    467;    Todd    v.    Rich.    2  ,^one  will  be  allowed  him.    Polk  v. 

Tenn.  Ch.  107.  Johnson,  160  Ind.  292,  98  Am.  St. 

Where  a  party  to  the  litigation  Rgp.   274,   66  N.  B.   752;    Steel   v. 

is    appointed    receiver,    it    is    the  Holladay,  19  Ore.  517,  25  Pac.  77. 

general    rule    that   he    is    not    en-  12  Meissler  v.  Meissler,   101   111. 

titled  to  compensation  for  his  ser-  App.  256. 

vices,    and    especially    so    in    the  in     some     instances,     however, 

case    of    the     appointment    of    a  compensation  has  been  allowed  to 

partner  as  receiver  on  dissolution  a  receiver  who  is  a  party  to  the 

of    the    partnership.      Bartelt    v.  litigation.    Geyser  Min.  Co.  v.  Salt 

Smith,    145    Wis.    31,    Ann.    Cas.  Lake  Rank,  16  Utah  163,  51  Pac. 

191 2A,'  1195,  129  N.  W.  782.  151;  Bignell  v.  Chapman  [1892],  1 

11  Eartclt  v.  Smith,  145  Wis.  31,  Ch.  59. 


862 


LAW   OF    RECEIVERS. 


fraud  in  his  conduct  of  the  affairs  of  the  corporation. 
Consequently  the  court  will,  under  such  circumstances, 
not  consider  the  fact  that  one  has  been  connected  with  the 
receivership  corporation  in  the  capacity  of  manager, 
officer,  director,  or  employee  as  an  objection  to  his  ap- 
pointment if  otherwise  satisfactory.^^     And  likewise  a 


13  Ralston  V.  Washington,  etc., 
R.  Co.,  65  Fed.  557. 

The  president  of  the  corporation 
was  appointed  in  Clarke  v.  Central 
R.  R.,  etc.,  Co.,  54  Fed.  556. 

In  one  case  where  the  proceed- 
ing was  initiated  by  the  state,  the 
president  and  directors  of  the  cor- 
poration were  appointed.  In  re 
Fifty-four  First  Mortgage  Bonds, 
15  S.  C.  304. 

The  board  of  directors  has  been 
appointed.  In  re  Manchester,  etc., 
Ry.  Co.,  L.  R.  14,  Ch.  D.  645. 

An  officer  or  stockholder  of  the 
corporation  may  be  appointed  to 
act  as  auctioneer  to  sell  property 
belonging  to  the  receivership. 
Friedrichs  v.  Friedrichs,  Young  & 
Taney,  126  La.  689,  52  So.  996. 

In  a  voluntary  proceeding  to 
dissolve  a  corporation  under  the 
statute,  the  president  of  the  cor- 
poration may  be  appointed  re- 
ceiver if  otherwise  not  disqualified. 
Matter  of  Eagle  Iron  Works,  8 
Paige   (N.  Y.)   385. 

Where  the  receivership  is  the 
result  of  financial  embarrassments 
and  the  receivership  is  expected  to 
tide  it  over,  it  has  been  stated  that 
at  least  one  of  the  receivers 
should  be  selected  from  the  man- 
agement on  account  of  his  famil- 
iarity with  the  business  of  the  cor- 
poration and  the  nature  of  its 
affairs  and  transactions.  Lotte 
Bros.  V.  American  Silk  Co.,  159 
Fed.  499. 


In  Scattergood  v.  American  Pipe 
&  Const.  Co.,  249  Fed.  23,  161  C. 
C.  A.  83,  the  president  of  the  de- 
fendant corporation  was  appointed 
as  temporary  receiver  by  the  fed- 
eral court,  and  with  the  approval 
of  a  considerable  majority  of  the 
stockholders  and  of  a  large  num- 
ber of  creditors,  was  a  month  later 
appointed  permanent  receiver.  The 
corporation  was  a  large  industrial 
concern,  furnishing  supplies  to 
public  utility  companies,  princi- 
pally water  companies,  and  owned 
control  of  a  large  number  of  such 
corporations. 

A  trustee  of  deed  of  trust  may 
be  appointed  receiver  in  a  suit  by 
the  trustees  and  beneficiaries  to 
foreclose  a  landlord's  lien  upon 
the  premises  where  it  appears  to 
the  best  interests  of  the  estate, 
the  matter  being  in  the  discretion 
of  the  court.  Patterson  v.  Nor- 
thern Trust  Co.,  230  111.  334,  82 
N.  E.  837. 

A  trustee  invested  with  the 
power  to  sell  the  property  of  an 
insolvent  corporation  and  to  col- 
lect demands  due  it  is  properly 
appointed  receiver  to  take  charge 
of  its  real  estate  until  the  validity 
of  liens  thereon  can  be  adjudi- 
cated. Weigand  v.  Alliance  Sup- 
ply Co.,  44  W.  Va.  133,  28  S.  E.  803. 
When  a  director  of  a  corpora- 
tion has  been  appointed  its  re- 
ceiver, he  may,  as  receiver,  bring 
an  action  against  himself  for  any 


PRIVATE    CORPORATIONS. 


863 


court  may,  imdor  siuiilar  circumstances,  appoint  a  stock- 
holder or  creditor  of  tlie  corporation  as  its  receiver.^'' 
In  one  case^^  where  it  was  urged  against  the  appoint- 
ment of  a  proposed  person  as  receiver  that  he  was  a 
stockhokler  of  the  defendant  corporation,  the  court  in 
holding  that  the  mere  fact  of  being  a  stockholder  was  not 
sufficient  to  disqualify  him  from  being  appointed,  said: 
**  Ordinarily,  the  fact  that  a  receiver  has  an  interest  is  a 
recommendation  that  he  will  safeguard  the  interests  of 
his  fellow-stockholders,  as  well  as  his  own.  There  may 
be  exceptions  rendering  it  prudent,  from  a  business  point 
of  view,  not  to  appoint  a  stockholder.  This  case  is  not 
brought  within  any  exception." 

In  some  jurisdictions,  cases  may  be  found  which  make 
the  statement  that  a  person  who  has  been  connected  with 
the  management  of  the  corporation  as  an  officer  or  direc- 
tor should  not  be  appointed  as  its  receiver,  but  it  will  be 
found  that  either  such  cases  were  early  cases  in  which 


liability  he  sustained  as  a  director. 
Murphy  v.  Penniman,  105  Md.  452, 
121  Am.  St.   Rep.  583,  66  Atl.  282. 

When  a  director,  or  trustee,  is 
appointed  receiver  ana  It  is  nec- 
essary to  bring  suit  against  him, 
he  should  be  sued  as  receiver;  in 
an  action  for  conversion  of  prop- 
erty in  his  possession  he  can  not 
claim  that  he  should  have  been 
sued  as  director,  or  trustee,  even 
though  the  property  has  been  in 
his  possession,  or  that  of  the  com- 
pany, prior  to  the  receivership. 
Hyde  v.  Clausin,  82  Wash.  218,  144 
Pac.  50. 

14  Court  may  appoint  a  stock- 
holder. See  Friedrichs  v.  Fried- 
richs,  etc.,  126  La.  689,  52  So.  996. 

It  has  been  held  that  the  fact 
that  one  is  a  member  of  a  reor- 
ganization committee  of  the  fail- 
ing   company    is    no    objection    to 


his  appointment  as  receiver,  but 
he  should  resign  from  the  com- 
mittee. Fowler  v.  Jarvis-Conklin 
M.  Co.,  63  Fed.  888. 

A  creditor  may  be  appointed. 
Barber  v.  International  Co.,  73 
Conn.  587,  48  Atl.  758;  State  v. 
Johnson,  103  Wis.  591,  51  L.  R.  A. 
33,  79  N.  W.  1081. 

A  director  or  stockholder  who  is 
the  complainant  in  the  receiver- 
ship proceeding  ought  not  to  be 
appointed.  Mercantile  Trust,  etc., 
Co.  v.  Florence  Water  Co.,  Ill 
Ala.  119,  19  So.  17. 

15  McGilliard  v.  Donaldsonville, 
etc.,  Works,  104  La.  544,  81  Am. 
St.   Rep.  145,  29  So.  254. 

See,  also,  to  the  same  effect, 
Barker  v.  Wayne  Circuit  Judge 
(Lithbridge),  117  Mich.  325,  75 
N.  W.  886;  Gypsum  Plaster,  etc., 
Co.  V.  Kent  Circuit  Judge,  105 
Mich.  497,  63  N.  W.  518. 


864 


LAW    OF    RECEIVERS. 


the  courts  did  not  take  tlie  broader  view  of  disregarding 
the  official  connection  where  the  person  had  some  special 
fitness  under  the  circumstances,  or  the  cases  may  be  such 
as  show  facts  which  if  true  made  the  officials  unfit  for  the 
appointment,  or  they  had  some  interests  in  the  matter 
wliich  were  in  conflict  with  the  interests  of  all  parties 
concerned. ^^  Of  course  if  the  receivership  is  the  result 
of  mismanagement,  whether  occurring  in  good  faith  or 
not,  or  if  the  officers  are  charged  with  bad  faith  in  their 
transactions  with  or  on  behalf  of  the  corporation,  the 
court  naturally  will  not  consider  appointing  them  to  the 
position  of  receiver.^' 


16  It  is  sometimes  said  that  an 
officer  or  stockholder  of  the  cor- 
poration should  not  be  appointed. 
Covert  V.  Rogers,  38  Mich.  363,  31 
Am.  Rep.  319;  Re  Engle  Iron 
Works,  8  Paige  (N.  Y.)  385;  Re 
Bowery  Bank,  5  Abb.  Prac.  (N.  Y.) 
415,  16  How.  Pr.  56;  Atkins  v. 
Wabash,  etc.,  Ry.  Co.,  29  Fed.  161; 
Finance  Co.  v.  Charleston,  etc., 
R.  Co.,  45  Fed.  436;  Middlesex 
County  Freeholders  v.  State  Bank, 
28  N.  J.  Eq.  166. 

The  court  refused  to  appoint  the 
vice  president  of  the  corporation. 
Richards  v.  Chesapeake,  etc.,  R. 
Co.,  20  Fed.  Cas.  692,  Fed.  Cas. 
No.  11,  771. 

The  principal  manager  of  a  cor- 
poration should  not  be  appointed 
its  receiver  where  his  personal 
interest  might  conflict  with  those 
of  the  creditors.  In  re  Premier 
Cycle  Mfg.  Co.,  70  Conn.  473,  39 
Atl.  800. 

IT  In  McCullough  v.  Merchants' 
Loan,  etc.,  Co.,  29  N.  J.  Eq.  217.  it 
was  said: 

A  director   of  a  corporation   at 


the  time  of  its  suspension  is  not 
a  proper  person  to  be  appointed 
its  receiver,  since  "a  person  who 
can  not,  with  the  aid  of  others, 
manage  a  business  successfully,  is, 
as  a  general  rule,  unfit  to  keep  it 
up  alone." 

An  officer  of  the  corporation 
when  the  fraud  and  mismanage- 
ment for  which  a  receiver  is  asked 
were  committed,  should  not  be  ap- 
pointed as  a  receiver.  Williams  v. 
United  Wireless  Telegraph  Co., 
131  N.  Y.  Supp.  41;  Graham  v. 
Hundley  Dry  Goods  Co.  (Mo.),  177 
S.  W.  600. 

Where  the  corporation  is  insol- 
vent an  officer  of  the  corporation 
should  not  be  appointed  except 
imder  exceptional  circumstances. 
Cay  V.  Title,  etc..  Trust  Co.,  157 
Fed.  794. 

If  an  officer  of  a  corporation  is 
appointed  and  charges  of  fraud 
are  made  which  it  will  be  his 
duty  to  investigate,  he  should  be 
removed.  McCullough  v.  Mer- 
chants' Loan,  etc.,  Co.,  29  N.  J.  Eq. 
217. 


PRIVATE    COKPOKATIOXS.  865 

If  there  is  an  objection,  statutory  or  otherwise,  to  the 
appointment  of  a  stockliohler,  as  such,  he  may  remove 
the  disqualification  by  disposing  of  his  stock.^^ 

It  has  been  held  that  an  attorney  in  the  cause  of  action 
in  which  the  receivership  arises  may  be  appointed, 
although  it  is  also  stated  that  the  practice  is  not  to  be 
commended.  ^^ 

It  is  customary  for  ancillary  courts  to  appoint  either 
the  primary  receiver  alone  or  join  with  him  a  person  of 
the  local  jurisdiction.^^ 

c.    General  Duties  of  Eeceiver  Respecting  the  Property  of  the 

Estate. 

A.    In  General. 

§  344.     General  Duty  of  Reducing  to  Possession  the  Assets  of 
the  Corporation, 

It  is  the  duty  of  the  receiver  to  reduce  to  possession  all 
of  the  assets  of  the  company.  The  appointm.ent  order 
usually  contains  a  general  provision  authorizing  him  to 
resort  to  litigation  if  necessary.^     Special  authority  to 

18  People   V.   Illinois,   etc.,  Loan      court    appointed    the    primary    re- 
Assn.,  56  111.  App.  642.  ceiver  as  receiver  in  its  ancillary 

19  Mitchell    V.    Aiilander    Realty      receivership 

Co.,  169  N.  C.  516.  86  S.  E.  358.  Where  a  court  in  an  ancillary 
I'o  Primary  receivers  are  often  receivership  proceeding  appoints 
appointed  ancillary.  Farmers  Loan  as  receiver  the  same  person  ap- 
&  T.  Co.  v.  Northern  Pac.  R.  Co.,  pointed  in  the  primary  suit,  it  may 
72  Fed.  26;  Sands  v.  E.  S.  Greeley  join  with  such  appointment  an- 
&  Co.,  88  Fed.  130,  31  C.  C.  A.  424;  ether  person  as  co-receiver.  Col- 
TDunlop  v.  Paterson,  etc.,  Ins.  Co.,  trane  v.  Templeton,  106  Fed.  370, 
12  Hun  (N.  Y.)  627;  United  States  45  C.  C.  A.  328. 
Trust  Co.  V.  New  York,  etc.,  Ry.  i  Vallery  v.  Denver,  etc.,  R.  Co., 
Co.,  25  Fed.  797;  Shinney  v.  North  236  Fed.  176,  177,  149  C.  C.  A.  366;' 
American,  etc.,  Co.,  97  Fed.  9;  Ir-  Hundley  v.  Hewitt,  195  Ala.  647, 
win  v.  Granite,  etc.,  Assn.,  56  N.  71  So.  419;  Graves  v.  Denny,  15 
J.  Eq.  244,  38  Atl.  680;  Conklin  v.  Ga.  App.  718,  84  S.  E.  187. 
United  States,  etc.,  Co.,  123  Fed.  The  court  has  not  authority  In 
^^^-  determining  whether  or  not  a  re- 
in Thornley  v.  J.  C.  Walsh  Co.,  ceiver  should  be  appointed  to  ad- 
200  Mass.  179,  86  N.  E.  355,  the  judicate  questions  of  title  and  in 
I  Rec— 55 


8G6  LAW   OP   RECEIVERS. 

sue  in  a  particular  matter  may  be  granted  f  and  on  the 
receiver's  suggestion  that  recovery  in  a  particular  case 
would  be  doubtful  the  court  may  authorize  the  receiver 
not  to  sue.^  The  receiver  has  the  right  to  control  all 
necessary  litigation  and  neither  a  stockholder  nor  a 
creditor  may  interfere  with  that  right.  In  an  appellate 
decision  affirming  an  order  of  the  receivership  court 
denying  a  petition  of  a  stockholder  for  leave  to  intervene 
in  order  that  he  might  be  in  a  position  to  institute  litiga- 
tion on  behalf  of  the  estate  the  rule  has  been  stated  as 
follows:  **It  follows  that  appellant,  when  he  filed  his 
petition,  was,  in  a  sense,  already  in  court:  That  is  to 
say,  the  corporation  in  which  he  is  a  stockholder  was  in 
court,  and,  generally  speaking,  the  stockholders  of  a 
corporation,  for  the  purposes  of  all  litigation  growing 
out  of  the  relations  between  such  corporation  and  a  third 
person,  surrender  their  personal  or  individual  entity  to 
the  corporation  in  which  they  are  stockholders  and,  when 
such  corporation  is  properly  in  court,  the  stockholders 
are,  under  the  law,  also  in  court,  so  far  as  is  necessary 
for  the  purpose  of  adjudicating  all  matters  incident  to 
the  issues  tendered  between  such  corporation  and  such 
other  party  or  parties  litigant.  It  is  only  in  exceptional 
cases  that  stockholders  will  be  permitted  to  sue  or  defend 
a  suit  for  and  on  behalf  of  themselves  as  stockholders  of 
such  corporation.  [Here  are  set  forth  the  exceptional 
cases.*]  Such  being  the  rules  governing  stockholders  of 
a  corporation  in  bringing  actions  originally,  for  and  on 
behalf  of  themselves,  there,  would  seem  to  be  even  more 
reason  for  there  application  where  the  corporation  is 
insolvent  and  its  affairs  are  being  managed  and  settled 

the   order   of  appointment    to   de-  2  Vallery  v.  Denver,  etc.,  R.  Co., 

prive  him  of  the  right  to  pursue  236  Fed.  176,  177,  149  C.  C.  A.  366. 

property  claimed  adversely  to  the  3  Kelly   v.   Dolan,   233   Fed.   635, 

company.    Mirabal  v.  Albuquerque  147   C.   C.  A.  443. 

Wool  Scouring  Mills,  23  N.  M.  534,  4  See  §§  348  et   seq.,  supra. 
170  Pac.  50. 


PRIVATE    CORPORATIONS.  867 

"through  a  receiver  appointed  by  and  acting  under  the 
direction  and  orders  of  the  court.  .  .  .  The  receiver 
in  such  a  case  is  the  proper  party  to  bring  any  action 
which  the  corporation  might  have  brought,  .  .  .  While 
our  Supreme  Court  recognizes  that  a  general  creditor, 
by  reason  of  his  lien  upon  the  property  so  held  in  trust 
by  such  receiver  has  the  right  to  intervene  and  contest 
the  validity  as  well  as  the  priority  of  other  claims  or 
asserted  liens  .  .  .  yet  such  court  has  also  frequently 
held  that  such  receiver  represents  the  creditors  and  has 
the  exclusive  right  to  recover  and  protect  the  assets  of 
the  corporation  and  that  such  actions  can  not  be  main- 
tained by  the  creditors  in  their  own  names.  .  .  .  '  The 
petition  and  proposed  complaint  .  .  .  were  nothing- 
more  nor  less  than  a  proposal  on  the  part  of  the  peti- 
tioner to  usurp  the  functions  of  the  receiver,  or  prac- 
tically to  appoint  anotlier  receiver'  [Voorhees  v.  Indian- 
apolis, etc.,  Co.,  140  Ind.  239]. "^ 

In  this  matter  there  is,  as  shown  in  the  above  quota- 
tion, the  same  restriction  upon  the  creditors  and  the 
stockholders  as  to  their  right  to  institute  or  control  liti- 
gation on  behalf  of  the  estate  as  exists  in  the  case  of 
stockholders  with  reference  to  litigation  on  behalf  of  the 
corporation  when  it  is  managing  its  own  affairs.  To 
show  capacity  to  litigate,  a  creditor  or  a  stockholder  must 
show  that  the  receiver  has  declined  to  do  so,  or  that  he  is 
in  such  a  way  interested  in  the  matter  that  it  would  be 

5  Marcovich     -v.     O'Brien     (Ind.  415,    126    N.    W.    1043;    Minnesota 

App.),    114    N.    E.    100;    Southern  Thresher  Mfg.  Co.  v.  Langdon,  44 

Cotton    Mills    V.    Ragan,    136    Ga.  Minn.  37,  46  N.  W.  310;   Merchants' 

789,    72    S.    E.    158;     W^heeler    v.  Nat.  Bank  v.  Northwestern  Mfg., 

Thayer,  121  Ind.  64,  22  N.  E.  972;  etc.,  Co.,  48  Minn.   361,  51  N.  W. 

Northwestern    Mut.   Life   Ins.    Co.  119;   Lang  v.  Lutz,  39  Misc.  Rep. 

V.  Kidder,  162  Ind.  382,  391,  1  Ann,  3,    78    N.    Y.    Supp.    200;    Herf   & 

Cas.  509,  66  L.  R.  A.  89,  70  N.  E.  Frerichs    Chemical    Co.    v.    Brew- 

489;    Coddington   v.    Canaday,    157  ster,   54  Tex.  Civ.  217,  117   S.  W. 

Ind.  243,  256,  61  N.  E.  567;  Jacobs  880, 
V.    E.    Bement's    Sons,    161    Mich. 


8G8  LAW   OF    RECEIVERS. 

useless  to  request  liim  to  do  so,  or  that  tlie  court  1ms 
consented  to  placing  responsibility  upon  the  creditor  or 
the  stocldiolder.  "The  receiver  represents  the  corpora- 
tion, and  also  the  creditors,  and  the  funds  and  causes  of 
action  which  became  vested  in  him  on  his  appointment 
are  in  custodia  legis  and  should  not  be  diverted  and  taken 
from  his  hands  or  placed  beyond  the  control  of  the  court 
whose  duty  it  is  to  see  that  all  the  funds  of  the  corpora- 
tion are  justly  and  equitably  distributed  among  its 
creditors  and  members.  .  .  .  If  it  had  been  made  to 
appear  that  the  receiver  was  in  league  with  the  other 
defendants  or  had  been  guilty  with  them  in  misappro- 
priating the  funds  of  the  company,  that  w^ould  perhaps 
be  a  sufficient  excuse  for  not  applying  to  him  to  prosecute 
the  defendants  in  a  proper  action. '  "^ 

The  receivership  court  may  enjoin  actions  commenced 
contrary  to  this  rule.'^ 

As  to  domiciliary  litigation  the  receivership  court  has 
entire  control  of  the  question  as  to  the  form  in  which  it 
shall  occur.  Through  its  jurisdiction  over  the  receiver- 
ship proceedings  it  has  jurisdiction  of  any  subject  matter 
that  is  ancillary  to  the  administration  of  the  estate  and 
it  can  itself  determine  any  such  matter,  as  a  mere  inci- 
dent to  those  proceedings,  if  it  can  obtain  jurisdiction  of 
the  persons  interested  therein.  On  the  other  hand  it 
may  permit  or  order  any  such  matter  to  be  heard- in  a 
separate  action  instituted  in  the  court  itself  or  in  some 
other  forum  of  jDroper  jurisdiction.  The  rule  has  been 
stated  as  follows:    "The  fact  that  the  circuit  court  had 

6  Fisher  v.  Andrews,  37  Hun.  (N.  N.  E.  464,  43  N.  E.  5;  Goodbody  v. 

Y.)   176,  citing  Greaves  v.  Gouge,  Alelaney,  82  N.  J.  Eq.  140,  91  N.  Y. 

69  N.  Y.  154  and  Brinckerhoff  v.  724;  Aclverman  v.  Halsey,  37  N.  J. 

Bostwick,  88  N.  Y.  52;    Porter  v.  Eq.  356;  Brinckerhoff  v  Bostwick, 

Sabin,  149  U.  S.  473,  37  L.  Ed.  815,  '88  N.  Y.   52;    Meyer  v.   Page,.  112 

13    Sup.    Ct.    1008;    Finance,    etc.,  App.  Div.  625,  98  N.  Y.  Supp.  739. 

Co.  V.  New  Jersey  Short  Line  R.  ^  Attorney  General  v.  Guardian, 

Co.,  183  Fed.  830;  Big  Creek  Stone  etc.,  Ins.  Co.,  77  N.  Y.  272. 
Co.    V.    Seward,    144    Ind.    205,    42 


rmVATE   CORPORATIONS.  8G9 

possession  of  all  the  assets  of  the  [defendant  corpora- 
tion] for  the  purpose  of  winding  up  its  affairs  as  an  in- 
solvent corporation  is  the  fact  which  made  it  admissible 
to  bring  a  debtor  of  that  corporation  into  the  court  to 
the  end  that  his  debt  might  be  ascertained  and  payment 
coerced.  For  the  purpose  of  collecting  in  choses  in 
action  the  court  might  direct  its  receivers  to  institute 
independent  suits  in  that  or  courts  of  the  state  or  cause 
such  debtors  to  be  made  defendants  in  the  principal  cause 
and  determine  for  itself  any  question  which  might  be 
involved  by  the  defenses  to  the  claim.  Such  a  proceeding 
would  not  involve  any  question  of  citizenship,  nor  amount 
in  controversy,  nor  mode  of  trial.  The  complete  juris- 
diction of  the  court  over  the  res,  the  property,  and  assets 
of  this  corporation,  involved  its  right  to  bring  before 
it  persons  having  possession  of  any  of  those  assets  or 
liaving  claims  thereon  or  who  were  indebted  to  it  and 
either  itself  hear  and  determine  all  controversies,  or 
refer  them  to  a  master  or  to  a  jury  as  it  saw  tit.  A  court 
of  equity  is  not  deprived  of  jurisdiction  simply  because 
a  purely  legal  question  becomes  collaterally  involved. 
(The  right  of  the  court  to  appoint  a  receiver  can  not  be 
questioned.)  It  might  in  its  discretion  submit  such  con- 
troversy upon  issues  made  to  a  jury,  or  dispose  of  them 
without  doing  so.  That  the  liability  of  appellee  was  one 
of  a  legal  character  did  not  operate  to  defeat  the  juris- 
diction and  bring  its  proceedings  against  him  to  a  stand. 
These  questions  seem  conclusively  settled  by  White  v. 
Ewing,  159  U.  S.  36,  a  case  which  arose  upon  a  like  pro- 
ceeding in  the  same  court  and  in  which  certain  questions 
were  certified  by  this  court  under  the  writ  of  appeals 
statute."^     The  court,  liaving  jurisdiction  of  the  neces- 

8  Peck  V.  Elliott,  79  Fed.  10,  24  peals,  said:     "We  are  not  of  opin- 

C.  C.  A.  425,  38  L.  R.  A.  616;  In  re  ion    that    the    court    was    in    error 

Hollander  v.  Heaslip,  222  Fed.  808,  in  overruling  the  above-mentioned 

lo7  C.  C.  A.  1.  Circuit  Judge  Walk-  demurrer.      The    bill    to    which    it 

f.-,    for   the    Circuit   Court   of  Ap-  was    interposed    was   auxiliary    to 


870 


LAW   OP   RECEIVERS. 


sary  parties,  may  permit  creditors,  with  proved  claims, 
to  intervene  in  the  receivership  proceedings  and  have 
cancelled  invalid  contract  liens  against  the  company  or 
have  judgment  on  claims  in  favor  of  the  estate,  condi- 
tioning, if  considered  proper,   the   privilege   upon   the 


the  original  suit  in  which,  by 
means  of  a  receivership,  the  court 
had  acquired  possession  of  the  as- 
sets of  the  World  Publishing  Com- 
pany, Limited,  for  the  purpose  of 
applying  them  to  the  payment  of 
its  debts.  This  enabled  it  to 
cause  a  debtor  to  that  corpora- 
tion who  was  within  reach  of  its 
process  to  be  brought  into  the 
original  cause,  to  the  end  that  his 
debt  might  be  ascertained  and 
payment  coerced.  It  was  for  the 
court,  in  its  discretion,  to  decide 
whether  it  would  determine  for 
itself  all  claims  of  the  corpora- 
tion whose  estate  it  was  admin- 
istering, or  would  allow  them  to 
be  litigated  elsewhere.  It  was 
within  its  power  to  hear  and  de- 
termine all  controversies  regard- 
ing such  claims,  at  least  in  so  far 
as  it  could  acquire  jurisdiction  of 
the  persons  of  those  who  were 
parties  to  such  controversies, 
though  the  questions  thus  collat- 
erally involved  were  of  a  purely 
legal  nature.  White  ^.  Ewing,  159 
U.  S.  36,  40  L.  Ed.  67,  15  Sup.  Ct. 
1018;  Porter  v.  Sabin,  149  U.  S. 
473,  37  L.  Ed.  815,  13  Sup.  Ct. 
1008;  Bottom  v.  National  Ry. 
Building  &  Loan  Association  (C. 
C),  123  Fed.  744;  Peck  v.  Elliott, 
79  Fed.  10,  24  C.  C.  A.  425,  38 
L.  R.  A.  616;  Ross-Meehan  Brake 
Shoe  F.  Co.  V.  Southern  Mal- 
leable Iron  Co.  (C.  C),  72  Fed. 
957.     It  could   not  have   so   dealt 


with  a  purely  legal  demand  it 
the  bill  which  asserted  it  had 
not  been  an  ancillary  or  auxil- 
iary one,  but  was  an  original  suit 
brought  by  a  receiver  who  derived 
his  authority  from  a  court  of  an- 
other jurisdiction.  Hale  v.  Allin- 
son,  188  U.  S.  56,  47  L.  Ed.  380,  23 
Sup.  Ct.  244;  Fidelity  Trust  & 
Safe  Deposit  Co.  v.  Archer,  179 
Fed.  32,  103  C.  C.  A.  16." 

Where  a  receiver  sues  to  ob- 
tain property  on  the  ground  that 
it  was  fraudulently  transferred, 
he  need  not  tender  any  sums  of 
money  which  it  may  appear  that 
the  parties  guilty  of  the  fraud  may 
have  received,  but  it  is  sufficient 
if  he  offers  to  do  equity.  Vallery 
v.  Denver  &  R.  G.  R.  Co.,  236  Fed. 
176,  149  C.  C.  A.  366. 

A  corporation  ofRcer,  against 
v.hom  a  claim  for  misappropriated 
funds  has  Ijeen  made  in  a  peti- 
tion filed  by  the  receiver  in  the 
receivership  proceedings,  may,  by 
participation  in  proceedings  based 
upon  the  petition,  waive  his  right 
to  object  to  a  decree  against  him 
on  the  ground  of  irregularity  in 
the  appointment  of  an  auditor 
who  heard  and  reported  the  mat- 
ter and  on  the  ground  of  other 
irregularities.  Howard  v.  Charles 
J.  Cassidy  Co.,  42  App.  Cas.  (D.  C.) 
44.  The  rule  may  be  changed  by 
statute.  See  Dilzell,  etc..  Construc- 
tion Co.  v.  Lehmann,  120  La.  273, 
45  So.  138. 


PRIVATE   CORPORATIONS. 


871 


assumption  of  tlie  costs  by  such  creditors  and  confining 
the  benefits  to  them.^ 

As  to  actions  in  forums  other  than  the  receivership 
court,  the  receiver  may  proceed  at  law  or  in  equity  as 
the  nature  of  the  case  may  require.  If  the  issues  are 
purely  legal  the  receiver  must  establish  his  claim  in  a 
court  of  law,  A  court  of  equity  by  means  of  a  receiver 
may  use  a  court  of  law  in  aid  of  the  collection  of  the 
assets  that  are  to  be  distributed.^*^  On  the  other  hand  if 
the  cause  of  action  is  in  its  nature  essentially  of  equitable 
cognizance  or  if  there  is  necessity  for  an  accounting,  can- 
cellation of  an  agreement,  or  other  equitable  incident  in- 
volved in  the  obtaining  of  complete  relief  the  receiver 
may  proceed  in  equity. ^^ 


0  Williamson  v.  Collins,  243  Fed. 
835,  156  C.  C.  A.  347  (cancellation 
of  invalid  bonds  of  the  corpora- 
tion) ;  Equitable  Trust  Co.,  etc.,  v. 
Great  Shoshone,  etc.,  Co.,  245  Fed. 
697,  158  C.  C.  A.  99  (cancellation 
of  invalid  chattel  mortgage) ; 
Hospes  V.  Northvv'estern  Mfg., 
etc.,  Co.,  48  Minn.  174,  31  Am.  St. 
Rep,  637,  15  L.  R.  A,  470,  50  N.  W. 
1117  (cla,im  against  stockholder 
for  stock  subscription) ;  McKusick 
V.  Seymour,  etc.,  Co.,  48  Minn. 
158,  50  N.  W.  1114  (claim  against 
stockholder  on  statutory  liability). 

10  Graves  v.  Denny,  15  Ga.  App. 
718,  84  S.  E.  187;  McDermott  v. 
Woodhouse,  87  N.  J.  Eq.  615,  101 
Atl.  375;  Smith  v,  Johnson,  57 
Ohio  St.  486,  49  N.  E.  693.  Since 
a  judgment  rendered  by  a  court 
of  equity  is  not  void  even  though 
the  court  was  in  error  in  ruling 
that  the  action  was  in  equity  and 
not  at  law,  a  defendant  who  does 
not  appeal  from  a  judgment  against 
him  is  bound  by  it,  even  though  as 
to  other  defendants  the  judgment 


is  on  appeal  set  aside  because  of 
the  court's  error  in  the  ruling  as 
to  the  jurisdiction.  Brown  v.  Al- 
lebach,  182  Fed.  264. 

11  Rowland  v.  Corn,  232  Fed.  35, 
146  C.  C.  A.  227;  Wyman  v.  Bow- 
man, 127  Fed.  257,  62  C.  C.  A.  189; 
Borland  v.  Haven,  37  Fed.  394,  13 
Sawy.  551;  Wheeler  v.  Matthews, 
70  Fla.  317,  70  So.  416;  Fitzpat- 
rick  V.  McGregor,  133  Ga.  332,  25 
L.  R.  A,  (N.  S.)  50,  65  S.  E.  859; 
Whitman  v.  United  Surety  Co., 
110  Md.  421,  72  Atl.  1042;  Hughes 
V.  Hall,  117  Md.  547,  83  Atl.  1023; 
Hopper  V.  Brodie,  130  Md.  443, 
100  Atl.  644;  Ventrees  v.  Wal- 
lace, 111  Miss.  357,  L.  R.  A.  1917A, 
971,  71  So.  636;  Thompson  v. 
Greeley,  107  Md.  577,  17  S.  \V.  962; 
Easton  Nat.  Bank  v.  American 
Brick,  etc.,  Co.,  70  N.  J.  Eq.  722, 
64  Atl.  1095;  Holcombe  v.  Trenton 
White  City  Co.,  80  N.  J.  Eq.  122,  82 
Atl.  618;  Gray  v.  Heinze,  82  Misc. 
Rep.  618,  144  N.  Y.  Supp.  1045;  Dill 
V.  Ebey,  27  Okla.  584,  46  L,  R,  A. 
(N.  S.)   440,  112  Pac.  973;   Cham- 


872  LAW    OF    RECEIVERS. 

§  345.     Compellirxg  Officers  of  Corporation  to  Testify  Regard- 
ing Assets  and  Turn  Its  Books  Over  to  Receiver. 

A  failure  of  the  officers  of  a  corporation  over  which  a 
receiver  has  been  appointed  to  deliver  its  assets  to  sucIt* 
receiver,  even  though  the  delivery  is  not  specifically 
ordered  by  the  court,  constitutes  a  contempt  of  court. ^ 
In  some  states  statutory  provisions  exist  under  which  a 
receiver  may  have  a  summons  issued  to  compel  an  officer 
of  the  corporation  over  which  he  has  been  appointed 
receiver  to  testify  concerning  the  existence  and  where- 
abouts of  property  of  the  receivership  and  give  other 
necessary  information  concerning  its  affairs.  Under 
such  statutes  it  is  necessary  for  the  statutory  prelimi- 
naries to  be  complied  with  before  an  officer  may  be  found 
guilty  of  contempt  in  refusing  to  testify.^ 

The  general  rule  is  that  the  receivership  court  may 
compel  the  officers  of  a  corporation  to  turn  over  to  its 
receiver  the  books  and  papers  of  the  corporation.^     A 

berlain    v.    Piercy,    82   Vv'^ash.    157,  When    a   receivership    court   re- 

143  Pac.  977;   Morrow  v.  Superior  fuses  to  give  its  receiver  author- 

Ct.,  64  Cal.  383,  1  Pac.  354;  Potter  ity   to   instiute   an   action  against 

V.  Dear,  95  Cal.  578,  30  Pac.  777;  directors    for    damages    for    negli- 

Barnes  v.  Babcock,  95  Cal.  581,  29  gence  in  their  conduct  of  the  cor- 

Am.  St,   Rep.  158,  27  Pac.  674,  30  porate   business,   and   simply   con- 

Pac.  776.  sents  that  a   stockholder  may   do 

In    a    receiver's    action    against  so,    without   having   the    cause    of 

directors   based   upon  their  liabil-  action   assigned  to  the  stockhold- 

ity   for  the   payment  of  wrongful  er,    the    stockholder   is    not    quali- 

dividends,  it  was  said:   "It  is  true  fjed  to  instiute  an  action  in  equity 

that  the  right  of  action  is   given  when  the  receiver's  action  would 

to    creditors,    but    the    liability    is  be  one  at  law.    Kelly  v.  Dolan,  233 

limited  to  the  amount  of  the  divi-  pgd    635,  147  C.  C.  A.  443. 

dend  declared  and  paid,  and  this  ^  ^^^.^^  ^   Security,  etc.,  Co.,  124 

constitutes  a  single  fund  in  which  ^^   g^^^  ^^  g^   g^g.  young  v.  Ro) 

many    of    the    creditors    have    an  .^^    90  N    C    125 
equity  and  should  in  equity  be  pro- 

rated  among  the  several  creditors  "  Conover  v.  West  Jersey  Mort- 

beneficially  interested.     This  can  S^ge  Co.,  87  N.  J.  Eq.  16,  99  Atl. 


best  be  accomplished  in  a  court  of 


604. 


equHy."      Metzger   v.   Joseph,   111  s  American   Const.   Co.   v.   Jack- 

Miss.  385,  71  So,  645  sonville,  etc.,  Ry.  Co.,  52  Fed.  937. 


PRIVATE   CORPORATIONS.  873 

very  interesting  question  arises,  however,  wliere  the 
officers  of  the  corporation  refuse  to  turn  over  its  books 
or  give  testimony  in  regard  to  its  affairs  on  the  ground 
that  to  do  so  will  incriminate  them,  and  especially  where 
the  officers  are  under  indictment  or  formal  criminal 
charges  for  their  actions  in  the  affairs  of  the  corporation. 
In  the  case  of  Manning  v.  Mercantile  Securities  Com- 
pany,^ arising  in  Illinois,  the  court  compelled  an  officer 
of  a  corporation,  by  means  of  contempt  proceedings,  to 
turn  over  the  books  of  the  corporation  to  its  receiver,  not- 
withstanding that  the  officer  had  refused  to  do  so  on  the 
ground  that  they  would  tend  to  incriminate  him.  In  so 
deciding,  the  court  said : 

''The  right  of  a  witness  to  refuse  to  furnish  evidence 
which  will  incriminate  himself  is  a  constitutional  right, 
too  firmly  established  to  be  questioned.  Lamson  v.  Boy- 
den,  16U  111.  613,  43  N.  E.  781 ;  Counselman  v.  Hitchcock, 
142  U.  S.  547,  35  L.  Ed.  1110,  3  Inters.  Com.  Rep.  816, 
12  Sup.  Ct.  Rep.  195.  To  hold,  however,  that  a  party  to 
a  chancery  suit  may  assert  his  constitutional  privilege  by 
saying,  in  response  to  an  order  of  the  court  that  he  turn 
over  to  a  receiver  the  books,  etc.,  of  an  insolvent  corpo- 
ration: 'I  have  been  indicted  for  a  criminal  offense  by 
reason  of  my  connection  with  the  corporation  of  which  I 
am  an  officer,  as  will  appear  in  reading  the  indictment 
found  against  me,  and  if  I  obey  the  order  of  the  court, 
and  turn  over  to  the  receiver  the  books,  etc.,  of  the  cor- 
poration, they  may  contain  certain  matters  which  will 
tend  to  incriminate  me,'  would  be  to  hold  that  an  officer 

■t  Manning  v.  Mercantile  Securi-  him.     Tolleson  v.  Greene,   83  Ga. 

ties  Co.,   242  m.   584,  30   L.   R.   A.  499,  10  S.  E.  120. 

(N.  S.)   725,  90  N.  E.  238.  But  in  re  Kanter,  117  Fed.  356, 

An  officer  of  a  corporation  can  the  court  refused  to  compel  a 
not  refuse  to  turn  over  its  assets  bankrupt  to  turn  over  to  a  bank- 
to  a  receiver  appointed  over  it  ruptcy  receiver  his  books  of  ac- 
or  refuse  to  inform  him  what  was  count  where  he  made  a  showing 
done  with  its  assets  on  the  ground  that  to  do  so  would  incriminate 
that   to   do    so   would   incriminate  him. 


874  LAW    OF    RECEIVERS. 

of  an  insolvent  coi'i^oration  ordered  to  turn  over  the 
books,  etc.,  of  the  corporation  might  set  himself  up  as  the 
sole  and  absolute  judge  as  to  whether  the  books,  etc., 
which  he  had  been  ordered  to  turn  over  by  the  court  to 
the  receiver  would  incriminate  him,  which  would  be  to 
place  in  the  hands  of  an  officer  of  an  insolvent  corpora- 
tion the  power  to  withhold  from  the  receiver  of  said  cor- 
poration  the  books,  papers,  documents,  and  assets  of  the 
corporation  to  whatever  extent  he  might  see  tit.  We 
think,  therefore,  that  the  bare  statement  of  a  party  to 
such  a  proceeding,  that  the  books,  etc.,  w^hich  he  had  been 
ordered  to  turn  over  to  the  receiver  might  tend  to  incrimi- 
nate him,  is  not  sufficient  to  excuse  him  from  obeying  the 
order  of  the  court ;  but  that  his  answer  should  place  the 
matter  in  such  shape  that  the  court  can  intelligently  de- 
termine the  question  from  an  examination  of  the  aver- 
ments of  the  answer,  or,  if  necessary,  from  an  inspection 
of  the  books,  etc.,  whether  they  would  tend  to  incriminate 
the  party  required  to  surrender  them  to  a  receiver. 

''We  think  the  rule  announced  by  Chief  Justice  Cock- 
burn  in  R.  V.  Boyes,  1  Best  &  S.  311,  to  be  a  practicable 
one,  where  he  said :  '  To  entitle  a  party  called  as  a  wit- 
ness to  silence,  the  court  must  see,  from  the  circumstances 
of  the  case  and  the  nature  of  the  evidence  which  the  wit- 
ness is  called  to  give,  that  there  is  reasonable  ground  to 
apprehend  danger  to  the  witness  in  his  being  compelled 
to  answer.'  Applying  this  rule  to  the  case  at  barj  w^e 
think  it  apparent  that  it  does  not  appear  from  the  aver- 
ments of  the  answer  of  the  appellants  that  the  books,  etc., 
of  the  said  corporation  contain  any  evidence  of  an  in- 
criminating character  against  the  appellants,  and  that 
their  surrender  to  the  receiver  would  tend  to  incriminate 
the  appellants.  People  ex  rel.  Akin  v.  Butler  Street 
Foundry  &  Iron  Co.,  201  111.  236,  66  N.  E.  349;  State  v. 
Thaden,  43  Minn.  253,  45  N.  W.  447 ;  Brown  v.  AYalker, 
161  U.  S.  591,  40  L.  Ed.  819,  5  Inters.  Com.  Rep.  369, 
16  Sup.  Ct.  Rep.  644. 


PRIVATE    CORPORATIONS.  875 

''The  books,  etc.,  declined  to  be  turned  over  to  the 
receiver  of  the  Mercantile  Securities  Company  by  the 
appellants  may  be  presumed  to  be  numerous,  and  it  may 
be  safely  presumed  that  a  large  proportion  of  them — at 
least  some  of  them — evidence  transactions  which  would 
not  tend  to  prove  the  appellants  were  guilty  of  the  com- 
mission of  a  crime.    By  reason  of  the  fact,  therefore,  that 
some  of  the  books,  etc.,  of  said  corporation,  in  the  hands 
of  the  appellants,  might  show  guilt,  and  others  might  not 
furnish  evidence  of  criminal  misconduct,  the  fact  that 
some  would  tend  to  incriminate  them  would  be  no  reason 
for  their  withholding  other  books,  papers,  documents, 
etc.,  from  the  receiver,  which  would  in  no  way  tend  to 
incriminate  them.    We  think  their  answer  should,  there- 
fore, have  pointed  out,  from  the  numerous  books  and 
documents  in  their  hands,  such  books  and  documents  as 
were  incriminating  in  their  character,  and  accompany 
their  answer  by  an  offer  to  turn  over  to  the  receiver  the 
remaining  books,  etc.,  in  their  possession.     Such  seems 
to  be  the  practice  with  reference  to  the  discovery  and 
inspection  of  documents  which  are  privileged,  and  we  can 
see  no  reason  why  the  rule  thus  established  should  not  be 
applied  to  a  case  like  this  if  the  constitutional  privilege 
contended  for  by  the  appellants  can  be  invoked  in  a  case 
like  this,  which  question  we  wdll  consider  hereafter  in  this 
opinion.     .     .     .     It  is  apparent  that  a  party  called  to 
give  evidence  as  a  witness,  or  to  produce  in  court,  to  be 
used  in  evidence,  the  books,  etc.,  of  a  corporation,  of 
which  he  is  in  possession  as  an  officer,  is  in  entirely  a 
different  situation  from  what  an  officer  of  an  insolvent 
corporation  is,  who  is  directed  by  the  court  in  which  the 
affairs  of  the  corporation  are  being  wound  up,  and  to 
Avhich  proceeding  he  is  a  party,  to  turn  over  the  books, 
etc.,  of  the  corporation  in  his  possession,  to  a  receiver  of 
the  corporation.     In  one  case  the  party  is  required  to 
produce  the  books,  etc.,  of  the  corporation  to  be  used  in 
evidence,  and  in  the  other  case  the  court  is  granting  to 


876  LxVW   OF   RECEIVERS. 

the  complainant  the  relief  prayed  for  in  Ms  bill ;  and, 
while  a  court  of  equity  will  not  force  a  party  to  subject 
himself  to  punishment  for  a  criminal  offense,  it  will  not 
permit  him  to  protect  himself  against  equitable  relief  by 
alleging  that  he  answers  the  bill  filed  against  him,  or 
turns  over  to  a  receiver  property  belonging  to  an  insol- 
vent corporation  of  which  he  is  an  officer,  he  will  subject 
himself  to  the  consequences  of  a  crime.  Story,  Eq.  PL, 
sec.  525.  In  this  case  the  complainants  by  their  bill  made 
a  case  against  the  appellants  and  the  corporation  of 
which  they  were  officers,  which  entitled  them  to  equitable 
relief,  a  part  of  which  relief  was  to  have  turned  over  to 
the  receiver  of  the  corporation,  the  books,  etc.,  of  said 
corporation.  If  an  officer  of  a  corporation  could,  by 
claiming  that  the  books,  etc.,  of  the  corporation  in  his 
possession  contained  evidence  of  his  criminal  misconduct 
in  the  management  of  the  affairs  of  the  corporation,  pre- 
vent the  receiver  of  the  corporation  from  obtaining  the 
possession  of  the  books,  etc.,  of  the  corporation,  which 
were  necessary  for  him  to  have  in  order  to  properly  ad- 
minister the  affairs  of  the  corporation,  and  close  up  its 
business  under  the  direction  of  the  court,  such  officer 
would  have  the  powder,  in  effect,  to  deprive  a  court  of 
equity  of  jurisdiction  to  close  up  the  affairs  of  an  insol- 
vent corporation,  by  declining  to  deliver  possession  of 
the  books,  etc.,  of  the  corporation  to  the  receiver  ■  ap- 
pointed by  the  court.  We  are  of  the  opinion  that  while 
the  appellants  could  not  be  called  upon  to  explain  any 
of  their  conduct  as  officers  of  said  Mercantile  Securities 
Company,  which  would  tend  to  incriminate  them,  they 
could  be  required  by  the  court  to  turn  over  to  the  receiver 
the  books,  etc.,  of  the  corporation.  Tolleson  v.  Greene, 
83  Ga.  499,  10  S.  E.  120.  The  possession  of  a  receiver  is 
the  possession  of  the  court  making  the  appointment,  the 
property  being  regarded,  while  in  the  hands  of  the  re- 
ceiver, as  in  the  custody  of  the  law.  The  receiver's  pos- 
session, therefore,  is  neither  adverse  to  the  complainant 


PRIVATE    CORPORATIONS.  877 

Tior  to  the  defendant  in  the  litigation,  but  the  possession 
of  the  property  is  in  the  court,  through  its  receiver,  where 
it  must  remain  for  the  protection  of  all  parties  in  interest, 
until  the  court  disposes  of  the  possession  by  ordering 
the  receiver  to  sell  the  property,  or  to  turn  it  over  to  the 
party  to  whom  it  may  ultimately  be  found  to  belong. 
High,  Receivers,  sec.  134.  If,  therefore,  the  books,  etc., 
turned  over  to  the  receiver  under  the  order  of  the  court 
entered  in  this  case  should,  upon  examination  by  the 
court,  be  found  to  contain  evidence  which  would  incrimi- 
nate appellants,  the  appellants  could  be  fully  protected 
by  the  court  from  the  use  of  such  evidence  against  them, 
while  the  books,  etc.,  are  in  the  hands  of  the  receiver  and 
under  the  direction  of  the  court.  Where  books  and  other 
documents  are  produced  upon  the  service  of  a  subpoena 
duces  tecum  they  are  brought  directly  into  court  to  bo 
used  as  evidence,  while  books,  documents,  and  other 
papers  turned  over  to  a  receiver  under  the  direction  of  a 
court  remain  in  the  custody  and  control  of  the  court,  and 
could  not  be  used  as  evidence  against  the  party  turning 
them  over,  except  by  the  order  of  the  court  whose  re- 
ceiver had  them  in  his  possession." 

In  a  bankruptcy  case,  the  court  in  ordering  the  bank- 
rupt to  turn  his  books  over  to  the  bankruptcy  court  made 
an  order  limiting  the  use  to  be  made  of  them  to  the  ad- 
ministration of  the  bankrupt  estate  and  making  him  the 
agent  of  the  bankrupt  in  the  care  and  custody  of  the 
books. ^ 

It  has,  however,  been  held  that  the  prosecuting  officers 
may  examine  the  books  and  papers  of  a  banking  corpora- 
tion in  the  hands  of  a  receiver  where  its  president  subse- 
quent to  the  receivership  had  been  indicted  for  knowingly 
receiving  deposits  while  the  bank  was  insolvent.® 

5  In  re  Harris,  164  Fed.  292.  In  this  connection  see  State  v. 

6  McElree  v.  Darlington,  187  Strait,  94  Minn.  384,  102  N.  W.  913, 
Pa.  593,  67  Am.  St.  Rep.  592,  41  where  the  receiver  of  a  partner- 
Atl.  456.  ship  took  the  book  of  the  receiver- 


878  LAW    OF    RECEIVERS, 

§  346,  Extent  to  Which  Receiver  Is  Affected  by  Right  of  the 
Corporations  to  Recover  Property  —  Doctrine  of 
Estoppel. 

From  the  point  of  view  of  the  nature  of  the  claims 
which  the  receiver  may  seek  to  enforce  on  behalf  of  the 
estate  which  he  is  administering,  actions  brought  by  the 
receiver  may  be  divided  into  two  classes;  (1)  actions 
brought  to  establish  claims  which  the  corporation  itself 
could  enforce  if  it  had  continued  in  control  of  its  affairs ; 
and  (2)  actions  to  recover  property  as  to  which  the  com- 
pany itself  would  be  estopped  to  claim  it  from  those  to 
Avhose  possession  or  ownership  it  has  passed,  although 
the  possession  or  ownership  of  those  having  it  is  due  to 
some  wrongful  or  illegal  act  on  the  part  of  the  com- 
pany.^ In  regard  to  the  former  the  rule  is  that  with 
reference  to  claims  that  the  company  could  enforce  the 
receiver  stands  in  its  shoes.  He  has  no  right  of  action 
where  the  company  had  none  and  any  claim  on  his  part 
is  subject  to  the  same  defenses  with  which  it  might  be 
met  if  presented  by  the  corporation.^  Since  the  man- 
agement of  the  corporate  affairs  has  passed  out  of  the 
hands  of  the  directors  the  receiver  does  not  first  have 
to  ask  them  to  proceed  as  a  stockholder  would  have  to 
do  in  the  absence  of  a  receivership.    The  receiver  obtains 

ship   before  the   grand  jury;    and  J.  Walton   &   Son,   136   La.  8-8,   68 

Blum  V.  State,  94  Md.  375,  56  L.  R.  So.  549;   Haskell  v.  Gardner  (Ind. 

A.  322,   51   Atl.   26,  where  similar  App.),    93    N.    E.    458;    Farwell    v. 

use  of  the  books  was  criticized.  Metcalf,    63    N.    H.    276;     Lincoln 

<»  o-o  •   *  v.    Fitch,    42    Me.    456;    Maver    v. 

1  For  latter  class  see  §  3o3,  infra.  m       *•  r^  '      -.n- 

Metropolitan     Traction     Co.,     165 

2  Allen   V.   Roydhouse,   232   Fed.      ^pp     j^.^     ^g^^    ^^^    j^     y.    Supp. 

1010;    Rowland  v.  Corn,  232  Fed.  io26;    Curtis  v,  Leavitt,  15  N.  Y. 

35,  146  C.  C.  A.  227;   Metropolitan  9.    Cutting  v.   Damerel,   88   N.    Y. 

Coach  Co.  V.  Freund,  42  App.  Cas.  410 ;   Murphy  v.  Panton,  96  Wash. 

(D.  C.)    283;    Great  Western   Tel.  637;    165    Pae.    1074;    McLaren    v. 

Co.  V.  Loewenthal,  154  111.  261,  40  First  Nat.  Bank  of  Milwaukee,  76 

N.  E.  318;  Reid  v.  Owensboro  Sav-  Wis.  259,  45  N.  W.  223;   Haben  v. 

ings   Bank   &   Trust   Co.,   141    Ky.  Harshow,    49    Wis,    379,    5    N.    \V.. 

444,  132  S.  W.  1026;  Reynaud  v.  C.  872. 


prJVATE    CORPORATIONS. 


879 


his  autliority  eutirely  from  the  court.  Actions  brought 
by  the  receiver  may  be  directed  against  (a)  strangers  to 
the  corporation,  or  (b)  directors,  trustees,  or  officers,  or 
(c)  stockholders,  as  will  be  shown  in  subsequent  sec- 
tions. 

§247.    Sale  in  Lieu  of  Litigation  Attempting  to  Reduce  to 
Possession. 
Instead  of  reducing  all  of  the  assets  of  the  corporation 
to  possession  the  receiver  may,  upon  proper  proceedings 
and  order,  sell  them  as  he  has  them,  including  such  choses 
in  action  as  have  not  been  reduced  to  possession  or  judg- 
ment.   Unless  provision  to  the  contrary  is  made  in  the 
terms  of  the  sale,  the  purchaser  at  such  a  sale  takes  the 
assets  with  all  the  rights  of  the  receiver,  including  the 
right  to  sue.^     The  order  of  sale  may  provide  that  any 
person  having  a  defense  to  any  claim  advanced  on  behalf 
of  the  corporation  must  present  the  defense  in  advance 
of  the  sale.^    The  order  of  sale  may  provide  for  equitable 
treatment  of  stockholders  who  have  fully  paid  for  their 
stock  in  the  event  that  the  purchaser  realizes  more  than 
he  paid.^ 

1  Cosmopolitan  Life  Ins.  Co.  v,  self  for  the  advances  made,  does 

Sheats    20  Ga.  App.  622,  93  S.  E.  not  in  itself  show  that  the  sale  was 

507-    Bailey  v    Anderson,  142  Ga.  fraudulent  as  being  to  the  receiv- 

11     82    S     E     290-    Harrington    v.  er  itself.     Commerce  Trust  Co.  v. 

Connor,  51  Neb.  214,  70  N.  W.  911.  Hettinger.   181   Mo.  App.  338,  168 

The   fact  that  directors   to  whom  S.  W.  911. 

such   a  sale   was   made   borrowed  2  Cosmopolitan   Life  Ins.   Co.  v. 

part   of   the   purchase   price   from  Sheats,  20  Ga.  App.  622,  93  S.  E. 

the    receiver,    a    corporation,    and  507. 

allowed    the   assets   to   remain    in  3  Commerce    Trust   Co.    v.    Het- 

the   receiver's   possession   until   it  linger,    supra,    181   Mo.   App.   338, 

had,  by  collecting,  reimbursed  it-  168  S.  W.  911. 


880  LAW    OF    RECEIVERS. 

B.    Suits  hy  licceiver  to  Recover  Corporate  Assets  Secoveiable 
by  Corporation  if  no  Receivership. 

§  348.     Suits  Against  Strangers  to  the  Corporation. 

As  far  as  actions  against  strangers  to  the  corporation 
are  concerned  the  receiver  is  likely  to  have  all  the  occa- 
sions to  institute  litigation  that  arise  in  the  experience 
of  any  going  concern.  He  may  foreclose  a  mortgage/ 
or  sue  to  recover  possession  of  real  estate/  or  to  quiet 
title.^  He  may  sue  to  recover  a  tax  paid  under  protest.^ 
He  may  maintain  an  action  in  trover  for  the  conversion 
of  personal  property.^  A  receiver,  having  been  ap- 
pointed on  the  resignation  of  a  predecessor,  may  sue  the 
latter  to  recover  the  value  of  a  secret  trust  reserved  in 
his  own  favor  when  assigning,  as  receiver,  a  contract  by 
which  the  bank  undertook  to  jjurchase  certain  lands  from 
the  state.  In  such  an  action  the  usual  rule  as  to  laches 
will  prevail.  No  action  looking  toward  a  complaint  based 
upon  the  fraud  in  the  transaction  could  be  expected  until 
knowledge  of  the  fraud  had  been  acquired  and  reason- 
ably  prompt  action  after  that  would  meet  all  equitable 
requirements.*'  When  one  corporation  through  owner- 
ship of  another  corporation  controlled  the  latter 's 
board  of  directors  and  thereby  practically  managed  its 
business,  the  receiver  of  the  latter  could  maintain  an 
action  for  an  accounting  and  damages  against  the  former 
based  on  a  claim  of  fraudulent  manipulation  of  the  ac- 
counts of  interchange  of  business  between  the  two  com- 
panies and  of  a  fraudulent  sale  of  bonds  owned  by  the 
receiver's  company  and  pledged  to  the  other.^     Where 

1  Comer  v.  Bray,  83  Ala.  217,  3  5  Gillet  v.  Fairchild,  4  Denio  (N. 
So.  554.  Y.)  80. 

2  Baker  v.  Cooper,  57  Me.  388.  c  Baker  v.   Schofield,   243   U.   S. 

3  Texas  Rice  Land  Co.  v.  Lang-  114^  gi  l.  Ed.  626,  37  Sup.  Ct.  333. 
ham  (Tex.  Civ.  App.),  193  S.  W.  ,  ^^„^  ^  ^^^^^^  ^  ^  ^  ^ 
473. 


4  Lusk  V.  Botkin,  240  U.  S.  2CS, 
60  L.  Ed.  621,  36  Sup.  Ct.  263. 


Co.,  236  Fed.  176,  149  C.  C.  A.  366. 


PRIVATE   CORPORATIONS.  881 

one  corporation  had  agreed  with  the  receiver's  corpo- 
ration to  lease  to  it  certain  real  property  for  a  terra  of 
years  and,  after  the  proposed  lessee  had  expended  largo 
sums  of  money  preparatory  to  occupying  the  property, 
refused  to  grant  the  lease  as  agreed  upon,  the  receiver 
may  sue  the  proposed  lessor  for  damages.  In  such  an 
action  the  general  principles  of  law  as  to  the  binding 
force  upon  a  company  of  the  acts  of  its  agent  and  as  to 
estoppel  by  conduct,  the  defendant  company  having  stood 
by  and  permitted  the  receiver's  company  to  improve  its 
property,  Avould  prevail.^  Where  a  judgment  against 
the  receiver's  company  for  tort  is  obtained  and  prose- 
cuted successfully  through  appeal,  the  receiver  has  the 
right  to  commence  in  the  receivership  court  an  action  to 
have  the  judgment  set  aside  on  the  ground  that  it  had 
been  secured  on  perjured  testimony  through  a  conspiracy 
fraudulently  to  fasten  the  debt  on  the  company.  It  is 
not  premature  to  bring  suit  before  the  surety  on  the 
appeal  bond  has  been  compelled  to  pay  the  judgment  and 
is  in  a  position  to  present  a  claim  against  the  estate  as 
one  innocent  of  the  fraud  that  deprives  the  judgment 
of  any  validity  against  the  company  in  the  hands  of  the 
original  owner.  In  so  far  as  the  execution  of  the  judg- 
ment is  dependent  upon  property  in  the  equity  court's 
charge  being  subjected  to  the  satisfaction  of  it  that  court 
may  inquire  into  the  conduct  of  the  plaintiff  in  procuring 
it.  One  who  is  shown  to  have  fraudulently  procured  a 
judgment  in  his  favor  can  not  expect  to  have  the  aid  of 
a  court  of  equity  to  carry  it  into  execution.^ 

In  general  it  may  be  said  that  in  regard  to  all  choses 
in  action,  existing  at  the  time  of  the  commencement  of 

8  Underbill  v.  Rutland  R.  Co.,  679,  27  L.  Ed.  256,  1  Sup.  Ct.  456; 
90  Vt.  462,  98  Atl.  1017.  Lewers  &  Cooke  v.  Atcherly,  222 

9  Ewen  V.  Clifton,  232  Fed.  136,  U.  S.  285,  56  L.  Ed.  202,  32  Sup.  Ct. 
146  C.  C.  A.  328;  Lawrence  Mfg.  94;  Peabody  v.  New  England  Wa- 
Co.  V.  Janesville  Cotton  Mills,  138  terworks  Co.,  184  111.  625,  75  Am. 
U.  S.  552,  34   L.   Ed.  1005,  11  Sup.  St.  Rep.  195,  56  N.  E.  957. 

Ct.  402;  Gay  v.  Parpart,  lOG  U.  S. 
I  Uej.— CG 


882  LAW   OF   RECEIVERS. 

the  receiversliip,  or  accruing  during  its  course  out  of 
some  precedent  activity  of  the  corporation,  it  is  the  duty 
of  the  receiver  to  undertake  to  reduce  them  to  posses- 
sion; and  in  regard  to  all  outstanding  claims  that  are 
unfounded  and  whose  enforcement  would  reduce  the 
assets  in  the  receiver's  possession  to  the  detriment  of  the 
creditors  or  the  stockholders  it  is  his  duty  to  take  all 
proper  steps  to  remove  the  danger  of  their  threat  to  the 
estate.  The  receiver  is  within  his  right  and  duty  in  de- 
fending the  estate  against  any  claim  which  is  antago- 
nistic to  the  rights  or  interests  of  the  parties  to  the  suit 
in  which  he  was  appoiuted.^^ 

§349.     Actions   Ag^ainst   Trustees,   Directors,    or   Officers   for 
Malfeasance,  Misfeasance,  or  Negligence. 

Under  the  general  rule  as  to  the  right  and  duty  of  a 
receiver  to  reduce  to  possession  all  of  the  assets  of  the 
company,  as  above  set  forth,  the  receiver  may  prosecute 
against  trustees,  directors,  or  officers  any  claim  or  chose 
in  action  which  the  company  itself  might  have  enforced 
but  for  the  receivership  or  which  a  stockholder  might 
have  enforced  if  the  directors  or  the  company  neglected 
or  refused  to  take  proper  action.  The  receiver  may  com- 
pel from  directors  an  accounting  for  property  in  their 
hands  ;^  he  may  recover  from  a  director  a  preference 
wrongfully  obtained  while  the  company  was  insolvent;- 
he  may  recover  property  converted  by  directors  to  their 
own  use,^  or  profits  w^rongfully  made  in  corporate  trans- 

10  Owen  V.  Clifton,  supra;   Bos-  though    the    claim    paid    was    one 

worth  V.  Terminal  R.  Association  that    had    been    assigned    to    the 

of  St.  Louis,  174  U.  S.  182,  43   L.  director  when  he  advanced  money 

Ed.  941,  19  Sup.  Ct.  625.  to  release  an  attachment  on  cor- 

1  Gray  v.  Heinze,  82  Misc.  Rep.  porate  property  in  another  state 
618,  144  N.  Y.  Supp.  1045.  and    was    thereby    entitled    to    a 

2  Ronald  v.  Schoenfeld,  94  Wash,  preference  out  of  the  property  in 
238,  162  Pac.  43.  that  state.     Gray  v.  Taylor,  59  N. 

The    receiver    may    recover    a      J.  Eq.  621,  44  Atl.  668. 
preference    from    a    director,    al-  3  Folsom  v.   Smith,  113   Me.   83, 


PRIVATE    CORPORATIONS. 


883 


actions.^  Prol:)ably,  however,  tlie  great  majority  of  the 
chiiins  that  receivers  find  it  necessary  to  prosecute 
against  trustees,  directors,  or  officers  are  for  damages 
due  to  malfeasance,  misfeasance,  or  negligence  by  which, 
for  the  most  part,  the  conditions  leading  to  the  receiver- 
ships themselves,  are  caused.^  It  is  not  a  defense  to 
any  of  these  actions  that  the  money,  or  property, 
sought  to  be  recovered  is  not  needed  to  satisfy  the 
claims  of  creditors.^ 


92  Atl.  1003;  Bowers  v.  Male,  186 
N.  Y.  28,  78  N.  B.  577,  affirming 
111  App.  Div.  209,  97  N.  Y.  Supp. 
722. 

4  Where  an  officer  and  direc- 
tor who  dominated  the  board  of 
directors,  induced  them  to  pur- 
chase worthless  bonds  of  another 
corporation  in  which  he  was  in- 
terested, and  by  which  he  made 
a  large  profit,  the  receiver  of  the 
corporation  may  recover  such 
property  from  him.  Pepper  v. 
Addicks,  153  Fed.  383. 

5  Re  National  Funds  Assurance 
Co.,  L.  F.  10  Ch.  Div.  118;  Kelly 
V.  Dolan,  233  Fed.  635,  147  C.  C.  A. 
443;  Noyes  v.  Wood,  247  Fed.  72, 
159  C.  C.  A.  290;  Smith  v.  Hurd, 
12  Mete.  (Mass.)  371,  46  Am.  Dec. 
690;  Becker  v.  Billings,  161  m. 
App.  351;  Foutz  v.  Miller,  112  Md. 
458,  76  Atl.  1111;  Ventrees  v.  Wal- 
lace, 111  Miss.  357,  L.  R.  A.  1917A, 
971,  71  So.  636;  Thompson  v.  Gree- 
ley, 107  Mo.  577,  17  S.  W.  962; 
Bank  of  Niagara  v.  Johnson,  8 
Wend.  (N.  Y.)  645;  Butterworth 
V.  O'Brien,  39  Barb  (N.  Y.)  192; 
Gillet   v.    Phillips,    13    N.   Y.    114; 


Pierson  v.  Cronk,  13  N.  Y.  Supp. 
845;  Bowers  v.  Male,  186  N.  Y.  28, 
78  N.  E.  577;  Hayes  v.  Kenyon, 
7  R.  I.  136;  Hodges  v.  New  Eng- 
land, etc.,  Ck).,  1  R.  I.  312,  53  Am. 
Dec.  624;  Richardson  v.  Agnew,  46 
Wash.  117,  89  Pac.  404. 

Where  directors  are  sued  for 
damages  due  to  the  fact  that  they 
sold  increase  capital  stock  for 
worthless  notes  they  are  liable 
for  the  par  value  of  the  stock 
unless  they  show  that  it  could 
not  have  been  sold  for  that  price. 
Cockrill  v.  Abeles,  86  Fed.  505,  30 
C.  C.  A.  223. 

The  receiver  may  recover  illegal 
dividends  paid  by  directors  under 
the  statute  regardless  of  whether 
the  corporation  has  been  dissolved. 
Stoltz  V.  Scott,  23  Idaho  104,  129 
Pac.  340. 

A  settlement  of  claims  against 
directors  of  a  corporation  by  a 
receiver  with  the  permission  of  the 
court  precludes  a  stockholder  from 
maintaining  a  suit  upon  the  same 
cause  of  action.  Craig  v.  James, 
71  App.  Div.  238,  75  N.  Y.  Supp.  813. 
c  Mccarty's  Appeal,  110  Pa.  379, 
4  Atl.  925, 


884 


LAW   OF   RECEIVERS. 


§  350.     Actions  Against  Stockholders  for  Unpaid  Subscriptions 
to  Stock. 

The  actions  that  a  receiver  finds  it  necessary  to  insti- 
tute against  stockhohlers  as  such  are  usually  suits  to 
collect  unpaid  stock  subscriptions  or  other  statutory  lia- 
bilities. While  the  corporation  is  in  control  of  its  own 
affairs  subscriptions  are,  unless  there  are  statutory  pro- 
visions to  the  contrary,  collectible  only  by  the  company. 
They  form  an  asset  of  the  company  and  pass  to  the  re- 
ceiver. This  is  the  common  law  rule^  and  statutes  mak- 
ing provision  to  this  effect  are  merely  declaratory  of  the 
common  law.^  So  generally  recognized  is  the  rule  that 
stockholders  are  liable  to  the  receiver  on  their  unpaid 
subscriptions  that  it  is  the  common  practice  to  include 
in  the  appointing  order  a  provision  authorizing  and 
directing  the  receiver  to  collect  them.^  The  rule  applies 
alike  to  subscriptions  for  all  classes  of  stock.     There  is 


1  Unpaid  stock  is  as  much  a  part 
of  the  assets  of  the  company  as 
the  cash  which  has  been  paid  in 
upon  it.  Creditors  have  the  same 
right  to  loolt  to  it  as  to  anything 
else,  and  the  same  right  to  insist 
upon  its  payment  as  upon  the  pay- 
ment of  any  other  debt  due  to  the 
company.  As  regards  creditors, 
there  is  no  distinction  as  between 
such  a  demand  and  any  other 
asset  which  form  a  part  of  the 
property  and  effects  of  the  cor- 
poration. Sanger  v.  Upton,  91 
U.  S.  56,  23   L.   Ed.  220. 

"Independent  of  statute  the  un- 
paid capital  due  from  stockhold- 
ers always  was  and  is  a  part  of 
the  assets  of  the  company  and  so 
belongs  to  the  company  not  to  the 
creditors."  John  W.  Cooney  Co.  v. 
Arlington  Hotel  Co.  (Del.  Ch.),  101 
Atl.  879;  McDermott  v.  Wood- 
house,   87   N.   J.   Eq.    124,    99   Atl. 


103,  104;  Republican  Iron  &  Steel 
Co.  V.  Carlton,  189  Fed.  126. 

■■i  Lang  V.  Lutz,  39  Misc.  Rep.  3, 
78  N.  Y.  Supp.  200;  Pope  v.  Mer- 
chants' Trust  Co.,  118  Tenn.  506, 
103  S.  W.  792. 

3  Hollander  v.  Heaslip,  222  Fed. 
808  137  C.  C.  A.  1;  Hundley  v. 
Hewitt,  195  Ala.  647,  71  So.  419; 
Graves  v.  Denny,  15  Ga.  App,  718, 
84  S.  E.  187.  In  this  case  it  is 
ruled  that  a  provision  directing 
the  receiver  to  collect  subscrip- 
tions from  such  stockholders  as  in 
his  opinion  were  legally  liable 
was  not  a  delegation  of  the  court's 
equitable  powers  to  the  receiver, 
but  a  mandatory  direction  to  the 
court's  officer  not  to  sue  when  in- 
vestigation and  legal  advice  led 
him  to  believe  that  one  who  from 
the  records  appeared  to  be  liable 
had  a  defense  that  would  defeat 
recovery. 


PRIVATE    CORPORATIONS.  885 

no  difference  between  common  and  preferred  stock  in 
this  regard;^  and  while  there  may  be  a  difference  be- 
tween original  and  increase  st-ock  as  to  the  right  of  the 
company  to  sell  the  latter  class  for  less  than  par  there  is 
no  difference  between  the  two  as  far  as  a  holder's  lia- 
bility for  a  subscription  is  concerned.^ 

Notwithstanding  the  well  known  character  of  mipaid 
stock  subscriptions  as  an  asset  of  the  corporation,  from 
time  to  time,  cases  will  be  found  in  which  the  question 
arises  as  to  whether  the  receiver  is  in  a  position  to  sue 
for  their  recovery.  Some  confusion  at  times  arises  from 
a  failure  to  recognize  the  purpose  of  statutes  creating 
the  liability  for  such  unpaid  stock  subscriptions  and 
confusing  them  with  statutes  creating  what  is  often  called 
a  double  liability  or  liability  for  a  proportionate  share 
of  the  debts  of  the  corporation. 

It  is,  of  course,  outside  of  the  domain  of  this  work  to 
go  into  the  whole  question  of  the  right  to  recover  for 
unpaid  subscriptions  since  that  subject  may  be  found 
thoroughly  discussed  in  the  standard  works  upon  Cor- 
poration Law.  Our  concern  is  limited  to  the  right  of  a 
receiver  to  maintain  suits  of  this  character. 

The  liability  is  specifically  created  by  the  statutes  of 
the  various  states  though  sometimes  in  variant  form  as 
to  the  procedure  to  be  employed  in  collecting  the  assess- 
ment for  such  unpaid  stock.  Under  the  form  of  statute 
in  general  use  the  liability  for  such  unpaid  stock  is  an 
asset  of  the  corporation  and  the  receiver  is  placed  in  the 
shoes  of  the  corporation  respecting  its  collection,  and 
hence  is  allowed  to  collect  it  in  behalf  of  the  corporation, 
at  least,  in  the  jurisdiction  of  its  domicile.*^     There  may 

4  John  W.  Cooney  Co.  v.  Arling-  5  Graves  v.  Denny,  15  Ga.  App. 

ton  Hotel  Co.    (Del.  Ch.)    101  Atl.  718,  84  S.  E.  187. 

879.  6  Where  under  the  decisions  of 

[Affirmed  on  this   point  by   Su-  the  state  in  which  a  corporation  is 

preme    Court    under    title    of    Du  domiciled,      construing      its      own 

Pont  V.  Ball  (Del.),  106  Atl.  39.J  statutes,  the  receiver  is  authorized 


886 


LAW   OF    RECEIVERS. 


be  statutes,  of  course,  wliich  limit  the  collection  of  such 
assets  to  the  meeting  of  claims  against  the  corporation. 

The  distinction  between  the  liability  for  unpaid  stock 
and  the  liability  of  the  stockholder  which  is  more  gener- 
ally known  as  statutory  liability  in  addition  to  the  par 
value  of  his  stock  was  well  set  forth  by  Mr.  Chief  Justice 
Pennewill  in  a  very  recent  case  from  Delaware,'  in  which 
he  said : 

' '  The  appellants  argued  strongly  and  with  much  confi- 


to  enforce  the  liability  of  stock- 
holders upon  their  stock  holdings, 
as  an  asset  of  the  corporation,  the 
right  of  the  receiver  to  maintain 
such  an  action  in  a  foreign  state 
will  be  sustained.  Miller  v.  Am- 
oretti  (Wyo.),  181  Pac.  420,  citing 
Howarth  v.  Lombard,  175  Mass. 
570,  49  L.  R.  A.  301,  56  N.  E.  888; 
Howarth  v.  Angle,  162  N.  Y.  179, 
47  L.  R.  A.  725,  56  N.  B.  489;  How- 
arth V.  Ellwanger,  86  Fed.  54. 

Where  receiver  is  unable  to  pay 
debts  of  an  insolvent  corporation 
unless  a  note  given  by  subscriber 
for  capital  stock  is  collected  or 
sold,  a  transferee  of  corporation's 
assets  may  recover  amount  of 
note,  even  though  the  maker  may 
be  entitled  to  a  pro  rata  shave  of 
any  surplus  in  hands  of  receiver. 
Cosmopolitan  Life  Ins.  Co.  y. 
Sheats,  20  Ga.  App.  622,  93  S.  E. 
507. 

In  New  Jersey  the  statutes  cre- 
ate a  liability  to  make  good  on 
stock  not  fully  paid  running  in 
favor  of  the  corporation.  Under 
such  a  statute  the  receiver  of  the 
corporation  may  maintain  a  pro- 
ceeding against  the  stockholders  to 
require  them  to  contribute  for  the 
benefit  of  creditors  such  propor- 
tions of  the  amount  unpaid  upon 


the  shares  as  may  be  required  to 
pay  the  debts  of  the  company. 
Easton  Nat.  Bank  v.  American 
Brick  &  T.  Co.,  70  N.  J.  Eq.  722, 
64  Atl.  1095;  Re  Remington  Au- 
tomobile, etc.,  Co.,  153  Fed  345,  82 
C.  C.  A.  421. 

The  Delaware  statute  is  simi- 
lar to  the  New  Jersey  statute  re- 
specting unpaid  stock  subscrip- 
tions. The  Delaware  courts  also 
hold  that  the  recovery  in  such  a 
case  is  an  asset  of  the  corpora- 
tion for  the  benefit  of  its  credi- 
tors and  may  be  accordingly  col- 
lected by  the  receiver.  Du  Pont 
V,  Ball  (Del.),  106  Atl.  39;  John  W. 
Cooney  Co.  v.  Arlington  Hotel  Co. 
(Del.  Ch.),  101  Atl.  879. 

T  Du  Pont  V.  Ball  (Del.),  106 
Atl.  39.  See  also  Easton-  Nat. 
Bank  v.  American  Brick,  etc.,  Co., 
70  N.  J.  Eq.  732,  10  Am.  Cas.  84. 
8  L.  R.  A.  (N.  S.)  271,  64  Atl.  917; 
Rosoff  V.  Gilbert  Transportation 
Co.,  221  Fed.  972,  986. 

In  See  v.  Heppenheimer,  69  N.  J. 
Eq.  36,  78,  61  Atl.  843,  860,  the 
court  said: 

"In  equity,  and  as  against  cred- 
itors, the  acceptance  of  stock, 
without  paying  for  it,  places  the 
acceptor  in  the  position  of  a  sub- 
scriber." 


PRIVATE    CORPORATIONS.  887 

dence  that  receivers  could  not,  under  the  law,  enforce  a 
stockholder's  liability  created  by  statute,  as  in  this  case, 
and  cited  many  authorities  which  seemed  to  sustain  such 
proposition.  But  upon  examination  the  cases  referred 
to  do  not  seem  to  us  to  be  applicable  to  the  present  case. 
The  statute  of  this  state  is  unlike  those  that  impose  a 
liability  upon  the  stockholder  beyond  the  amount  of  his 
unpaid  stock,  such  as  double  liability  statutes.  Appel- 
lants' cases,  for  the  most  part,  as  well  as  their  citation 
from  1  Cook  on  Corporations  (7tli  Ed.)  §  218,  involved 
what  may  be  termed  double  or  additional  liability  laws. 
At  the  beginning  of  the  section  mentioned  it  is  said: 

^'  'The  state  legislatures,  however,  in  many  instances 
desire  to  increase  the  liability  of  stockholders  to  cor- 
porate creditors.  Accordingly  statutes  are  passed  ex- 
pressly declaring  that  the  stockholders  shall  be  liable  for 
a  specified  sum,  in  addition  to  their  unpaid  subscrip- 
tions.' 

''It  is  this  kind  of  liability  that  is  meant  when  'statu- 
tory liability'  is  referred  to,  and  Mr.  Cook  says:  'This 
is  called  the  statutory  liability  of  stockholders.' 

"The  failure  to  -note  the  distinction  between  the  lia- 
bility of  stockholders  to  the  extent  of  the  par  value  of 
their  stock  and  the  statutory  liability  in  excess  thereof 
has  resulted  in  some  confusion  in  the  cases  and  text- 
books. The  first  mentioned,  or  ordinary  liability,  is  an 
asset  of  the  corporation,  and  the  second  or  additional 
liability  is  not,  it  being  a  liability  directly  to  the  creditors, 
which  a  receiver,  in  the  absence  of  statutory  authority, 
has  no  power  to  enforce ;  and  it  is  not  resorted  to  if  the 
assets  of  the  corporation,  including  unpaid  stock,  are 
sufficient  to  pay  the  creditors. 

"Are  the  amounts  unpaid  by  stockholders  on  their 
shares  of  capital  stock  assets  within  the  meaning  of  the 
law?  We  think  that  much  of  the  confusion  in  the  law 
upon  this  subject  is  removed,  and  the  solution  of  soine 


888  LAW    OF    RECEIVERS. 

of  the  questions  in  this  case  simplified  when  we  recoi^- 
nize,  as  we  must,  that  before  the  enactment  of  our  in- 
corporation law  it  had  become  a  well-settled  American 
doctrine  that  unpaid  stock  of  a  corporation  constitutes  in 
equity  a  trust  fund  for  the  benefit  of  creditors  of  the 
corporation.  The  doctrine  was  first  announced  by  Air. 
Justice  Story  in  Wood  v.  Dummer  (1824),  3  Mason  308, 
Fed.  Cas.  No.  17944.  And  in  Sanger  v.  Upton,  91  U.  S. 
56,  23  L.  Ed.  220,  it  was  said : 

"  'The  capital  stock  of  an  incorporated  company  is  a 
fund  set  apart  for  the  payment  of  its  debts.  It  is  a  sub- 
stitute for  the  personal  liability  which  subsists  in  private 
copartnerships.  When  debts  are  incurred,  a  contract 
arises  with  the  creditors  that  it  shall  not  be  withdrawn 
or  applied,  otherwise  than  ui)on  their  demands,  until  such 
demands  are  satisfied.  The  creditors  have  a  lien  upon 
it  in  equity.  .  .  .  It  is  publicly  pledged  to  those  who 
deal  with  the  corporation,  for  their  security.  Unpaid 
stock  is  as  much  a  part  of  this  pledge,  and  as  much  a 
part  of  the  assets  of  the  company,  as  the  cash  which  has 
been  paid  in  upon  it.  Creditors  have  the  same  right  to 
look  to  it  as  to  anything  else,  and  the  same  right  to  insist 
upon  its  payment  as  upon  the  payment  of  any  other 
debt  due  to  the  company.  As  regards  creditors,  there 
is  no  distinction  betw^een  such  a  demand  and  any  other 
asset  which  may  form  a  part  of  the  property  and  effects 
of  the  corporation.' 

"One  reason  urged  for  the  contention  that  unpaid 
stock  is  not  liable  for  the  debts  of  the  corporation,  as  we 
understand  the  arguments,  is  because  the  company  issued 
the  stock  as  full  paid,  and  agreed  that  it  should  be  non- 
assessable. There  can  be  no  question,  in  view  of  the 
authorities,  that,  in  the  absence  of  such  an  agreement, 
unpaid  stock  is  liable  for  the  debts  of  the  corporation  and 
constitutes  assets  for  such  purpose. 

**xVnd  clearly,  according  to  the  authorities,  the  agree- 


PRIVATE    CORPORATIONS.  8S9 

ment  referred  to  was  ultra  vires  and  void,  so  that  the 
situation  is  the  same  as  though  there  was  no  such  agree- 
ment. Stripped  of  the  agreement  it  is  a  plain  case  of 
an  issuance  of  stock  by  the  company  and  acceptance  by 
the  holder  without  being  paid  for.  Under  such  circum- 
stances there  can  be  no  doubt  that  the  acceptor  impliedly 
agreed,  and  is  equitably  bound,  to  pay  for  the  stock. 
Then  it  follow^s  that  even  if  the  corporation,  because  of 
its  agreement,  could  not  enforce  payment,  the  receiver 
appointed  under  the  insolvency  statute  would  have  a 
right,  in  a  court  of  equity  and  under  the  direction  of  the 
chancellor,  to  collect  it,  there  being  no  other  assets  out 
of  which  the  debts  of  the  corporation  could  be  paid. 
Money  or  property  paid  for  capital  stock  are  assets 
liable  for  the  debts  of  the  company,  and  why  should 
money  due  but  unpaid  for  such  stock  not  be  equally 
liable?  Unpaid  subscriptions  unquestionably  are  liable 
because  they  are  legal  assets,  and  in  our  opinion  the 
acceptor  of  stock  not  paid  for  or  subscribed  for,  is  like- 
wise bound  to  pay  for  it,  and  his  liability  constitutes  an 
equitable  asset  which  a  statutory  receiver  can  enforce. 
It  is  admitted  that  such  a  receiver  has  power  to  collect 
unpaid  subscriptions  to  the  corporation  for  capital  stock 
because  the  relation  between  the  stockholder  and  the  com- 
pany is  contractual  and  the  unpaid  subscription  an  asset 
of  the  corporation.  But  a  contract  or  promise  to  pay 
may  be  implied  as  well  as  express,  and  it  clearly  appears 
from  the  authorities  that  the  acceptance  of  shares  of 
stock  under  a  law  similar  to  ours,  without  subscription, 
raises  an  implied  promise  to  pay  for  them.  Some  courts 
call  such  a  liability  an  equitable  asset,  but  whatever  it 
may  be  called  it  is  a  liability  that  may  be  enforced  to 
pay  the  debts  of  the  corporation,  and  by  no  one  more 
properly  than  a  receiver  appointed  under  the  insolvency 
strtute." 


890  LAW    OF    RECEIVERS. 

§  351.    Matters  Relating  to  the  Procedure  in  Such  Actions. 

As  was  suggested  in  the  preceding  section  statutes  im- 
posing the  obligation  to  pay  the  unpaid  par  value  of 
stock  may  often  be  variant,  and  resort  must  be  had  to 
the  statute,  itself,  in  any  particular  case.     Undoubtedly 
where  the  corporation  has  issued  its  stock  as  fully  paid 
and   non-assessable,   the   corporation,   where  no   rights 
of  creditors  are  involved,  may  be  estopped  from  assert- 
ing that  it  is  unpaid  and  subject  to  assessment  for  the 
unpaid  portion  of  the  par  value.^     But  the  corporation 
can  not  by  its  acts  in  issuing  unpaid  stock  as  fu-lly  paid 
interfere  with  the  rights  of  creditors  to  resort  to  such 
unpaid  asset  in  payment  of  their  claims,  for  that  is  the 
main  purpose  of  statutes  and  constitutional  provisions 
requiring  the  full  payment  of  the  stock  of  corporations. 
As   a  practical   proposition   people   often   form   a  cor- 
poration with  but  a  small  amount  of  their  stock  paid  for, 
and  if  the  business  meets  their  expectations  the  stock- 
holders may  never  be  called  upon  to  pay  the  balance, 
but  there  always  exists  a  potential  call  for  such  balance 
if  the  need  arises  to  pay  the  creditors  of  the  corporation 
therefrom.    Where  the  stock  is  issued  as  fully  paid,  as 
above  stated,  we  believe  that  the  corporation  will  be 
precluded  from  calling  in  the  unpaid  portion  for  any 
purpose  which  does  not  concern  the  rights  of  creditors, 
but  the  corporation  can  not  in  so  issuing  its  stock  de- 
prive its  creditors  of  the  rights  given  them  by  the  very 
statutes 'w^hich  form  the  body  and  soul  of  the  corporate 
entity — for  it  must  be  remembered  that  the  equity  courts 
are  developing  the  latent  soul  of  the  former  so-called 
soulless  corporations. 

Acting  upon  the  theory  that  the  amount  remaining 
unpaid  on  stock  subscriptions  is  an  asset  of  the  corpo- 
ration which  may  be  collected  by  the  receiver  in  like 

1  Lum  V.  American  Wheel  &  Vehicle  Co.,  165  Cal.  657,  Ann,  Cas. 
1915A,  816,  133  Pac.  303. 


PRIVATE    CORPORATIONS. 


891 


maimer  as  any  other  obligation  of  the  corporation,  it  is 
held  that  the  receiver  may,  in  the  absence  of  statutory 
restrictions,  marshal  the  assets  by  collecting  the  same 
from  the  delinquent  stockholders  and  the  court  of  equity, 
having  all  of  the  parties  at  interest  before  it,  will  pro- 
tect the  equities  of  all,  both  creditors  and  stockholders.- 
On  the  other  hand,  under  statutes  giving  prominence  to 
the  idea  that  such  a  recovery  is  particularly  for  the 
benefit  of  creditors,  it  is  also  stated  that  the  receivership 
court  should  not  collect  a  greater  amount  from  such 
delinquent  stockholders  than  is  necessary  to  satisfy  the 


2  Cosmopolitan  Life  Ins.   Co.  v. 
Sheats,  20  Ga.  App.  622,  93  S.  B. 
507.     This  was  an  action  against 
a  stockholder  based  upon  an   un- 
paid subscription  by  one  who  had 
purchased    all    the    assets    of    the 
company  at  a  receiver's  sale.     To 
the  objection  that  the  amount  of 
a  proper  judgment  could   not  be 
determined  because  it  did  not  ap- 
pear how  much  the  plaintiff  had 
paid    for    this    particular    asset   it 
was    ruled    that    the    stockholder 
must  pay  the  subscription  in  full 
"because  the  order  of  sale  and  the 
confirmation  of  the  sale  were  the 
equivalent    of    a    judicial    finding, 
that  sale  by  this  procedure  was  the 
equivalent  of  a  collection  in   full 
of  these  assets  by  the  receiver  in 
so  far  as  he  would  have  been  en- 
abled   to    accomplish    the    collec- 
tion."    The  subscriber  must  look 
to   the   receivership   court   for   an 
adjustment  of  equities  among  the 
stockholders. 

Where  the  court  determines 
that  the  assets  of  the  corporation 
should  be  marshaled,  it  is  not  es- 
sential that  the  amount  of  the 
debt   to    the    corporation    be   juJi- 


cially  determined  prior  to  a  suit 
by  the  receiver  to  recover  the 
debt.  Graves  v.  Denny,  15  Ga. 
App.  718,  84  S.  E.  187;  Wilkinson 
V.  Butock,  111  Ga.  187,  36  S.  E. 
623,  and  see  the  following  cases 
to  the  same  effect:  Hundley  v. 
Hewitt,  195  Ala.  647,  71  So.  419; 
Knight  &  Wall  Co.  v.  Tampa 
Sand,  Lime  &  Brick  Co.,  55  Fla. 
728,  46  So.  285;  Preston  v.  Jeffers, 
179  Ky.  384,  200  S.  W.  654;  Guil- 
bert  V.  Kessinger,  173  Mo.  App. 
680,  160  S.  W.  17;  Nathan  v.  Whit- 
lock,  9  Paige  (N.  Y.)  152;  Dayton 
V.  Borst,  31  N.  Y.  435;  Clarke  v. 
Thomas,  34  Ohio  St.  46. 

So  far  as  creditors  are  con- 
cerned stock  not  paid  for  may  be 
treated  as  cash  or  property  be- 
cause it  is  liable  for  the  payment 
of  their  debts. 

It  is,  of  course,  no  defense  to 
notes  given  in  part  payment  of 
stock  of  the  corporation  that  the 
creditors  of  the  corporation  have 
been  paid  in  full.  Pope  v.  Mer- 
chants' Trust  Co.,  118  Tenn.  50G, 
103  S.  W.  792;  In  re  Causey,  118 
Tenn.  506,  103  S.  W.  792;  In  re' 
Swaetman,  118  Tenn.  506, 103  S.  W. 
792. 


{392  LAW   OF    RECEIVERS. 

claims  of  corporate  creditors  and  meet  the  expenses  of 
winding  up  its  affairs.^  Where,  under  the  practice  or 
the  statutes,  the  receivership  court  wall  not  call  upon  the 
delinquent  stockholders  for  a  greater  amount  than  is 
necessary  to  satisfy  the  claims  of  the  creditors,  it  natur- 
ally follows  that  the  amount  to  be  so  raised  must  be 
judicially  ascertained  by  finding  both  the  total  amounts 
of  the  debts  and  assets  of  the  corporation  prior  to  calling 
upon  the  delinquent  stockholders  for  their  pro-rata,  so 
that  they  may  be  assessed  for  only  what  they  are  legally 
liable  to  pay."'  Although  the  proceeding  is  generally 
initiated  by  a  petition  by  the  receiver  there  is  no  objec- 
tion to  the  matter  being  called  to  the  attention  of  the 
court  by  any  other  party.^ 

Where  the  statute  imposing  the  liability  makes  no  dis- 
tinction and  creates  no  priority  as  between  common  and 
preferred  stock,  none  can  be  made  by  the  court  without 
adding  something  to  the  statute.  The  test  in  such  cases 
is  merely  whether  the  stock  has  been  paid  for  and 
whether  it  belongs  to  a  certain  class  or  character  of 
stock.^ 

3  Cumberland  Lumber  Co.  v.  self;  second,  the  ascertainment  of 
Clinton  Hill  Lumber  Mfg.  Co.,  57  the  stockholders  of  the  company 
N.  J.  Eq.  627,  42  Atl.  585.  See  also  who  have  not  fully  paid  their  sub- 
McDermott  v.  Woodhouse,  87  N.  J.  scriptions  or  for  their  stock;  and, 
Eq.  615,  101  Atl.  375.  third,  the  amount  of  the  call  for 

4  Du  Pont  V.  Ball  (Del.),  106  Atl.  unpaid  subscription  or  stock  nec- 
39.  See  also  Irwin  v.  Granite  State  essary  to  pay  the  debts,  taking 
Provident  Association,  56  N.  J.  Eq.  into  account  the  assets  of  the 
244,  38  Atl.  680;  Wetherbee  v.  company  in  the  receiver's  hands 
Baker,  35  N.  J.  Eq.  501.  and  the  solvency  or  insolvency  of 

In    Cumberland    Lumber    Co.   v.  the  stockholders  liable  or  claimed 

Clinton  Hill  Mfg.,  etc.,  Co.,  64  N.  to  be   liable." 

J.  Eq.  517,  54  Atl.  450,  it  is  said:  sin  re  People's  Live  Stock  Ins. 

"The  whole  of  this  court's  author-  Co.    (Spilman  v.   Mendenhall),    56 

Ity  on  an  application  of  this  char-  Minn.    180,    57  N.   W.   468 ;    In    re 

acter,  as  I  understand  it,  extends,  Jassay  Co.,  178  Fed.  515,  101  C.  C. 

first,  to  the  ascertainment  of  the  A.  641. 

amount    of    the    debts    which    are  6  Du  Pont  v.  Ball  (Del.),  106  Atl. 

valid   as   against  the  company   it-  39. 


PlilVATE    CORPORATIONS.  893 

Altlioiigli  a  court  may  have  the  right  to  require  a  resi- 
dent stockhohler  to  pay  the  whole  amount  of  liis  unpaid 
stock  assessment  with  a  right  to  subrogate  him  to  compel 
contribution  from  others,  it  is  undoubtedly  unequitable 
to  require  a  single  resident  stockholder  to  pay  the  whole 
amount  of  his  assessment  without  effort  on  the  part  of 
the  receiver  to  also  collect  from  non-resident  stockhold- 
ers. Even  though  such  a  course  might  be  convenient  for 
the  receiver  and  expeditious  for  the  creditors,  it  is  not 
regarded  as  fair  treatment  of  the  single  stockholder  by 
a  court  of  equity.  Under  such  circumstances  the  re- 
ceivers should  be  directed  to  collect  every  assessment 
which  they  find  collectible  and  which  would  justify  the 
expense  of  collection.  And  this  is  particularly  true  where 
the  receivers  are  statutory  ones  and  are  by  that  fact  well 
fitted  to  collect  claims  outside  of  the  jurisdiction.  Nor 
would  it  be  fair  to  such  a  single  resident  stockholder  to 
require  him  to  pay  the  cost  of  collecting  from  other 
stockholders  their  proportional  parts  of  the  assessment.'^ 

In  regard  to  the  "exhaustion  of  the  assets,"  that  is, 
the  determination  of  the  value  of  the  assets  in  the  re- 
ceiver's hands,  it  is  not  necessary  that  they  should  be 
actually  reduced  to  cash,  if  a  fair  appraisement  of  their 
value  can  be  made.  In  this  matter,  as  in  estimating  the 
costs  incident  to  the  collection,  and  similar  items,  exact 
accuracy  is  neither  possible  nor  necessary.  If  inequali- 
ties among  delinquents  result  from  the  collection,  that 
matter  can  be  adjusted  upon  distribution.^  The  amount 
of  the  assessment  imposed  upon  any  stockholder  is 
limited,  of  course,  to  the  unpaid  balance  of  his  stock  up 
to  its  par  value.  But  in  estimating  the  amount  outstand- 
ing as  unpaid,  delinquents  definitely  known  to  be  insol- 

7  Du    Pont    V.    Ball    (Del.),    lOG  8  Paine  v.  Mueller,  150  Iowa  340, 

Atl.  39.  130  N.  W.  133. 


394  LAW   OF    RECEIVERS. 

vent  are  omitted.®  Equalization  among  stocHiolclers  may 
be  made  by  exempting  from  assessment  tliose  wlio  have 
paid  a  fair  percentage  of  the  par  value  of  their  stock 
equal  to  or  greater  than  that  to  be  levied  and  giving 
credit  on  their  assessment  for  amounts  paid  to  those 
who  have  paid  less  than  this  percentage.  A  discount 
may  be  allowed,  to  those  who  pay  their  assessments 
promptly,  equal  to  the  estimated  saving  in  the  cost  of 
collection.i<>  In  all  of  the  details  of  levying  the  assess- 
ment the  '' shortest,  surest,  and  least  expensive"  of  the 
equitable  ways  open  to  the  court  will  be  followed,  and 
ways  that  will  open  up  ancillary  issues  to  cause  trouble 
in  the  collection  will  be  avoided,  if  possible,  reliance 
always  heing  placed  upon  the  propositions  that  unsub- 
stantial  inequalities  may  be  smoothed  out  upon  distri- 
bution and  that  one  who  is  held  liable  because  of  his 
technical  obligation  as  shown  by  the  corporate  records 
may  himself  seek  redress  from  one  whom  he  may  claim 
to  have  been  the  beneficiary  owner  of  the  stock. ^^ 

For  the  most  part,  the  corporate  record,  for  the  pur- 
poses of  making  an  assessment,  is  taken  as  showing 
the  ownership  of  stock.  When  the  record  owner  is  not 
the  real  owner  but  only  an  agent  or  trustee  of  the  real 
owner,  either  one  could  be  held  liable  for  the  assessment 
and  the  court  will  levy  against  the  one  who  is  the  more 
available  from  considerations  of  residence,  solvency,  and 
the  like.^-     This  principle  is  especially  applicable  to  a 

vtRosoff   V.    Gilbert   T.    Co.,    221  Ct.  465;    Dunn  v.  Howe,  107  Fed. 

Fed.  972;  Graves  v.  Denny,  15  Ga.  849,  47  C.  C.  A.  13;  Baines  v.  Bab- 

App.    718,   84    S.  E.   187;    Cumber-  cock,  95  Cal.  581,  29  Am.  St.  Rep. 

land  Lumber  Co.  v.  Clinton,  etc.,  158,  27  Pac.  674,  30  Pac.  776;  Rus- 

Co.,  N.  J.  Eq.,  supra.  sell  v.   Easterbrook,   71   Conn.   50, 

10  Scoville  V.  Thayer,  105  U.  S.  40  Atl.  905;    McKim  v.   Glenn,   66 

143,  26  L.  Ed.  968.  Md.  479,  8  Atl.  130;  Harper  v.  Car- 

n  Fell  V.  Securities  Co.  of  N.  A.  roll,  66  Minn.  487,   69  N.  W.  610, 

(Del.  Ch.),  100  Atl.  788.  1069;  Mann  v.  Currie,  2  Barb.   (N. 

i2Pauly  V.  State  Loan,  etc.,  Co.,  Y.)   294.     As  to  the  principle  con- 

165  U.  S.  606,  41  L.  Ed.  844,  17  Sup.  cerning     equity's     choice     among 


PRIVATE   CORPORATIONS. 


895 


person  who  claims  not  to  be  the  beneficial  owner  but  to 
hold  the  stock  simply  to  qualify  himself  as  director ;  in 
such  an  instance  there  w^ould  be  an  additional,  and,  per- 
haps, controlling,  consideration  for  holding  the  record 
owner  if  there  was  a  statute  making  ownership  of  stock 
a  qualification  for  holding  the  office  of  director.^=^  How- 
ever, one  who  holds  stock  simply  as  a  trustee  for  a  voting 
trust  and  has  no  other  right  in  the  stock  than  simply  to 
vote  it  is  not  liable  for  an  unpaid  subscription ;  the  charge 
will  be  against  the  beneficial  owners  of  the  stock.^^  The 
executor  or  administrator  of  a  deceased  stockholder  is 
a  stockholder  for  the  purpose  of  subscription  liability/^ 
Since  the  liabilities  of  the  company  have  to  be  deter- 
mined before  an  assessment  is  levied,  the  creditors,  have 
become  parties  in  the  matter  of  the  presentation  of  their 


available  remedies,  see  Houghton 
V.  Hubbell,  91  Fed.  453,  33  C.  C.  A. 
574. 

13  Finn  v.  Brown,  142  U.  S.  56, 
35  L.  Ed.  936,  12  Sup.  Ct.  136;  Fell 
V.  Securities  Co.  of  N.  A.  (Del. 
Ch.),  100  Atl.  788.  In  this  case, 
after  a  careful  consideration  of 
the  matter,  the  following  conclu- 
sions were  stated:  "When  shares 
of  stock  which  stand  on  the  books 
of  the  company  in  the  name  of 
one  person  are  held  as  agent  for 
another,  either  the  principal  or 
agent  are  liable  for  the  unpaid 
subscription  for  the  shares. 
•  "In  case  it  be  necessary  for  a 
receiver  of  the  company  appoint- 
ed by  the  Court  of  Chancery  in 
voluntiiry  liquidation  proceedings, 
to  assess  and  collect  from  the 
shareholders  for  the  benefit  of 
creditors  of  the  company  the 
amount  unpaid  on  the  stock,  it  is 
not  inequitable  to  permit  the  re- 
ceiver    to     proceed     against     the 


agent  rather  than  against  the  prin- 
cipal, if  that  course  be  best  for 
the  creditors. 

"When  one  takes  shares  of  stock 
of  a  corporation  in  order  to  quali- 
fy him  to  be  a  director  of  the  com- 
pany, he  thereby  holds  himself  out 
as  being  the  owner  thereof  in  his 
own  right,  and  cannot  escape  lia- 
bility as  the  record  owner  of  the 
stock  for  an  assessment  made 
thereon  for  the  benefit  of  creditors 
of  the  company,  by  showing  that 
he  never  had  a  beneficial  interest 
in  the  stock,  but  held  it  as  the 
agent  for  another,  to  whom  he 
had  delivered  the  certificate  for 
the  shares  with  a  transfer  thereof 
indorsed  thereon." 

14  See  United  States  Independent 
Tel.  Co.  v.  O'Grady;  O'Grady  v. 
United  States  Tel.  Co.,  75  N.  J.  Eq. 
301,  21  L.  R.  A.  (N.  S.)  732,  71  Atl. 
1040. 

15  Converse  v.  Spargo,  184  Fed. 
324 :  Fell  V.  Securities  Co.  of  N.  A., 
supra. 


896 


LAW    OF    RECEIVERS. 


claims  and  are  consequently  before  the  court  for  the  pur- 
poses of  the  assessment  proceedings.  It  is  not  necessary 
that  stockholders  should  have  notice  of  the  proceedings 
or  be  individually  present  or  represented,  unless  there 
is  a  statutory  requirement  to  that  effect,!*^  |3^t  under 
o-oneral  rules  of  equity  practice  such  notice  as  the  court 


iG  Brown  v.  Allebach,  156  Fed. 
697;  Mester  v.  Thomas,  122  Md. 
445,  89  Atl.  844;  Gilson  v.  Appleby, 
79  N.  J.  Eq.  590,  81  Atl.  925. 

"The  authorities  hold  that  the 
corporation  itself  represents  its 
stockholders  in  a  proceeding 
brought  in  equity  for  its  liquida- 
tion in  so  far  as  concerns  the  as- 
certainment of  the  amount  of  as- 
sets and  debts  and  the  necessity  of 
a  call,  leaving  open  to  such  alleged 
stockholder  the  question  whether 
he  was  in  fact  a  stockholder,  and 
the  amount  of  his  stock,  and  cross- 
claims  or  credits  against  the  cor- 
poration." Van  Tuyl  v.  Carpen- 
ter, 135  Tenn.  629,  188  S.  W.  234, 
citing  Coe  v.  Armour,  etc.,  Wks., 
237  U.  S.  413,  59  L.  Ed.  1027,  35 
Sup.  Ct.  625. 

In  McDermott  v.  Woodhouse,  87 
N.  J.  Eq.  615,  101  Atl.  375,  it  was 
said: 

"Again,  in  order  to  fix  a  stock- 
holder's liability,  he  must  be 
bound  by  the  proceedings  to  de- 
termine the  amount  thereof.  He 
can  not  be  bound  without  some 
sort  of  notice,  and  it  can  rarely 
happen  in  the  case  of  a  large  cor- 
poration that  all  the  stockholders 
are  subject  to  a  single  jurisdiction, 
and  it  is  probable  that  even  in 
the  case  of  a  small  corporation 
some  of  the  stockholders  reside 
in    different    jurisdictions.     That 


seems  to  be  the  present  case 
where  the  stockholders  are  only 
seven  in  number.  For  a  time  this 
difficulty  of  subjecting  stockhold- 
ers to  the  jurisdiction  of  a  single 
tribunal  seemed  insuperable.  It 
was  finally  settled  in  Hawkins  v. 
Glenn,  131  U.  S.  319,  33  L,  Ed.  184, 
9  Sup.  Ct.  739,  applying  the  rule 
of  Sanger  v.  Upton,  91  U.  S.  56, 
23  L.  Ed.  220,  that  a  stockholder 
is  so  far  an  integral  part  of  the 
corporation  that,  in  view  of  the 
law,  he  is  privy  to  the  proceedings 
touching  the  body  of  which  he  is 
a  member.  W^e  have  adopted  this 
rule  (Cumberland  Lumber  Co.  v. 
Clinton  Hill  Lumber  Mfg.  Co.,  57 
N.  J.  Eq.  627,  42  Atl.  585),  after 
expressing  some  doubt  as  to  its 
soundness  in  Meley  v.  Whitaker, 
Receiver,  61  N.  J.  L.  602,  604, 
68  Am.  St.  Rep.  719,  40  Atl.  593. 
See,  also,  Gilson  v.  Appleby,  79  N. 
J.  Eq.  590,  81  Atl.  925. 

Where  the  assessment  is  made 
in  a  proceeding  at  the  domicile  of 
the  corporation  to  which  the  cor-, 
poration  is  a  party,  the  stock- 
holder can  not  question  the  pro- 
priety or  amount  of  the  assess- 
ment, although  he  may  contend  in 
a  subsequent  action  against  him 
personally  to  collect  the  assess- 
ment that  he  is  not  liable  at  all. 
Coe  V.  Armour  Fertilizer  Works, 
237  U.  S.  413,  423,  59  L.  Ed.  1027, 
35  Sup.  Ct.  625." 


PRIVATE    CORPORATIONS. 


897 


deems  proper  and  sufficient  is  usually  given. ^"^       Any 
statutory  provision  must,  of  course,  be  followed. ^^ 

Where  an  assessment  by  the  court  is  considered  a 
necessary  preliminary  to  actions  by  the  receiver  it  is 
the  duty  of  the  court  to  make  an  assessment  upon  proper 
application  of  the  receiver.  If  the  receiver  makes  a 
py'ima  facie  case  by  showing  the  existence  of  claims 
against  the  estate  and  entire  lack  of  assets  except  unpaid 
subscriptions,  and  asks  for  an  order  levying  an  assess- 
ment, it  is  neither  j^roper  nor  has  the  court  authority  to 
make  an  order  granting  the  receiver  permission  to  sue 
delinquents  providing  he  files  a  bond  ^'conditioned  for  the 
payment  of  the  costs  of  said  suit  so  prayed  for,  includ- 
ing a  reasonable  attorney's  fee  for  defendant's  attorney 
in  case  the  receiver  shall  not  recover";  and  directing 
that  all  questions  as  to  the  validity  of  the  claims  again©  c 
the   company   be    determined    in    the    receiver's    suit.^^ 


1"  See  Fell  v.  Securities  Co.  of 
N.  A.   (Del.  Ch.),  100  Atl.  788. 

18  Under  the  provisions  of  the 
English  General  Corporations  Acts 
the  whole  matter  of  a  stockhold- 
er's liability  is  determined  in  the 
receivership  proceedings  them- 
selves. See  Leifchild's  Case,  L. 
R  Eq.  1,  231;  Waterhouse  v.  Ja- 
mieson,  2  Paters.  (Scotch)  1812, 
L.  R.  2  H.  L.,  Sc.  29;  Hamilton  v. 
Simon,  178  Fed.  130;  Cox  v.  Dickie, 
48  Wash.  264,  93  Pac.  523. 

Any  stockholder  who  was  en- 
titled to  notice  of  the  assessment 
proceedings  but  was  not  given  any 
notice,  may,  in  the  receiver's  suit 
against  him,  question  the  validity 
and  amount  of  the  alleged  debts  of 
the  company  and  need  not  go  into 
the  receivership  proceedings  them- 
selves for  that  purpose.  Grady  v. 
Graham,  64  Wash.  436,  36  L.  R.  A. 
I  Rec— 57 


IN.  S.)  177,  116  Pac.  1098.  See 
Chandler  v.  Brown,  77  111.  333; 
Lamar  Ins.  Co.  v.  Hildreth,  55 
Iowa  248,  7  N.  W.  573;  Paine  v. 
Mueller,  150  Iowa  340,  130  N.  W. 

19  Hosner  v.  Conservative  Cas- 
ualty Co.,  99  Wash.  161,  168  Pac. 
1122,  concerning  the  portion  of  the 
order  directing  a  bond  in  this  case, 
the  Appellate  Court  said: 

"The  court's  orders  prevented 
the  receiver  from  proceeding.  He 
was  ordered  to  give  a  bond  within 
ten  days,  when  he  had  just  made 
a  showing  that  he  had  no  funds 
with  which  to  pay  costs  or  ex- 
penses. As  an  officer  of  the  court 
he  could  not  be  required  nor  ex- 
pected to  procure  private  or  per- 
sonal bond,  nor  could  he  be  re- 
quired or  expected  to  pay  out  of 
hia  own  individual  funds  for  pro- 
curing a  compensated  bond." 


g98  LAW   OF    RECEIVERS. 

Wliere  an  assessment  is  considered  necessary  an  action 
brought  before  the  making  of  an  assessment  is  prema- 
ture; and,  if  such  an  action  is  brought,  it  is  error  to 
render  a  judgment  against  the  stockhokler  for  the  full 
amount  of  his  delinquency,  but  staying  execution  until 
an  assessment  has  been  levied  by  the  receivership  court, 
and  directing  that  execution  then  issue  for  the  amount 
of  the  assessments*^ 

As  a  rule  the  court  in  levying  the  assessment  considers 
only  defenses  that  are  open  in  common  to  all  stockhold- 
ers; and  special  defenses,  such  as  the  bearing  of  the 
statutes  of  limitation,  the  right  to  a  greater  credit  than 
the  books  show,  the  validity  of  a  release  by  the  company, 
and  like  matters  raised  by  individual  stockholders  are 
left  to  be  determined  in  the  receiver's  suit;  the  court 
may,  however,  in  its  discretion  determine  any  special 
plea  for  exemption  submitted  by  any  stockholder.-^ 

In  some  important  respects  the  intervention  of  a  re- 
ceivership cuts  off  defenses  which  a  subscriber  might 
interpose  against  an  action  by  the  company  brought  to 
recover  the  subscription.  Since  claims  against  the  com- 
pany must  be  presented  and  determined  in  the  receiver- 
ship court  and  since  the  payment  of  claims  must  be 
taken  care  of  on  distribution  and  determined  in  accor- 
dance with  the  condition  of  the  funds  and  the  principles 
governing  priorities  among  claimants,  a  stockholder,  in 
a  receiver's  suit,  can  not  set  otf  a  claim  against  the  com- 
pany against  his  liability  for  the  unpaid  portion  of 
his  subscription.--     It  is  not  an  objection  to  the  making 

20  Rea  V.  Eslick,  87  Wash.  125,  der  a  personal  judgment  against  a 
151  Pac.  256;  Grady  v.  Graham,  64  stockholder  who  had  not  personal- 
Wash.  436,  36  L.  R.  A.  (N.  S.)  177,  ly  appeared  or  had  not  been  made 
116  Pac.  1098;  Beddow  v.  Huston,  a  party  by  proper  process.  Howell 
65  Wash.  585,  118  Pac.  752;  Cham-  v.  Malmgren,  79  Neb.  16,  112  N.  W. 
berlain  v.  Piercy,  82  Wash.  157,  313;  Black  v.  Ore  Knob  Copper 
143  Pac.  977.  Co.,  115  N.  C.  382,  20  S.  E.  476. 

21  Fell  V.  Securities  Co.  of  N.  A.,  22  Scoville  v.  Thayer,  105  U.  S. 
supra.     The  court  could   not  ren-  143,    26    L.    Ed.    968    (Bankruptcy 


PRIVATE    CORPORATIONS.  899 

of  a  subscription  assessment  and  the  institution  of  an 
action  to  enforce  it  that  a  previous  call  by  the  company 
is  outstanding  and  actions  based  upon  it  are  pending.-^ 
The  right  of  the  subscriber  to  rescind  his  contract  or 
claim  an  estoppel  against  its  enforcement  on  the  ground 
that  the  subscription  was  induced  by  false  representa- 
tions by  the  company  or  its  agents  is  seriously  affected. 
Based  upon  the  principle  that  all  equities  are  determined 
as  of  the  time  when  the  receiver  is  appointed — that  those 
are  creditors  who  are  creditors  at  that  time;  and  those 
are  stockholders  who  are  stockholders  at  that  time — it 
is  sometimes  stated  that  the  creation  of  the  receivership 
absolutely  cuts  off  the  defense  of  false  representations 
from  a  stockholder  who  has  made  no  move  with  reference 
to  the  matter  prior  to  that  time,-^  Probably  the  general 
rule  would  be  to  extend  some  slight  leaway  and  not  to 
hold  the  charge  of  laches  too  severely  against  a  sub- 
scriber who  had  received  no  benefits  from  the  stock  and 
who  had  become  a  subscriber  such  a  short  time  before  the 
receivership  as  to  make  it  inequitable  to  hold  that  he 
should  have  acted  in  the  intervening  interval.  The  rule 
is  based  on  the  general  equity  proposition  that,  where 
one  of  two  innocent  parties  must  suffer,  the  loss  is  placed 
upon  the  one  who  in  equity  is  considered  the  more  eul- 

case,  see  §  351,  note  31) ;    Sawyer  23  Brown  v.  Allebach,   166   Fed. 

V.  Hoag,   84   U.   S.   610,   21    L.    Ed.  488. 

731;   Hamilton  v.  Simon,  178  Fed.  24  Oakes  v.  Turquand   (Overend 

130;  Appleton  v.  Turnbull,  84  Me.  &  Gurney  case),L.  R.,  2  H.  L.  325; 

72,  24  Atl.  592;   Williams  v.  Trap-  Tennent  v.  City  of  Glasgow  Bank, 

hagen,  38  N.  J.  Eq.  57;  See  v.  Hep-  4  App.  Gas.  615;  Scott  v.  Deweese, 

penheimer,    69    N.    J.    Eq.    36,    61  181  U.  S.  202,  45  L.  Ed.  822,  21  Sup. 

Atl.    843;    Holcombe    v.    Trenton,  Ct.  585;  Bank  of  North  America  v. 

etc.,  Co.,  80  N.  J.  Eq.  122,  82  Atl.  Pennsylvania    Oil,    etc.,    Co.,    216 

618;    Easton  Nat.  Bank  v.  Amerl-  Fed.   377;    Roe  v.   Oradell   Farms, 

can  Brick,  etc.,   Co.,  70  N.  J.  Eq.  etc.,  Co.,  85  N.  J.  Eq.  146,  96  Atl. 

732,   10   Ann.   Cas.   84,   8    L.    R.   A.  65;     Mathis    v.    Pridham,    1    Tex. 

(N.   S.)    271,   64  Atl.   917;    Bain  v.  Civ.     App.     58,     20     S.     W.     1015; 

Clinton  L.   Assoc,  112   N.  C.  248,  Mitchell   v.    Hancock    (Tex.    Civ.), 

17  S.  E.  154.  196  S.  W.  694. 


900 


LAW    OF    RECEIVERS. 


pable.-^  For  tlie  most  part,  the  same  principles  of  gen- 
eral corporation  law  that  determine  what  defenses  a 
stockholder  may  validly  and  effectively  interpose  against 
an  attempt  to  enforce  payment  of  the  subscription  obli- 
gation on  the  part  of  the  company  apply  in  a  receiver's 
suit  for  the  same  purpose.-^     It  is  to  be  remembered  in 


25  Stone  V.  Walker  (Ala.),  77  So. 
554;  Gress  v.  Knight,  135  Ga.  60,  31 
L.  R.  A.  (N.  S.)  900,  68  S.  E.  834; 
Cosmopolitan  Life  Ins.  Co.  v. 
Sheats,  20  Ga.  App.  622,  93  S.  E. 
507. 

"In     brief,     our     conclusion     is 
that,  when  a  stockholder  has  been 
induced  by  the  false  or  fraudulent 
representations  of  the  officers  of 
a     corporation     to     purchase     its 
stock,  he  may  during  the  solvency 
of  the   corporation,    if   the   action 
is    brought    within    a    reasonable 
time  after  the  fraud  is  discovered 
and   before  the  statute   of  limita- 
tion has  barred  it,  have  a  recission 
of    hia    contract    upon     equitable 
terms    or    recover    the    loss    sus- 
tained by  the   fraud.     But,  if  the 
corporation  is  insolvent  when  the 
action  for  recission  or  other  relief 
is  brought,  or  if  proceedings  have 
then   been   instituted   to  liquidate 
its  affairs  on  the  ground  of  insol- 
vency, and  the  rights  of  creditors 
will  be  affected,   the   shareholder 
who  has  been  induced  by  fraud  or 
misrepresentation      to      purchase 
stock  can  not  obtain  relief  from 
his  contract  unless   he  became   a 
stockholder  so  shortly  before  the 
insolvency  as  not  to  have  had  rea- 
sonable time  or  opportunity  to  in- 
vestigate its  affairs  and  discover 
the  fraud,  nor  unless  upon  the  dis- 
covery  he   without   delay   asserts 
his  right  to  appropriate  relief.  Hav- 
ing this  view  of  the  question,  we 


think  the  lower  court  properly  re- 
fused to  permit  the  shareholders 
to  rescind  their  contracts.  Scott 
V.  Deweese,  181  U.  S.  203,  21  Sup. 
Ct.  585,  45  L.  Ed.  822;  Scott  v.  Ab- 
bott, 160  Fed.  573,  87  C.  C.  A.  475; 
Wallace  v.  Bacon  (C.  C),  86  Fed. 
553;  Wallace  v.  Hood  (C.  C),  89 
Fed  11." 

The  above  is  quoted  in  Preston 
V.  Jeffers,  179  Ky.  384,  200  S.  W. 
654;  a  receiver's  suit  from  Reid  v. 
Owensboro  Savings,  etc.,  Co.,  141 
Ky.    444,    132    S.    W.    1026. 

26  Wyman  v.  Bowman,  127  Fed. 
257,  62  C.  C.  A.  189  (condition  at- 
tached to  subscription  may  be 
waived  by  acceptance  of  stock 
with  knowledge  that  condition  had 
not  been  performed;  under  Ne- 
braska absolute  original  sub- 
scriber, though  he  has  transferred 
his  stock,  is  liable) ;  French  v. 
Busch,  189  Fed.  480  (part  payment 
by  transfer  of  real  estate  to  com- 
pany, good  defense  pro  tanto) ; 
Hollander  v.  Heaslip,  222  Fed.  808, 
137  C.  C.  A.  1  (unperformed  condi- 
tion attached  to  subscription  good 
defense,  if  not  waived) ;  Graves  v. 
Denny,  15  Ga.  App.  718,  84  S.  E. 
187  (extension  of  time  of  payment 
without  consideration  not  effec- 
tive; that  directors  were  guilty  of 
waste  of  assets  through  miscon- 
duct not  a  defense) ;  Preston  v. 
Jeffers,  179  Ky.  384,  200  S.  W.  654 
(cancellation  of  other  subscrip- 
tions by  company,  mismanagement 


PRIVATE    CORPORATIONS.  901 

tills  connection  as  well  as  in  many  others  concerning  cor- 
poration receiverships  that  the  decisions  of  federal  conrts 
are  likely  to  be  based  upon  interpretations  of  and  deci- 
sions under  state  statutes  by  state  courts.-' 

Even  thoug-h  the  statute  prohibits  the  issuance  of  stock 
without  its  being  paid  for,  still  where  such  stock  is  issued 
the  acceptors  of  it  are  liable  to  the  creditors  of  the  cor- 
poration to  the  extent  of  the  par  value.  The  holders  of 
such  stock  can  not  evade  the  liability  which  the  law  im- 
poses upon  a  stockholder  to  pay  for  his  stock  by  contend- 
ing that  it  was  issued  in  violation  of  law.  Even  though 
such  issue  of  stock  could  be  held  void  under  familiar 
constitutional  provisions  prohibiting  the  issuance  of 
stock  ''except  for  money  paid,  labor  done,  or  personal 
property  furnished,"  it  does  not  follow  that  an  acceptor 
of  such  stock  can  claim  immunity  from  assessment.  And 
this  would  be  particularly  true  where  the  stockholder  has 
held  himself  out  or  permitted  himself  to  be  held  out  as 
the  owner  of  the  stock,  or  has  participated  or  acquiesced 
in  its  issuance.-'^ 

Whether  creditors  who  extended  credit  to  a  corpora- 
tion with  knowledge  of  the  facts  and  circumstances  under 
which  its  stock  or  portion  of  it  was  issued  in  violation  of 
law  is  a  matter  to  be  determined  by  the  phraseology  of 

and  malfeasance  on  part  of  direc-  that  all  capital  stock  had  not  been 

tors    and    officers    not    good    de-  subscribed  may  be  lost  by  estop- 

fenses;     subscriptions     for     more  pel) ;  Rea  v.  Eslick,  87  Wash    125 

than    par    enforceable);    Olson    v.  .n  p,      or.^  .  ,   ■     \ 

.Warroad  Mercantile  Co.,  136  Minn  ^l         '  "^^  ^"^'^'"^  '^^^  husband's 

310,    161    N.    W.    713    (subscribing  ^"^^^''^Ption     was     a     community 

corporation  bound  by  acts  of  duly  ^^^^   ^""^    ^^^"^^    ^^^^    been    pre- 

authorized  officer;    ultra  vires  no  ^^^^ted   as    claim    against    commu- 

defense) ;   Stevens  v.  Lippman,  85  ^^^'^  estate  upon  the  death  of  wife 

Misc.    Rep.   347,    148    N.    Y.    Supp.  ^^^  sustained  on  showing  that  sub- 

419    (ineffective    subscription   can  scription  was  individual  liabilty  of 

not  be  enforced);    Cox  v.  Dielsie,  husband). 

48    Wash.    264,    93    Pac.    523    (de-  -"  §  312   this   chapter, 

fenses  on  ground  of  invalidity  in  2s  Du    Pont   v.   Ball    (Del.),    106 

organization    of    corporation    and  Atl.   S9. 


902 


LAW    OF   RECEIVERS. 


the  statute  imposing  the  liability  to  the  creditor.  But 
it  has  been  held  that  knowledge  or  participation  on  the 
part  of  the  creditor  in  the  issuance  of  stock  as  "fully 
paid"  and  "non-assessable,"  wdien  in  fact  it  was  not 
fully  paid,  will  not  constitute  a  defense  on  the  part  of 
stockholders  to  a  suit  by  the  receiver  on  behalf  of  cred- 
itors to  recover  for  unpaid  par  value  where  the  claim 
of  the  creditor  is  just  and  equitable.-^ 

In  proceedings  by  a  receiver  of  an  insolvent  corpora- 
tion to  assess  stockholders  on  their  statutory  liability 
for  unpaid  stock  issued  to  them  as  fully  paid  and  non- 
assessable, interest  on  the  creditors  claims  should  be 
allowed  from  the  time  when  the  receiver  has  requested 
the  court  to  make  the  assessment  for  the  payment  of  the 
claims,  where  nothing  was  done  before  that  to  indicate 
that  the  stockholders  would  be  expected  to  pay  such 


29  Du  Pont  V.  Ball  (Del.),  106 
Atl.  39.  But  see  in  this  connection 
the  dissenting  opinion  of  Mr.  Jus- 
tice Heisel. 

In  Dilzell  Engineering,  etc.,  Co. 
V.  Lehmann,  120  La.  284,  45  So. 
142,  the  defendant  stockholders 
agreed  among  themselves  that  cer- 
tain stock  should  be  issued  and 
divided  between  them  without 
paying  the  corporation  therefor. 
In  a  receiver's  suit  the  defendants 
set  up  the  invalidity  of  the  trans- 
action under  the  constitution.  Of 
this  defense  the  court  said: 

"While  it  is  not  here  said  ex- 
pressly that  the  value  of  the  labor 
or  property  received  in  payment 
of  the  stock  must  be  equal  to  the 
face  value  of  the  stock,  that  is 
the  idea  meant  to  be  conveyed. 
The  defendants  in  this  case  do  not 
contend  differently,  but  argue  that, 
inasmuch  as  the  stock  is  stricken 
with  nullity,  no  action  can  arise 
upon    it    against    the    subscriber. 


How  far  this  may  be  true,  as  be- 
tween the  corporation  and  the 
subscriber,  we  need  not  inquire. 
It  can  not  be  true  as  between  the 
creditors  of  the  corporation  and 
the  subscriber.  .  .  .  Such  be- 
ing the  situation,  the  question 
presented  is  whether  the  man- 
agers of  the  affairs  of  a  corpora- 
tion in  this  state,  who  have  dis- 
tributed among  themselves  in  part 
or  in  whole  the  stock  of  the'  cor- 
poration without  value  received 
to  the  corporation,  can  by  invok- 
ing article  266  of  the  constitution 
escape  liability  to  the  creditors  of 
the  corporation  who  have  dealt 
with  the  corporation  upon  the 
faith  of  the  said  stock  having 
been  issued  for  value.  The  ques- 
tion is  not  debatable.  The  an- 
swer is  that  they  can  not,  and  that 
they  are  liable,  not  because  the 
stock  is  a  valid  contract,  but  be- 
cause, as  between  them  and  the 
creditors   of  the   corporation,   the 


PRIVATE    CORPORATIONS. 


903 


claims.^''  After  the  liability  of  the  stockholder  to  an 
assessment  has  been  determined,  together  with  the 
amount  thereof,  it  should  be  enforced  in  a  court  of  law 
unless  some  element  of  equity  jurisdiction  appears. ^^ 

In  the  absence  of  a  clearly  expressed  statutory  an- 
nouncement as  to  the  liability  for  such  unpaid  stock  and 
the  method  of  its  collection,  the  courts  sometimes  indulge 
in  speculations  as  to  whether  it  is  based  upon  the  trust 
fund  idea  or  that  the  corporation  held  itself  out  as  hav- 
ing the  funds  represented  by  the  par  value  of  the  stock^^ 


validity  of  the  contract  will  not  be 
permitted  to  be  inquired  into. 
They  are  estopped  from  setting 
up  the  invalidity  or  nullity.  Ewart 
on  Estoppel,  p.  187  et  seq." 

30  Du  Pont  V.  Ball  (Del.),  106 
Atl.  39.  In  this  connection  see 
also :  Burr  v.  Wilcox,  22  N.  Y.  551 ; 
Handy  v.  Draper,  89  N.  Y.  334;  Ma- 
son V.  Alexander,  44  Ohio  St.  318, 
7  N.  E.  435;  Corning  v.  McCul- 
lough,  1  N.  Y.  58,  49  Am.  Dec.  287; 
Baker  v.  Bank,  9  Mete.  (Mass.) 
182;  Terry  v.  Anderson,  95  U.  S. 
628,  24  L.  Ed.  365.  And  under  the 
National  Banking  Act  (Act  Cong. 
June  3,  1864,  c.  106,  13  Stat.  99), 
it  has  been  held  that  interest  runs 
from  the  date  of  the  comptroller's 
order  to  collect  an  amount  equal 
to  the  full  par  value  of  the  stock, 
the  amount  due  from  the  stock- 
holders being  then  liquidated  and 
payable.  Casey  v.  Galli,  94  U.  S. 
673,  24  L.  Ed.  168. 

31  McDermott  v.  Woodhouse,  87 
N.  J.  Eq.  615,  101  Atl.  375.  See 
also  Barkalow  v.  Totten,  53  N.  J. 
Eq.  573,  32  Atl.  2;  Hood  v.  Mc- 
Naughton,  54  N.  J.  L.  425,  24  Atl. 
497. 

In  Cox  v.  Dickie,  48  Wash.  264, 
93  Pac.  523,  it  was  held  unneces- 
sary   to    bring    a    separate    suit 


against  each  stockholder  where 
the  statute  does  not  require  it. 

And  in  Winterholer  v.  Hoffman, 
119  La.  125,  43  So.  980,  a  suit 
against  a  large  number  of  stock- 
holders for  different  sums  alleged 
to  be  due  for  unpaid  stock  was 
dismissed  for  misjoinder  of  parties 
defendant. 

32  "It  would  be  an  impeachment 
of  the  trust  fund  doctrine  to  hold 
that  one  who  had  opened  a  line  of 
credit  with  a  corporation  (pre- 
sumptively on  the  faith  of  its  rep- 
resentations as  to  capital  stock) 
and  who  furnished  goods  from 
time  to  time,  as  the  necessity  of 
its  customer  required,  should  be 
denied  the  status  of  an  existing 
creditor.  To  put  one  accustomed 
to  dealing  with  a  corporation  to 
the  hazard  of  testing  its  credit 
upon  each  transaction  would  be 
violative  of  that  sound  public  pol- 
icy which  impresses  a  corpora- 
tions every  act,  but  it  would  also 
put  upon  the  corporation  a  bond 
that  would  be  embarrassing,  if  not 
intolerable.  Where  relations  are 
once  assumed,  the  law  ought  to 
presume,  in  the  absence  of  evi- 
dence of  notice,  that  each  trans- 
action, if,  in  the  aggregate,  they 
possess  the  character  of  "a  course 


904 


LAW    OF    RECEIVERS. 


altliougii  generally  holding  in  favor  of  its  recovery  by 
the  receiver  on  one  or  both  theories.^^  But  some  courts 
content  themselves  with  merely  interpreting  the  statute 
as  to  the  provisions  contained  therein  respecting  the 
liability  and  the  methods  permitted  by  it  for  recovering 
from  the  stockholder.^^ 


of  dealing,"  is  based  upon  the  faith 
established  when  the  first  account 
was  opened.  There  is  no  testi- 
mony tending  to  show  that  the 
protesting  creditors  had  any  notice 
of  the  attempted  cancellation. 
Upon  either  theory  of  the  law,  we 
find  no  escape  from  the  holding 
that  Mr.  Panton  is  bound  by  his 
subscription." 

There  seems  to  be  in  the  above 
statement  from  Murphy  v.  Panton, 
96  Wash.  637,  165  Pac.  1074,  a  sort 
of  a  mixture  of  the  "trust  fund" 
and  the  "holding  out"  theory. 

See,  also,  Hospes  v.  Northwestern 
Mfg.,  etc.,  Co.,  48  Minn.  174,  31 
Am.  St.  Rep.  637,  15  L.  R.  A.  470, 
50  N.  W.  1117;  First  Nat.  Bank  v. 
Gustin  Minerva,  etc.,  Min.  Co.,  42 
Minn.  327,  18  Am.  St.  Rep.  510,  6 
L.  R.  A.  676,  44  N.  W.  198. 

33  In  re  Jassoy  Co.,  178  Fed.  515, 
101  C.  C.  A.  641;  Drennen  V.  Jen- 
kins, 180  Ala.  261,  60  So.  856; 
Hightower  v.  Thornton,  8  Ga.  486, 
62  Am.  Dec.  412;  Meholin  v.  Carl- 
son, 17  Idaho  742,  134  Am.  St.  Rep. 
286,  107  Pac.  755;  Great  Western 
Tel.  Co.  V.  Gray,  122  111.  630,  14 
N.  E.  214;  Haskell  v.  Gardner  (Ind. 
App.),  93  N.  E.  458;  Marion  Trust 
Co.  V.  Blish,  170  Ind.  686,  18 
L.  R.  A.  (N.  S.)  347,  84  N.  E.  814, 
85  N.  E.  344;  Hughes  v.  Hall,  117 
Md.  547,  83  Atl.  1023;  Frank  v. 
Morrison,  58  Md.  423;  Hayes  v. 
Brotzraan,  46  Md.  519;  Hopper  v. 
Brodie,  130  Md.  443,  100  Atl.  644; 


In  re  People's  Live  Stock  Ins.  Co. 
(Spillman  v.  Mendenhall),  56  Minn 
ISO,  57  N.  W.  468;  Commerce 
Trust  Co.  v.  Hettinger,  181  Mo. 
App.  338,  168  S.  W.  911;  Van 
Schoick  V.  Mackin,  129  App.  Div. 
335,  113  N.  Y.  Supp.  408;  Rankine 
v.  Elliott,  16  N.  Y.  377;  Donald  v. 
American  Smelting,  etc.,  Co.,  62 
N.  J.  Eq.  729,  48  Atl.  771,  1116; 
Dill  V.  Ebey,  27  Okla.  584,  46 
L.  R.  A.  (N.  S.)  440,  112  Pac.  973; 
Mitchell  V.  Porter  (Tex.  Civ.  App.), 
194  S.  W.  981;  National  Bank,  etc., 
V.  Texas  Inv.  Co.,  74  Tex.  421,  12 
S.  W.  101;  Thompson  v.  First  State 
Bank  of  Amarillo  (Tex.  Civ.  App.), 
189  S.  W.  116;  National  Bank,  etc., 
v.  Texas  Inv.  Co.,  74  Tex.  421,  12 
S.  W.  101;  Chamberlain  v.  Piercy, 
82  Wash.  157,  143  Pac.  977;  Evans 
V.  Coventry,  8  De  Gex  M.  &  G.  835, 
44  Eng.  Reprint  612. 

A  judgment  on  stockholder's  lia- 
bility may  be  set  off  against  bonds 
ovv'ned  by  the  stockholder  but 
transferred  by  him  after  the  re- 
ceiver had  begun  proceedings  look- 
ing toward  collection  to  one  who 
knew  of  the  liability.  Hynes  v. 
Illinois  Trust  &  Savings  Bank,  226 
111.  95,  10  L.  R.  A.  (N.  S.)  472,  80 
N.  E.  753  (affirming  judgment  126 
ni.  App.  409). 

34  See  discussion  of  Delaware 
and  New  Jersey  statutes  in  John 
W.  Cooney  Co.  v.  Arlington  Hotel 
Co.,  supra  (Del.  Ch.),  101  Atl.  879, 
and  same  case  in  Supreme  Court 


PRIVATE    CORPORATIONS.  905 

§  352.     Effect  Where  the  Statutory  Liability  Is  Directly  to  the 
Creditor  Instead  of  Corporation. 

Statutes  imposing  a  liability  upon  stockholders  some- 
times impose  that  liability  for  the  exclusive  benefit  of 
the  creditor  and  in  terms  which  allow  the  creditor  alone 
to  recover  it.^  This  is  particular!}^  true  in  respect  to 
what  are  now  properly  and  generally  known  as  statutory 
liability  statutes  such  as  impose  a  double  liability  or  a 
liability  to  creditors  based  upon  the  proportion  of  shares 
which  the  stockholder  owns  compared  with  the  total  num- 
ber of  shares  issued.  Under  the  terms  of  some  statutes 
the  statutory  liability,  whether  double  or  proportionate, 
is  imposed  for  the  express  benefit  of  the  creditor  alone, 
while  under  other  statutes  the  liability  though  imposed 
for  the  benefit  of  creditors  may  be  enforced  in  a  creditor's 
suit  or  by  a  receiver  who  is  expressly  made  a  quasi- 
assignee  of  the  creditors  for  that  purpose.  An  apparent 
confusion  has  arisen  among  the  authorities  because  of  a 
failure  to  differentiate  cases  arising  under  the  variant 
statutes.  It  is  obvious  that  where  the  statute  in  express 
terms  makes  the  right  to  recover  the  liability  personal  to 
the  creditor,  the  right  of  action  is  not  an  asset  of  the  cor- 
poration and  the  receiver  is  not  in  a  legal  position  to  sue 

under   name    of   Du   Pont   v.    Ball  of  himself  and  other  creditors  of  a 

(Del.),  106  Atl.  39.  bankrupt    corporation    to    recover 

1  In  Firestone  Tire  &  Rubber  Co.  ^^^^  the  defendants  as  stockhold- 

V.  Agnew,  194  N.  Y.  165,  16  Ann.  ^^'^    ^he    balance    unpaid   on   their 


Cas.  1150,  24  L.  R.  A.   (N.  S.)   628, 

86  N.  E.  1116,  the  statute  read  as 


stock  subscriptions  to  the  extent 
necessary  to  satisfy  the  unpaid  in- 
debtedness of  the  corporation.   The 

follows:     "Every  holder  of  capital      Knr,i-,.,,,.f  ^ +•       u   j         /■ 

■'  bankrupt  corporation  had  made  a 

stock  not  fully  paid,  in  any  stock  compromise  with  its  creditors  and 

corporation,    shall    be    personally  ^as   discharged.     The   court   held 

liable  to  its  creditors,  to  an  amount  that    the    discharge    excused    the 

equal  to  the  amount  unpaid  on  the  plaintiffs   from   procuring  a   judg- 

stock  held  by  him  for  debts  of  the  ment   against   the    corporation   as 

corporation  contracted  while  such  required   by  the  statute  and  that 

stock    was    held    by    him."      The  the   action   would   lie  against  the 

suit  was  by  a  creditor  on  behalf  defendants. 


906 


LA^V    OF    RECEIVERS. 


upon  it-    On  the  other  hand 
a  quasi-assignee  for  the  cr 

2  Where  a  statute  imposing  a 
double  liability  upon  the  holders 
of  corporate  stock  does  not  include 
or  authorize  an  action  by  a  re- 
ceiver and  the  courts  of  the  state 
hold  that  the  statute  provided  the 
only  remedy,  a  single  action  in 
which  all  persons  having  an  in- 
terest in  the  matter  should  be 
joined  or  represented  and  that  the 
receiver  of  an  insolvent  corpora- 
tion could  not  maintain  an  action 
to  enforce  the  superadded  lia- 
bility, the  receiver  will  not  be  per- 
mitted to  enforce  the  liability  in 
a  foreign  state.  Such  statutes  do 
not  make  such  liability  an  asset 
of  the  corporation  to  be  recovered 
by  him  nor  do  they  provide  for 
a  transfer  of  any  right  or  title 
to  a  receiver  to  enforce  the  lia- 
bility. Hale  v.  Allinson,  188  U.  S. 
56,  47  L.  Ed.  380,  23  Sup.  Ct.  244. 
See  also,  Finney  v.  Guy,  189  U.  S. 
335,  47  L.  Ed.  839,  23  Sup.  Ct.  558. 
In  other  words  where  under  the 
statute  the  stockholders  liability 
is  not  an  asset  of  the  corporation 
but  runs  directly  to  the  creditors, 
a  receiver  who  has  no  greater 
rights  than  that  of  an  ordinary 
chancery  receiver  is  not  in  a  posi- 
tion to  sue  to  enforce  such  lia- 
bility. Miller  v.  Amoretti  (Wyo.), 
181  Pac.  420. 

In  Bostwick  v.  Young,  118  App. 
Div.  490,  103  N.  Y.  Supp.  607,  the 
receiver  of  the  corporation  sued 
upon  the  theory  of  an  unpaid  sub- 
scription. A  demurrer  was  sus- 
tained upon  the  ground  that 
insufficient  facts  were  averred  to 
make  out  a  cause  of  action  under 
the  terms  of  the  New  York  stat- 
ute  a   personal   obligation   of   the 


if  by  the  statute  he  is  made 
editors  for  the  purpose  of 

stockholder  direct  to  the  credi- 
tor appears  to  be  created.  The 
court  in  discussing  the  question, 
said:  "There  can  be  no  doubt  that 
the  appointment  of  this  receiver 
did  not  vest  in  him  a  right  which 
was  personal  to  the  creditors,  or 
enable  him  to  receive  under  cii'- 
cumstances  in  which  the  corpora- 
tion could  not  have  maintained 
an  action.  It  is  equally  clear  thai 
the  corporation  itself  would  have 
no  standing  to  demand  that  the 
defendants  should  pay  the  par 
value  of  stock  issued  to  them  as 
full  paid-up  stock,  pursuant  to  an 
agreement  which  was  between  the 
corporation,  and  the  defendants, 
was   valid    and   binding." 

In  Farnsworth  v.  Wood,  91  N.  Y. 
308,  a  receiver  was  appointed  of 
a  corporation  upon  the  sequestra- 
tion of  its  property  on  the  return 
of  an  execution.  He  sought  to 
enforce  against  the  stockholders 
the  personal  liability  to  creditors 
imposed  by  the  statute  upon 
stockholders  of  the  character  of 
the  one  of  which  he  was  receiver. 
The  court  held  that  the  liability 
under  the  Act  of  1848  was  a  sev- 
eral individual  liability  of  each 
stockholder  directly  to  such  of  the 
creditors  as  have  complied  with 
the  requisite  conditions  precedent. 
The  court  held  that  there  was  no 
provision  in  the  statute  by  which 
the  right  of  such  creditors  can  be 
vested  in  a  receiver  of  the  corpo- 
ration. And  speaking  to  the  point 
the  court  said:  "The  liability  does 
not  exist  in  favor  of  the  corpora- 
tion itself,  nor  for  the  benefit  of 
all  its  creditors,  but  only  in  favor 
of    such    creditors    as    are    within 


PRIVATE    CORPORATIONS. 


907 


collecting  tliis  liability  for  their  benefit,  the  right  of 
action  is  one  which  passes  to  the  receiver  and  is,  of 
course,  properly  exercised  by  him,  and  under  such  cir- 
cumstances the  receiver  being  vested  with  the  creditor's 
right  of  action  against  the  stockholders  with  full  author- 
ity to  enforce  it,  is  under  no  difficulty  in  enforcing  that 
right  of  action  in  jurisdictions  beyond  that  of  the  court 
which  appointed  him."  Statutes  which  impose  statutory 
liability  upon  stockholders  generally  require  the  creditor 
to  attempt  the  collection  of  his  claim  against  the  corpo- 
ration before  suing  the  stockholder.  Under  such  statutes 
lie  is  excused  from  suing  the  corporation  if  the  order 
appointing  a  receiver  has  directions  restraining  creditors 
from  suing  the  corporation.'' 


the  prescribed  conditions.  It  is 
not  a  general  right  but  one  which 
attaches  to  the  particular  credi- 
tors only  who  are  within  the  con- 
ditions, and  it  is  to  be  enforced 
by  those,  by  these  in  their  own 
right  and  for  their  own  special 
benefit.  The  receiver  in  this  case 
is  not  vested  with  the  rights  of 
action  of  these  creditors,  but  only 
with  the  property  which  was  se- 
questrated under  the  provisions 
of  section  36,  chapter  8,  title  4, 
article  2  of  the  Revised  Statutes, 
viz.:  'the  stock,  property,  things 
in  action  and  effects  of  the  cor- 
poration.' The  rights  of  certain 
creditors  to  prosecute  their  claims 
against  certain  of  the  stockholders 
never  were  the  property  of  the 
corporation,  no  rights  of  action 
vested  in  it,  nor  is  there  any  pro- 
vision of  the  statute  which  trans- 
fers these  rights  of  action  from 
the  creditors  to  the  receiver." 

3  See  Converse  v.  Hamilton,  224 
TJ.  S.  243,  56  L.  Ed.  749,  Ann.  Cas. 
1913D,   1292,   32   Sup.   Ct.   415. 

Under   Ohio   statute   a   receiver 


of  an  insolvent  corporation  may 
sue  in  the  federal  court  of  another 
state  for  assessments  levied  by 
an  Ohio  court  on  the  stockholders. 
Irvine  v.  Baker,  225  Fed.  834. 

4  In  Hunting  v.  Blun,  143  N.  Y. 
511,  38  N.  E.  716,  a  sequestration 
action  had  been  commenced  by  a 
creditor  against  a  corporation  and 
a  receiver  appointed  accompanied 
by  a  restraining  order  against 
suits  by  creditors.  The  final  judg- 
ment made  the  injunction  perpet- 
ual. A  creditor  commenced  an 
action  against  a  stockholder  to 
enforce  the  statutory  liability 
without  having  obtained  a  judg- 
ment against  the  corporation.  The 
court  held  that  the  injunction  ex- 
cused the  creditor  from  first  ob- 
taining judgment  against  the 
company. 

In  Kincaid  v.  Dwinelle,  59  N.  Y. 
548,  it  was  held  that  the  appoint- 
ment of  a  receiver  in  a  suit  to 
dissolve  a  corporation  before  the 
obtaining  of  a  final  judgment 
against  the  corporation  by  a  cred- 
itor did   not   prevent  such   a   suit 


;03 


LAW   OF   RECEIVERS. 


An  order  levying  an  assessment  or  one  refusing  to 
levy  an  assessment  is  appealable  as  on  order,  a  decree, 
or  judgment  finally  determining  a  riglit.^  An  assess^ 
ment  decree  not  appealed  from  can  not  be  collaterally 
attacked  and  is  binding  upon  stockholders  as  to  all  mat- 
ters properly  decidable  therein,  such  as  the  necessity  for 
an  assessment,  the  amount  of  the  indebtedness  of  the  cor- 
poration, and  the  number  of  shares  standing  in  the  name 
of  the  stockholder.^ 


against  the  corporation  and  a  sub- 
sequent suit  against  a  stockholder 
upon  the  statutory  liability. 

"While  section  3744  of  the  Code 
of  1907  only  authorized  a  judgment 
creditor  of  a  corporation,  having 
an  execution  returned  'no  prop- 
erty found,'  to  file  a  bill  in  equity 
to  subject  to  the  payment  of  his 
judgment  the  unpaid  subscriptions 
of  one  or  more  stockholders  with- 
out joining  the  other  stockholders 
.  .  or  could  maintain  a  suit 
therefor  against  the  stockholders, 
yet  the  averments  of  the  bill  in 
this  case  relieve  the  complainant 
from  the  necessity  of  complying 
with  the  provisions  of  this  section 
before  filing  the  bill;  or,  in  other 
words,  they  showed  this  section 
was  not  applicable  because  It 
would  be  impracticable  to  get 
judgments,"  the  company  having 
been  dissolved.  This  statement  is 
quoted  from  Drennen  v.  Jenkins, 
180  Ala.  261,  60  So.  856,  a  case  in 
which  a  creditor  brought  suit  on 
the  subscription  liability  in  place 
of  the  receiver,  in  Hundley  v. 
Hewitt,  195  Ala.  647,  71  So.  419, 
a  receiver's,  though  not  an  assess- 
ment, case.  See  also,  Pankey  v. 
Liippman,  187  Ala.  199,  204,  65  So. 
771,  in  which  it  was  said  on  the 
same  point:  "The  status  of  a 
trust    established    by    the    statute 


,  .  .  brings  into  play  the  gen- 
eral doctrines  and  practices  of 
equity  in  the  administration  of  a 
trust  brought  within  its  jurisdic- 
tion and  to  justify — indeed  to  re- 
quire— the  full  exercise  of  its 
powers  to  the  end  that  adjustment 
and  relief  may  be  made  and 
awarded.  Equity's  customary  thoi'- 
oughness  so  requires." 

5  Mister  v.  Thomas,  122  Md.  445, 
89  Atl.  844;  Pacific  Coast  Coal  Co. 
V.  Esary,  85  Wash.  448,  148  Pac. 
579;  Hosner  v.  Conservative  Cas- 
ualty Co.,  99  Wash.  161,  168  Pac. 
1122. 

6  Mister  v.  Thomas,  122  Md.  445, 
89  Atl.  844;  Hamilton  v.  Levison, 
198  Fed.  444;  Holcombe  v.  Trenton 
White  City  Co.,  82  N.  J.  Eq.  364,  91 
Atl.  1069,  affirming  decree  80  N.  J. 
Eq.  122,  82  Atl.  618. 

In  an  action  by  the  receiver  of 
an  insolvent  corporation  to  en- 
force payment  of  a  certain  per- 
centage of  the  par  value  of  unpaid 
bonus  stock,  a  court  is  not  author- 
ized to  inquire  into  the  considera- 
tion paid  after  insolvency  for 
claims  fixed  by  judgment,  in  the 
absence  of  any  alleg'ations  of 
fraud.  Gordon  v.  Cummings,  78 
Wash.   515,   139   Pac.   489. 

That  the  corporate  records  erro- 
neously show  the  number  of 
shares  subscribed  for  by  a  defen- 


PRIVATE    CORPORATIONS.  909 

C.    Higlit  of  Receiver  to  Sue  for  Assets  in  Cases  Where  Corporation 
Itself  is  Estopped  to  Sue. 

§353.     Receiver's  Right  to  Sue  for  Assets  as  to  Which  the 
Corporation  Is  Estopped  to  Sue. 

Many  of  the  principles  discussed  in  the  preceding  sec- 
tion are  applicable  to  the  discussion  in  this  section  and 
should  be  considered  in  this  respect.^ 

**The  receiver  unites  in  himself  the  right  of  the  trust 
combination  and  also  the  right  of  creditors,  and  he  may- 
assert  a  claim  as  the  representative  of  creditors  which  he 
might  be  unable  to  assert  as  a  representative  of  the  combi- 
nation merely.  The  general  rule  is  well  established  that  a 
receiver  takes  the  title  of  the  corporation  or  the  individual 
whose  receiver  he  is  and  that  any  defense  which  would 
have  been  good  against  the  former  may  be  asserted 
against  the  latter.  But  there  is  a  recognized  exception 
which  permits  a  receiver  of  an  insolvent  individual  or 

dant  in  a  receiver's  suit  is  an  ob-  of  giving  a  stockholder's  attorney 

jection  to  be  urged  in  the  assess-  opportunity     to     raise     questions 

ment    proceedings.     Hamilton    v.  which    he    failed   to    raise    on   the 

Simon    178  Fed.  130.  hearing    through    a    misapprehen- 


An    assessment    decree    is    not 
binding   upon   a   stockholder   who 


sion  of  the  legal  scope  and  effect 
of  the  hearing.     Cumberland  Lum- 
ber Co.  V.  Clinton,  etc.,  Mfg.,  Co., 
has  fully  paid  for  his  stock  and  is      g^  j^   j_  ^^   g^^^  g^  ^^j    g^,j, 

not  subject   to  assessment   either  ,  ^  e    ^.u      a  ^   ■^ 

•'  1  In    many    of    the    details    con- 

as    to    the    validity    of    claims    or  .  ,,  ^  ^   •     ^i.- 

cerning  matters  presented  in  this 
their  priority.    Dickinson  v.  Kline,  j  ^u  j-  j.-  ^ 

^  -^  '  and  the  preceding  section,  as,  for 

96  Neb.  435,  148  N.  W.  141.  •   cfo    ^      fv,  .t         p  ,        • 

'  instance,  the  matter  of  levying  an 

An  assessment  having  been  duly  assessment  on  delinquent  stock- 
levied  the  receiver  may  institute  holders,  the  controlling  principles 
proceedings  for  the  discovery  of  are  the  same,  and  we  therefore 
the  real  owner  when  that  fact  have  not  hesitated,  in  the  preced- 
has  been  concealed  by  having  the  i^g  section,  to  cite  cases  in  which 
stock  recorded  in  the  name  of  an  the  main  matters  involved  may 
irresponsible  person.  Kurtz  v.  have  been  such  as  belong  here. 
Brown,  152  Fed.  372,  81  C.  C.  A.  jn  this  section,  however,  no  au- 
498,  11  Ann.  Cas.  576.  thorities  will  be  intentionally  used 

Assessment     proceedings      may  except  such  as  exclusively  pertain 

not  be  re-opened  for  the  purpose  to  its  own  subject  matter. 


910 


LAW   OF   RECEIVERS. 


corporation  in  the  interest  of  creditors  to  disaffirm  deal- 
ings of  the  debtor,  in  fraud  of  their  rights.  "^ 

The  general  rule  stated  in  the  quotation  is,  as  we  have 
seen  in  the  preceding  section,  universally  recognized. 
The  exception  mentioned  is  given  equally  unanimous 
recognition.  '  *  It  is  the  settled  doctrine  that  the  receiver 
of  an  insolvent  corporation  represents  not  only  the  cor- 
poration but  also  its   creditors   and   stockholders,   and 


2  Pittsburg  Carbon  Co.  v.  Mc- 
Millin,  119  N.  Y.  46,  7  L.  R.  A.  46, 
23  N.  E.  530.  In  this  case  the  ac- 
tion was  as  follows:  Several  cor- 
porations formed  a  combination 
contrary  to  the  anti-trust  laws  of 
the  state.  A  receiver  of  the  trust 
— the  "trust  combination"  referred 
to  in  the  quotation — was  ap- 
pointed. One  of  the  constituent 
companies,  Pittsburg  Carbon  Co., 
that  had  withdrawn  from  the  trust 
prior  to  the  receivership,  sued  a 
party  on  a  claim  that  had  accrued 
prior  to  the  receivership.  The 
debtor  interpleaded  McMillin,  the 
trust  receiver.  It  was  held  that 
the  receiver  was  entitled  to  the 
money,  notwithstanding  that  the 
debtor  might  have  successfully  de- 
fended against  the  trust  because 
of  its  illegal  character.  See  also, 
Gillet  V.  Moody,  3  N.  Y.  479;  Por- 
ter V.  Williams,  9  N.  Y.  142,  59 
Am.  Dec.  519;  Alexander  v.  Relfe, 
74  Mo.  495. 

In  Haywood  v.  Lincoln  Lumber 
Co.,  64  Wis.  639,  26  N.  W.  184,  it 
is  held:  (1)  That  the  directors  of 
the  corporation  are  trustees  of 
all  the  property  belonging  to  it 
and  have  no  right  to  secure  to 
themselves  any  preference  or  ad- 
vantage. Marr  v.  Bank  of  West 
Tennessee,  4  Coldw.  (Tenn.)  471, 
484;  Koehler  v.  Black  River  Falls 
Iron  Co.,  67  U.  S.  (2  Black.)   715, 


17  L.  Ed.  339;  Curran  v.  Arkansas, 
56  U.  S.  (15  How.)  304,  306,  14 
L.  Ed.  705,  706;  Richards  v.  New 
Hampshire  Ins.  Co.,  43  N.  H.  263; 
Bradley  v.  Farwell,  Holmes,  433, 
Fed.  Cas.  No.  1779;  Drury  v.  Mil- 
waukee &  S.  R.  Co.,  74  U.  S.  (7 
Wall.)  299,  19  L.  Ed.  40;  "aine  v. 
Lake  Erie  &  L.  R.  Co.,  31  Ind.  283, 
353;  Gaslight  Improv.  Co.  v.  Ter- 
rell, L.  R.,  10  Eq.  Cas.  168;  Smith 
V.  Lansing,  22  N.  Y.  520,  521; 
Whitwell  V.  Warner,  20  Vt.  425; 
Buell  V.  Buckingham,  16  Iowa,  284, 
85  Am.  Dec.  516;  Hopkins'  Appeal, 
90  Pa.  69.  (2)  Nor  to  take  a  mort- 
gage to  themselves  for  their  own 
benefit  to  the  injury  of  others  in 
equal  right.   Corbett  v.  Woodward, 

5  Sawy.  403,  Fed  Cas.  No.  3223; 
Koehler  v.  Black  River  Falls  Iron 
Co.,  67  U.  S.  (2  Black)  715,  17 
L.   Ed.  339;    Hoyle  v.  Plattsb.urgh 

6  M.  R.  Co.,  54  N.  Y.  314,  13  Am. 
Rep.  595;  European  &  N.  A.  R. 
Co.  V.  Poor,  59  Me.  277;  Butts  v. 
Wood,  38  Barb.  (N.  Y.)  181; 
Scott  V.  Depeyster,  1  Edw.  Ch. 
(N.  Y.)  513;  Verplanck  v.  Mercan- 
tile Ins.  Co.,  2  Paige  (N.  Y.)  438; 
Great  Luxembourg  Ry.  Co.  v.  Mag- 
nay,  25  Beav.  586,  53  Eng.  Reprint 
761;  Cook  v.  Berlin  Woolen  Mill 
Co.,  43  Wis.  433,  434;  Pickett  v. 
School  Dist,  25  Wis.  551,  553,  3 
Am.  Rep.  105;  Re  Taylor  Orphan 
Asylum,  36  Wis.  534,  552. 


PRIVATE    CORPORATIOXS.  911 

that  in  his  character  as  trustee  for  the  latter  he  may 
disaffirm  and  maintain  an  action  as  receiver  to  set  aside 
illegal  or  fraudulent  transfers  of  the  property  of  the 
corporation  made  by  its  agents  or  officers  or  to  recover 
its  funds   or   securities   invested   or  misapplied.  "^     In 
most  of  the  instances  in  which  the  receiver  sues  under 
this  exception  the  illegality  or  fraud  in  the  transaction 
complained  of  was  committed  by  the  directors  or  officers 
and  there  remained  a  right  of  action  in  the  company 
which  could  have  been  enforced  by  stockholders  on  be- 
half of  the  company;  but  either  the  acquiescence  or  ex- 
press ratification  of  the  stockholders  destroyed  this  right 
and  a  situation  was  created  similar  in  legal  effect  to 
what  would  have  been  the  result  if  the  stockholders  had 
directly  participated  in  the  transaction  in  the  first  place. 
The  company,  the  directors,  and  the  stockholders   are 
estopped  to  complain.    Since  the  receiver  acts  as  repre- 
sentative of  the  creditors  alone  in  this  respect  the  re- 

3  Attorney-General    v.    Guardian  troit    Trust   Co.    v    Goodrich     175 

Mut.  Life  Ins.  Co.,  77  N.  Y.  272.  Mich.    168.   Ann.   Cas.   1915A,'  821 

To   the   same   effect  and   gener-  141  N.   W.   882;    Payne  Hardware 

ally   speaking  of  the   receiver   as  Co.  v.  International  Harvester  Co 

"trustee"    for   creditors   as    distin-  110  Miss.   783,   70   So.  892;    Lyons 

^uished   from   either   the  corpora-  v.  Benvey,  230  Pa.  117,  34  L.  R.  A 

tion     or     the     stockholders,     are:  (N.  S.)  105,  79  Atl.  250. 

Huiskamp   v.    Moline   Wagon   Co.,  Sale  of  assets  as  a  whole  by  re- 

121  U.  S.  310,  30  L.  Ed.  971,  7  Sup.  ceiver  does  not  include  asset  that 

Ct.  899;   Sawyer  v.  Hoag,  84  U.  S.  company     could     not     claim     but 

«10,    21    L.    Ed.    731;    Peabody    v.  which   receiver  might  recover  on 

New  England  Waterworks  Co.,  184  behalf     of     creditor.       Minnesota 

111.  625,  56  N.  E.  957,  958,  75  Am.  Thresher  Mfg.  Co.  v.  Langdon,  44 

St.  Rep.  195;  Marion  Trust  Co.  v.  Minn.  37,  46  N.  W.  310.  See  Stokes 

Blish,    170   Ind.    686,    18    L.    R.    A.  v.    Williams,    226    Fed.    148     141 

(N.  S.)   347,  84  N.  E.  814  (rehear-  C.  C.  A.   146. 

ing  denied,  85  N.  E.  344);  Marco-  Receivers    appointed    by    courts 

vich   v.   O'Brien    (Ind.    App.),    114  of  equity  appointed  in  the  adminis- 

N.  E.  100;   Franklin  Nat.  Bank  v.  tration    of   insolvents   are,    in    the 

Whitehead,   149   Ind.    560,    583,    63  absence  of  restrictive  statutes  au- 

Am.  St.  Rep.  302,  39  L.  R.  A.  725,  thorized   to   enforce  the  rights  of 

49  N.  E.  592;   Hammond  v.  Cline,  creditors  as  well  as  the  rights  of 

170  Ind.  452,  84  N.  E.  827;   Parker  the  debtor.     King  v.  Pomeroy,  121 

V.  Nickerson,   137   Mass.  487;    De-  Fed.  287,   58  C.  C.  A.  209. 


912  LAW    OF   RECEIVERS. 

covery,  if  any,  inures  to  their  benefit  alone ;  and  lie  can 
not  recover  without  showing  that  claims  of  creditors  re- 
main unsatisfied,  nor  can  he  recover  more  than  is  requi- 
site to  meet  such  liabilities  of  the  company.^  In  an 
Illinois  case,^  it  is  stated  that  ''the  actions  which  a  re- 
ceiver may  maintain  to  set  aside  transactions  binding  on 
the  receivership  corporation  or  individual"  are  only 
those  where  (1)  the  receiver  by  force  of  some  statute 
can  act  for  the  creditors;  (2)  the  act  complained  of  was 
iiitra  vires  and  not  binding  on  the  corporation;  (3)  the 
receiver  was  appointed  in  a  proceeding  prosecuted  by 
creditors  in  actions  supplemental  to  execution  and  the 
receiver  had  the  rights  of  the  creditors  at  whose  instance 
and  to  secure  whose  claims  he  was  appointed;  and  (4) 
the  receiver  was  suing  for  property,  or  assets,  that  be- 
longed to  the  debtor.  This  classification  is,  perhaps,  as 
complete  a  one  as  could  be  made.  Like  all  such  attempted 
classifications  it  is  either  subject  to   exceptions   or  its 

4  Lynn   v.   McCue,   94   Kan.   761,  ing  company,  with  interest,  costs, 

147    Pac.   808;    Pryor   v.   Gray,    72  and    expenses.     Mclver   v.    Young 

N.  J.  Eq.  436,  65  Atl.  1016,  affirm-  Hardware  Co.,  144  N.  C.  478,  119 

ing  70  N.  J.  Eq.  413,  62  Atl.  439;  Am.  St.  Rep.  970,  57  S.  E.  169. 

Easton    Nat.    Bank    v.    American  In    an    action     against    certain 

Brick    etc.    Co.,  70  N.  J.  Eq.  722,  stockholders    on    a    claim    of   con- 

64  Atl    1095.  version  by  them  of  certain  assets 

Where  the  directors  of  a  cor-  received  on  the  sale  or  the  busi- 
poration  had  wrongfully  trans-  ness  of  the  receivership  company 
ferred  all  its  assets  to  another  to  another  corporation  it  is.  corn- 
company,  in  exchange  for  the  lat-  petent  for  defendant  to  show  that 
ter's  stock,  which  they  divided  at  the  time  of  the  transaction 
among  themselves,  to  the  preju-  complained  of  there  was  set  aside 
dice  of  their  creditors,  and  the  a  fund,  sufficient  for  the  purpose, 
latter  company  thereafter  became  to  pay  all  the  ciaims  against  the 
insolvent,  the  receiver  of  the  com-  company  and  that  other  parties 
pany  whose  assets  were  sold  is  who  had  joined  in  the  transaction 
entitled  to  prove  his  claim  against  with  defendant  and  were  equally 
the  latter  company  for  the  full  liable  with  him  had  not  been  sued, 
value  of  the  assets  so  conveyed,  Jacobs  v.  Morgenthaler,  149  Mich, 
though  he  could  not  recover  as  1,  112  N.  W.  492. 
his  pro  rata  share  of  defendant's  5  Republic  Life  Ins.  Co.  v.  Swi- 
assets  more  than  would  be  suffi-  gert,  135  111.  150,  12  L.  R.  A.  328, 
cicnt  to  pay  the  debts  of  the  sell-  25  N.  E.  680. 


PRIVATE    CORPORATIONS.  913 

tc^rms  must  be  given  considerable  elasticity  in  special 
cases.  To  be  taken  as  a  separate  class,  exclusive  of  the 
others,  the  first  class  mentioned  must  be  taken  to  refer 
only  to  cases  in  which  the  receiver  must  expressly  rely 
upon  statutory  authority  to  support  his  right  to  sue. 
There  are  such  cases,  or  class  of  cases,  and  we  will  refer 
to  some  of  them  hereafter  for  all  the  other  classes,  it  is 
to  be  understood,  the  receiver's  right  to  sue  depends 
upon  the  inherent  equitable  powers  of  the  court.  There 
seems  to  be  some  inconsistency  between  the  language 
designating  the  second  class  and  that  used  in  the  intro- 
duction to  the  classification  itself — between  the  use  of 
"not  binding"  in  the  class  designation  and  "binding" 
in  the  introduction.  In  an  action  in  which  a  receiver  of 
a  corporation  sued  another  corporation  on  a  stock  sub- 
scription liability  and  in  which  was  interposed  the  de- 
fense that  the  purchase  of  the  stock  was  not  binding  as 
being  ultra  vires,  it  was  said  :^ 

"The  doctrine  of  ultra  vires  is  calculated  to  protect 
first,  the  interest  of  the  public  that  the  corporation  shall 
not  transcend  the  powers  granted  to  it,  and  second,  the 
interest  of  the  stockholders  that  the  capital  shall  not  be 
subjected  to  the  risk  of  enterprises  not  contemplated  by 
the  articles  of  incorporation,  and  therefore  not  autho- 
rized by  the  stockholders  in  subscribing  for  the  stock. 
Railway  Companies  v.  Keokuk  Bridge  Co.,  131  U.  S.  371, 
384,  9  Sup.  Ct.  770,  33  L.  Ed.  157.  The  interest  of  the 
public  is  to  be  conserved  by  the  state  and  not  by  the  in- 
dividual stockholder.  The  right  of  the  stockholder  him- 
self to  object  for  the  protection  of  his  own  interest  may 
be  lost  by  his  own  consent  or  acquiescence,  for  4t  does 
not  lie  in  the  mouth  of  a  stockholder  to  object  to  what 

6  Olson    V.   WaiToad    Mercantile  Minn.  282,  96  N.  W.  85;  Alexander 

Co.,  136  Minn.  310,  161  N.  W.  713.  v.    Relfe,   74    Mo.   495;    Strickland 

See  Minnesota  Thresher  Mfg.  Co.  v.  National  Salt  Co.,  79  N.  J.  Eq. 

V.  Langdon,  44  Minn.  37,  46  N.  W.  182,  223,  81  Atl.  828,  832. 
310;    Hunt   v.   Hanser   M.   Co.,   90 
1  Rec— ;s 


914  LAW    OF    RECEIVERS. 

the  company  lias  done,  if  the  action  which  he  complains 
of  was  taken  with  his  knowledge  and  consent.  He  can 
not  be  heard  to  complain  that  he  has  been  injured  by  the 
doing  of  something  which  he  knew  of  at  the  time,  and 
expressly  consented  to,  or,  by  long  silence,  acquiesced 
in.'  Allen  v.  Wilson  (C.  C),  28  Fed.  677,  2  Thompson 
1981." 

To  uphold  the  above  classification  as  accurate  for  the 
purposes  for  which  it  was  made,  it  must  be  understood 
that  the  second  class  refers  to  cases  in  which  the  situa- 
tion is  like  that  described  in  the  quotation ;  that  is  to  cases 
in  which  the  receiver,  on  behalf  of  creditors,  seeks  to  set 
aside  a  transaction  of  the  company  that  was  ultra  vires 
in  character,  but  because  of  equitable  reasons  was  bind- 
ing upon  the  company  and  the  stockholders.'^  In  regard 
to  the  third  class,  the  expression  ''supplemental  to  exe- 
cution" must  be  understood  as  broader  than  the  purely 
statutory  ''supplemental  proceedings"  and  to  include 
such  proceedings,  except  as  far  as  cases  coming  under 
the  first  class  are  concerned,  and,  as  well,  actions  to  set 
aside  fraudulent  conveyances  and  to  recover  equitable 
or  canceled  assets.^  The  property,  or  assets,  referred  to 
in  the  fourth  class  must  be  such  as  at  one  time  belonged 
to  the  company  but  the  legal  title  to  which  has  been  lost 
through  some  wrongful  act  on  the  part  of  the  company, 
such  that  its  detrimental  effect  could  be  avoided  as  far 
as  creditors  are  concerned.  Moreover,  to  make  a  dis- 
tinction between  the  last  two  classes  the  receivers  re- 
ferred to  in  the  last  must  be  understood  as  corporation 
receivers  alone. 

7  See  Gay  v.  Hudson  River,  etc.,  8  See  Chapter  XII,  supra. 

Co.,  187  Fed.  12,  109  C.  C.  A.  66. 


PRIVATE    CORPORATIONS.  915 

§334.  Actions  on  Behalf  of  Creditors  to  Recover  Corporate 
Property  from  Strangers  Where  Corporation  Itself 
Estopped. 

Actions  wliicli  the  receiver  may  institute  in  his  so- 
called  capacity  as  representative  of  creditors  and  as 
acting  only  for  their  benefit  may  be  directed  against  (a) 
strangers  to  the  corporation,  (b)  directors  of  the  cor- 
poration, or  (c)  stockholders  of  the  corporation. 

As  to  strangers  to  the  corporation  it  may  be  stated 
that,  in  general,  the  receiver  may  pursue  what  was  for- 
merly the  property  of  the  company  when  it  has  passed 
into  the  hands  of  others  through  some  wrongful  or  frau- 
dulent act  of  the  corporation,  detrimental  to  the  interests 
of  creditors,  wherever  he  may  find  it,  subject  only  to  the 
defense  of  purchase  for  a  valuable  consideration  by  one 
innocent  of  and  without  knowledge  of  the  infirmity  in  the 
chain  of  title.  In  this  respect  his  powers  are  analogous 
to  and  as  extensive  as  those  of  a  trustee  in  bankruptcy 
or  the  receiver  of  an  individual  appointed  under  any  of 
the  principles  referred  to  in  Chapter  XII,  supra. ^ 

The  receiver  may  set  aside,  or  have  annulled,  a  fraudu- 
lent conveyance  or  assignment  of  corporate  property.^ 
He  may  set  aside  or  successfully  resist  enforcement  of  a 
chattel  mortgage  or  other  lien  void  as  to  creditors  be- 
cause not  executed  or  recorded  in  accordance  with  statu- 
tory provisions.^    A  receiver  may  sue  a  pledgee  of  the 

1  Minnesota  Thresher  Mfg.  Co.  3  Bell  v.  New  York  Safety 
V.  Langdon,  44  Minn.  37,  46  N.  W.  Steam  Power  Co.,  183  Fed.  274; 
310;  Bradley  v.  United  Wireless  American  Can.  Co.  v.  Erie  Pre- 
Tel.  Co.,  79  N.  J.  Eq.  458,  81  Atl.  serving  Co.,  171  Fed.  540;  Frank- 
1107;  Powers  v.  C.  H.  Hamilton  lin  National  Bank  v.  Whitehead, 
Paper  Co.,  60  Wis.  23,  18  N.  W.  20.  149  Ind.  560,  63  Am.  St.  Rep.  302^ 

2  Whitman  v.  United  Surety  Co.  39  L.  R.A.  725,  49  N.  E.  592;  Fidelity 
(Dorsey),  110  Md.  421,  72  Atl.  Trust  Co.  v.  Staten  Island  Clay 
1042;  Bradley  v.  United  Wireless  Co.,  70  N.  J.  Eq.  550,  67  Atl.  1078; 
Telegraph  Co.,  79  N.  J.  ii.q.  458,  Mutual  Investment  Co.  v.  Walton 
81  Atl.  1107;  Nevitt  v.  First  Nat.  Mach.  Co.,  91  Wash.  298,  157,  Pac 
Bank,  91  Hun  43,  36  N.  Y.  Supp.  682. 

^^^-  With     the     permission     of     the 


916 


LAW    OF    RECEIVERS. 


corporation  for  conversion  of  the  pledged  property,  and, 
where  there  had  been  a  previous  judgment,  binding  on 
the  company  but  not  on  the  receiver,  the  recovery  will  be 
limited  to  the  benefit  of  creditors.^  A  receiver  may  raise 
the  defense  of  usury  where  the  company  might  not  be 
able  to  do  so.^  The  receiver  may  institute  an  action  to 
have  declared  void  bonds  issued  by  the  corporation.^    A 


court  creditors  whose  claims  tiave 
been  allowed  may  intervene  and 
exercise  this  same  right.  Equi- 
table Trust  Co.  V.  Great  Shoshone, 
etc.,  Co.,  245  Fed.  697,  158  C.  C.  A. 
99.  (Petition  for  Writ  of  Certio- 
rari pending.) 

4  Lynn  v.  McCue,  94  Kan.  761, 
147  Pac.  808.  The  judgment  re- 
ferred to  in  the  text  was  obtained 
in  an  action  pending  against  the 
company  at  the  time  of  the  ap- 
pointment of  the  receiver  and 
prosecuted  to  judgment  thereafter 
without  the  receiver's  being  made 
a  party.  On  the  principle  that  all 
equities  are  to  be  determined  as  of 
the  time  when  the  receiver  was 
appointed  (see  §  23  this  chapter, 
supra)  it  was  held  that  the  judg- 
ment was  not  binding  upon  the 
receiver. 

5  James  Bradford  Co.  v.  United 
Leather  Co.  (Del.  Ch.),  95  Atl. 
308.  In  this  case  it  was  said: 
"It  is  the  right  and  duty  of 
a  receiver  or  other  fiduciary 
to  raise  the  question  as  to  the 
validity  of  the  agreement,  for  he 
acts  for  all  who  have  interests 
against  the  borrowing  company 
and  is  therefore  in  a  different  posi- 
tion in  this  court  in  this  proceed- 
ing from  a  borrower  who  seeks 
the  aid  of  a  court  of  equity  against 
the  lender  on  the  ground  of 
usury."     The  receiver  had  sued  to 


recover  certain  assets  that  had 
been  assigned  as  security  for  a 
debt  and  claimed  that  the  con- 
tract was  invalid  because  usurious. 
See  Lynn  v.  McCue,  94  Kan.  761, 
147  Pac.  808;  Curtis  v.  Leavitt,  15 
N.  Y.  9. 

The  receiver  of  an  insolvent  cor- 
poration may  question  a  transac- 
tion whereby  the  corporation  bor- 
rowed money,  paying  an  alleged 
usurious  rate  of  interest.  James 
Bradford  Co.  v.  United  Leather 
Co.  (Del.  Ch.),  95  Atl.  308. 

6  See  V.  Heffenheimer,  55  N.  J. 
Eq.  240,  36  Atl.  966. 

With  the  consent  of  the  receiver- 
ship court,  a  creditor  may,  in  the 
receivership  proceedings,  contest 
the  validity  of  bonds  issued  by  the 
company.  On  the  cancellation  of 
the  bonds  bona  fide  holders 
thereof  will  be  protected  by  having 
the  lien  of  the  mortgage  preserved 
for  their  benefit;  but,  in  this  con- 
nection, unsecured  creditors  will 
be  protected  by  judgments  against 
the  transferrers  of  the  bonds  in 
favor  of  the  estate.  Where  bonds 
were  issued  as  bonus  to  stockhold- 
ers for  the  purpose  of  protecting 
minority  stockholders  the  agree- 
ment of  the  stockholders  among 
themselves  will  be  carried  out  as 
far  as  possible  by  giving  the 
minority  preference  in  such  sur- 
plus as  may  be  left  after  creditors 


PRIVATE    CORPORATIONS. 


917 


wrong  against  creditors  which  receivers  are  frequently 
called  upon  to  remedy,  is  that  accomplished  by  the  trans- 
fer of  the  assets  of  one  corporation  to  another  on  the 
agreement  that  the  purchasing  company  will  issue  its 
stock  to  the  stockholders  of  the  selling  company  in  lieu 
of  the  old  stock  and  will  assume  the  debts  of  the  seller. 
Such  a  substitution  of  one  debtor  for  another  is  a 
fraud  upon  creditors  and  the  receiver  may  recover  the 
assets  or  their  value  from  the  purchasing  company.'''  • 


are  fully  paid.  Williamson  v.  Col- 
lins, 243  Fed.  835,  156  C.  C.  A.  347. 
i  Mclver  v.  Young  Hardware  Co., 
144  N.  C.  478,  119  Am.  St.  Rep.  970, 
57  S.  E.  169;  Dalsheimer  v.  Graphic 
Arts  Co.,  86  N.  J.  Eq.  49,  97  Atl. 
497;  Alexander  v.  Relfe,  74  Mo. 
495.  This  was  practically  a  case 
of  the  transfer  of  assets  of  one 
company  to  another,  although  the 
object  was  accomplished  in  a  more 
round-about  way  than  the  simple 
one  mentioned  in  the  text.  The 
action  took  the  form  of  one  for 
damages  against  a  corporation  that 
through  ownership  of  stock  in  the 
receivership  corporation  and  con- 
trol of  its  directors  accomplished 
the  transfer  and  the  denuding  of 
the  latter  company  of  all  of  its 
property.  In  the  opinion  it  is  said: 
"Though  the  proof  may  not  estab- 
lish that  defendant  .  .  .  com- 
mitted an  actual  fraud  in  doing  the 
wrong  for  which  redress  is  asked, 
yet  it  is  clearly  shown  that  the 
wrong  committed  was  a  construc- 
tive fraud  because  done  in  con- 
travention of  that  public  policy  of 
this  state  which  forbids  the  assets 
of  corporations  to  be  wasted,  can- 
celed, or  in  any  manner  withdrawn 
from  the  reach  of  creditors.   Fraud 


of  this  description — constructive 
fraud — though  not  originating  in 
any  actual  evil  design,  having  for 
its  purpose  the  perpetration  of 
injury  on  others,  is  yet  equally 
prohibited  by  law  as  within  the 
same  reason  and  mischief  as  acts 
and  contracts  done  malo  animo. 
.  .  .  'On  the  part  of  fraud," 
therefore,  equity  can  afford  relief 
asked  in  the  name  of  the  receiver 
as  well  as  upon  the  ground  of 
avoiding  a  multiplicity  of  suits 
which  would  have  to  be  brought  if 
each  creditor  were  compelled  to 
seek  a  several  redress  for  his  own 
injury." 

There  may  be  mentioned  here, 
as  illustrating  the  principle  that, 
where  several  ways  of  proceeding 
to  remedy  a  wrong  are  open, 
equity  will  travel  the  surest  and 
shortest  way.  Gillett  v.  Chicago 
Title  &  T.  Co.,  230  111.  373,  375,  82 
N.  E.  891.  In  this  case,  which 
sought  to  remedy  the  wrong  men- 
tioned in  the  text,  the  stockholders 
were  held  liable  for  the  value  of 
their  stock  in  the  new  company,  it 
being  held  that  they  had  not  paid 
anything  for  the  new  stock  since 
the  transfer  of  the  assets  from 
one  company  to  the  other  was  in 
reality  not  a  sale  at  all. 


918  LAW    OF    RECEIVERS. 

§355.  Actions  on  Behalf  of  Creditors  Against  Directors  anl 
Officers  in  Cases  Where  Corporation  Itself  Is  Es- 
topped. 

It  was  stated  in  a  preceding  section  that  many  of  the 
actions  which  receivers  find  it  necessary  to  institute 
against  directors,  or  other  similar  officers,  of  the  corpora- 
tion, as  such,  are  founded  upon  the  directors'  misfeas- 
ance, malfeasance,  or  negligence.  It  often  happens  that 
the  right  of  stockholders  to  complain  of  transactions 
giving  rise  to  charges  of  this  character  against  directors 
is  barred  by  their  active  participation  or  silent  acquies- 
cence therein.  The  right  of  even  a  dissenting  stockholder 
may  be  lost  by  laches.^  The  right  of  creditors  to  com- 
plain and  to  seek  a  remedy  may,  however,  remain  and 
pass  to  the  receiver.  ''The  general  creditors  have  as 
much  right  as  the  stockholders  or  the  bondholders  to  be 
protected  against  the  fraud  and  negligence  of  the  direc- 
tors and  they  have  a  right,  through  the  receiver,  to  com- 
pel the  directors  to  make  good  any  loss  which  resulted 
from  the  purchase  by  the  company  of  valueless  parcels 
of  real  estate  if  it  appears  that  the  loss  w^as  occasioned 
either  by  the  fraud  or  the  negligence  of  the  defendants."- 
Under  this  principle  receivers  may  hold  directors  liable 
for  misfeasance,  malfeasance,  or  negligence  in  selling 
stock  for  property  at  an  exaggerated  value  or  for  any 
like  wrongful  disposition  of  corporate  assets.^ 

There  is  quite  commonly  created  by  statute,  on  behalf 
of  creditors,  a  joint  and  several  liability  of  directors  for 
dividends  illegally  paid  from  the  capital  fund.  Although 
this  liability  did  not  exist  at  the  common  law,  and  al- 
though it  is  usually  created  only  for  the  benefit  of  those 

1  See,  Dalsheimer  v.  Graphic  3  Coddington  v.  Canaday,  supra. 
Arts  Co.,  86  N.  J.  Eq.  49,  97  Atl.  See  also  Waterhouse  v.  Jamieson, 
497.  2    Paters    (Scotch)    1812,   L.   R.    2 

2  Rowland  v.  Caru,  232  Fed.  35,  H.  L.  (Sc.)  29;  Williamson  v.  Col- 
146  C.  C.  A.  227;  Coddington  v.  lins,  243  Fed.  835,  156  C.  C.  A.  347. 
Canaday,  157  Ind.  243,  61  N.  E.  567. 


PRIVATE   CORPORATIONS. 


919 


who  were  creditors  at  the  time,  it  is  very  generally  held 
that  the  receiver  may  enforce  the  liability  on  behalf  of 
the  class  of  creditors  for  whose  benefit  it  is  created.  The 
rule  that  permits  such  an  action  on  the  part  of  the  re- 
ceiver has  been  very  fully  stated  as  follows:^  ''Onr 
court,  in  the  recent  case  of  Ventress  et  al.  v.  D.  H.  AVal- 


4  Metzger  v.  Joseph,  111  Miss. 
385,  71  So.  645;  Stoltz  v.  Scott,  23 
Idaho  104,  129  Pac.  340;  Holcombe 
V.  Ames,  87  N.  J.  Eq.  486,  100  Atl. 
609;  Brenaman  v.  Whitehouse,  85 
Wash.  355,  148  Pac.  24.  In  this 
case  the  law  is  thus  stated: 

"It  is  undoubtedly  true,  as  ap- 
pellants say,  that  'the  purpose  of 
such  statutes  is  to  enable  inquir- 
ing creditors  to  look  to  the  public 
record  as  to  the  amount  of  the 
capital  stock  of  a  corporation,  and 
to  extend  credit  upon  the  faith 
that  it  has  not  impaired  its  capital 
by  any  unlawful  means.'  But  a 
transaction  on  the  part  of  a  stock 
company,  whereby  it  retires  its 
own  stock,  adding  nothing  of  per- 
manent value  as  assets  in  the 
place  of  it,  certainly  falls  within 
the  prohibition  of  the  statute.  The 
effect  of  the  transactions  in  this 
stock  was  that,  whereas  the  stock 
should  have  been  outstanding  and 
its  value  in  the  treasury  or  In  the 
assets  of  the  company,  it  was  not 
outstanding  but  was  in  the  trea- 
sury of  the  company,  and  its  pro- 
ceeds were  divided  among  the 
three  stockholders  as  dividends. 

"Beginning  with  Tait  v.  Pigott, 
32  Wash.  344,  73  Pac.  364,  and  re- 
affirmed on  the  second  appeal  of 
that  case  in  38  Wash.  59,  80  Pac. 
172,  down  to  Kom  v.  Cody  Detec- 
tive Agency,  76  Wash.  540,  50 
L.  R.  A.  (N.  S.)  1073,  136  Pac.  1155, 
this    court   has    consistently    held 


that   a   corporation   in   this    state 
can  not  traffic  in  its  own  stock; 
that  the  capital  stock  of  the  cor- 
poration  is   a  trust  fund   for  the 
payment   of   its    debts,    upon    the 
faith  of  which  the  law  presumes 
credit  was  given  unless  other  se- 
curity was  taken  at  the  time  by 
the  creditor;  and  that  it  is  imma- 
terial, since  the  thing  which  was 
unlawfully  taken  reduced  the  avail- 
able resources  of  a  now  insolvent 
company,   that   the   company   was 
solvent  at  the  time  the  transaction 
occurred.       Appellants     seem     to 
think   that   the   case   of   Northern 
Bank  &  Trust  Co.  v.  Day,  83  Wash. 
296,  145  Pac.  182,  arrives  at  a  dif- 
ferent result.    But  that  was  a  case 
where  the  capital  stock  of  the  cor- 
poration  was   increased   to   repre- 
sent   the    net    accrued    profits    to 
stockholders,    and    there    was    no 
reduction  and  extinction  of  any  of 
the  capital  stock. 

"Appellants  contend  that  'the 
evidence  in  this  case  shows  that 
there  was  no  time  between  the 
declaration  of  a  dividend  and  the 
incurring  of  an  indebtedness  of 
any  of  the  creditors  represented 
by  this  receiver  when  the  assets 
of  the  corporation  were  below 
$5,000.'  As  before  shown,  this  is 
immaterial.  However,  it  was  shown 
that  it  was  in  debt  to  one  of  the 
appellants  in  a  substantial  sum, 
and  that  the  indebtedness  was  not 
paid.     In  the  Kom  Case,  supra,  it 


920  LAW    OF    RECEIVERS. 

lace,  Receiver,  71  South.  636,  is  committed  to  tlie  holding 
that  equity  has  original  jurisdiction  of  a  suit  on  the  part 
of  a  receiver  against  directors  of  a  bank  for  gross  negli- 
gence in  the  discharge  of  their  official  duties.  We  fail  to 
appreciate  why  equity  should  not  be  a  proper  forum  for 
this  action,  instituted  by  the  receiver  of  an  insolvent 
banking  establishment  to  recover  a  dividend  disbursed  in 
violation  of  the  express  provisions  of  the  statute,  and 
when  the  fund  to  be  recovered  should  equitably  be  pro- 
rated amongst  that  class  of  creditors  whose  debts  existed 
at  the  time  the  dividend  was  declared,  and  whose  interests 
are  in  a  large  measure  now  represented  by  the  receiver. 
This  court  is  committed  to  the  holding  that  the  receiver, 
to  a  large  extent,  represents  creditors  as  well  as  the  de- 
funct corporation,  whose  estate  is  being  administered 
upon  by  him  under  the  direction  of  the  court.  Payne 
Hardware  Co.  v.  International  Harvester  Co.,  70  South. 
892.  The  liability  sought  to  be  recovered  is  expressly 
imposed  by  section  923  of  the  present  code.  It  provides 
that  the  directors  who  declared  and  paid  such  dividend 
'shall  be  jointly  and  severally  liable  to  creditors  whose 
debts  then  existed,  to  the  extent  of  such  withdrawal  or 
dividend  and  interest.'  It  is  true  that  the  right  of  action 
is  given  to  creditors,  but  the  liability  is  limited  to  the 
amount  of  the  dividend  declared  and  paid,  and  this  con- 
stitutes a  single  fund  in  which  many  of  the  creditors  have 
an  equity,  and  should  in  equity  be  jororated  among  the 
several  creditors  beneficially  interested.  This  can  best 
be  accomplished  in  a  court  of  equity.  One  payment  of 
this  dividend  by  the  directors  would  discharge  once  and 

was  admitted  that  the  company,  at  "  'The    statute    contemplates 

the  time  of  the  transaction  and  at  transactions    that    may    arise    in 

the  time  of  the  action,  was  solvent  faith  of  the  capital  stock,  and  is 

and  had  no  creditors,  and  urged  broad    enough    to    protect    future 

that    therefore    the    statute    could  creditors     and    also    stockholders 

have  no  bearing  on  the  case.    This  who  are  not  parties  to  a  prohib- 

court  held  to  the  contrary,  saying,  ited  contract.'  " 
per  Chad  wick,  J.: 


PRIVATE   CORPORATIONS.  921 

for  all  time  the  liability.  The  declaration  of  a  dividend 
when  a  corporation  is  totally  insolvent  impairs  the  capital 
stock,  and  'such  a  distribution  of  the  assets  of  a  corpora- 
tion is  in  the  nature  of  a  fraud  upon  its  creditors,  and  is 
remediable  in  equity.'  .  .  .  10  Cyc,  883.  Many  of  the 
courts  hold  that  the  personal  liability  of  directors  for 
declaring  dividends  in  excess  of  the  net  profits  or  surplus 
can  not  be  enforced  in  a  court  of  law,  but  that  equity  is 
the  proper  and  exclusive  forum. 

"  'Equity   has   jurisdiction   where   the   effect   of   the 
statute  is  to  create  a  common  fund  for  the  security  of 
creditors,  although  there  may  be  a  concurrent  remedy  at 
law.'    Thompson  on  Corporations  (2nd  ed.)  vol.  4,  par 
5078." 

It  may  be  said,  however,  that  in  regard  to  such  statu- 
tory liabilities  as  the  one  here  referred  to,  liabilities  in 
excess  of  and  of  a  character  different  from  those  known 
to  the  common  law  and  recognized  in  equity,  some  courts 
are  inclined  to  the  view  that  they  can  not  be  enforced  by 
the  receiver  unless  the  statute  expressly  confers  upon 
him  the  power  to  do  so.^    It  may  be  said,  in  regard  to  the 
so-called    'Hrust    fund"    theory    concerning    corporate 
assets  mentioned  in  some  of  our  quotations  just  used,  as 
was  said  at  the  close  of  a  preceding  section,  that  it  is 
not  held  to  be  strictly  applicable  to  the  matter  of  cor- 
porate rights  and  duties  under  all  circumstances.     For 
instance,  when  a  receiver  sued  the  president  of  a  corpo- 
ration for  an  accounting  and  return  of  assets  disbursed 
by  him  because,  in  a  manner  to  create  preferences,  he  had, 
just  prior  to  the  receivership  and  at  a  time  when  the 
company  was  insolvent,  distributed  its  assets,  the  pro- 
ceeds of  a  fire  insurance  policy,  among  its  creditors,  it 
was  held  that  the  receiver  had  no  cause  of  action.     The 
corporation,  it  was  held,  had  a  right  to  prefer  one  cred- 

5  Kinter  v.  Connolly,  233  Pa.  St.  5,  81  Atl.  905;   Childs  v.  Adams    43 
Pa.  Super.  Ct.  239. 


922  LAW    OF   RECEIVERS. 

itor  to  another,  even  thougli  it  was  insolvent.  The  assets 
of  an  insolvent  corporation,  was  the  ruling,  do  not  become 
a  trust  fund  to  be  administered  primarily  in  the  interest 
of  creditors  until  a  court  of  equity  by  some  proper  pro- 
cess acquires  jurisdiction  so  to  administer  them.^ 

§356.     Actions  to  Recover  Illegal  Transfers  of  Property  or 
Dividends  Paid  to  Stockholders. 

In  addition  to  the  right  to  recover  from  the  directors 
dividends  illegally  declared  from  capital  instead  of  sur- 
plus earnings,  as  shown  in. the  last  section,  the  receiver  is 
generally  empowered  to  recover  such  payments  for  the 
benefit  of  creditors  from  such  stockholders  who  have 
wrongfully  received  them  on  the  ground  that  such  trans- 
actions are  constructively  fraudulent  in  respect  to  credi- 
tors and  thus  recovery  is  necessary  to  create  a  fund  for 
the  payment  of  creditors.^     The  recovery  of  such  divi- 
dends by  the  receiver  on  the  ground  of  impairment  of 
capital  is  generally  regulated  as  to  its  details  by  statutory 
provisions. 2    A  distinction  under  some  forms  of  statutes 
regulating  the  matter  exists  in  that  under  some  statutes 
the  right  of  action  to  recover  such  illegal  dividends  is 
vested  in  the  creditors  alone  and  not  in  the  corporation. 
Under  such  statutes  if  the  right  is  not  given  by  the  statute 
to  the  receiver  authorizing  him  to  recover  for  the  benefit 
of  the  creditors,  the  right  of  action  is  not  an  asset  of 
the  corporation  and  accordingly  suit  can  not  be  main- 
tained by  him  for  such  recovery.    If,  however,  he  is  made 

6  Wheeler  v.  Matthews,  70  Fla.  175    Mich.    168,    Ann.    Cas.    1915A, 

317   70  So   416  821,  141  N.  W.  882;  Kretschmar  v. 

X     T.    ^  nu    ini  Stone,   90    Miss.   375,   43    So.   177; 

1  Ranee's  Case-L.  R.  6  Ch.  104.  g^j..^j^j^j^^  ^  National  Salt  Co.,  79 
In  re  National  Funds  Assurance  ^^  j  ^^  ^gg,  81  Atl.  828,  affirming 
Co.,  10  Ch.  Div.  118;  Hayden  v.  r^^  ^  j  gq  325^  76  Atl.  1048; 
Thompson,  71  Fed.  60,  17  C.  C.  A.  Strickland  v.  National  Salt  Co.,  79 
592.  N.  J.  Eq.  182,  81  Atl.  828,  affirming 

2  Detroit  Trust  Co.  v.  Goodrich,  79  N.  J.  Eq.  223,  81  Atl.  832. 


PRIVATE    CORPORATIONS. 


923 


a   qiia.si-asslgnee  of  the  creditors  for  that  purpose  he 
may  maintain  the  action  in  their  behalf.^ 

Whore  individual  members  of  the  corporation  have 
wrongfully  benefited  by  receiving-  corporate  property,  the 
receiver  generally  has  the  right  to  recover  the  same'from 
them.* 


3  Minnesota  Thresher  Mfg.  Co.  v. 
Liangdon,   44   Minn.   37,   46.  N.  W. 
310,  was  an  action  by  one  who  had 
purchased  at  a  receiver's  sale  all 
of  the  assets  of  the  receivership 
company  against  a  stockholder  for 
dividends  wrongfully  received.    It 
was  held  that  the  dividends  were 
not  assets  of  the  corporation,  and 
therefore  not  included  in  the  prop- 
erty   sold.      For    the    purpose    of 
reaching    this    conclusion    it    was 
shown    that   the    right    of    action 
against    the    stockholder    was    an 
asset  of  creditors  only  and  passed 
to  the  receiver.    It  was  said:    "The 
receiver    has,    in    substance,    the 
same    powers    as    an    assignee    in 
bankruptcy,  or  a  receiver  upon  a 
creditor's  bill  or  proceedings  sup- 
plemental   to    execution,    and    he 
succeeds  to  the  rights  of  the  cred- 
itors as  well  as  the  insolvent  cor- 
poration, and  has  the  power  to  en- 
force  the   rights   which   the   cred- 
itors,    but    for     the     proceedings, 
might  have  enforced  in  their  own 
behalf.     .     .     .     Among  the  rights 
which  pass  to  the  receiver  as  the 
representative  of  the  creditors  is 
the  right  to  recover  property  con- 
veyed by  the  corporation  in  fraud 
of  its    creditors,   or   capital   with- 
drawn and  refunded  to  the  stock- 
holders without  provision  for  full 
payment  of  the  corporation  debts. 
This    right    of   the    receiver    does 
not  depend  upon  any  express  stat- 
ute granting  it,  but  rests  upon  the 


general  equitable  doctrine  that  the 
capital  of  a  corporation  is  a  trust 
fund  for  the  benefit  of  its  creditors 
and  those  to  whom  it  has  been  re- 
funded are  trustees  for  their  ben- 
efit. Everything  becomes  assets  in 
his  hands  .  .  .  which  were  as- 
sets as  to  creditors  as  well  as 
what  was  assets  as  to  the  corpora- 
tion." 

i  Gillet  V.   Moody,  3   N.   Y.   479. 
(The    company,    while    insolvent, 
had     purchased    from    a    director 
some  of  his  stock  in  the  company, 
paying,  therefore,  a  bond  owned  by 
the  company.     The  receiver  sued 
to  recover  the  bond.     It  does  not 
clearly    appear    from    the    report, 
fiom    the    point    of    view    as    to 
whether  or  not  stockholders  were 
in  a  position  to  complain  of  this 
transaction,    whether    it    properly 
belongs  in  this  section  or  in  the 
previous  one.     It  is,  however,  fre- 
quently   cited    as    supporting    the 
doctrine  of  this  section.)        Voor- 
hees  V.  Malott,   73   N.  J.  Eq.   673, 
69  Atl.  643,  affirming  Voorhees  v. 
Nixon,  72  N.  J.  Eq.  791,  66  Atl.  192. 
(The    promoter    of   a    corporation 
sold  property  to  the  corporation  at 
an    exaggerated    price,    receiving 
some  stock  on  account  of  the  pur- 
chase   price    and    a   mortgage    for 
the    balance.      The    receiver    was 
allowed  a  credit  on  the  mortgage 
equal    to    the    difference    between 
the  price   paid  by  the  mortgagee 
and  the  priced  charged  the  com- 


924 


LAW    OF   RECEIVERS. 


§357.  Actions  on  Behalf  of  Creditors  Respecting  Unpaid 
Stock,  Bonus  Stock,  and  Statutory  Liabilities  in 
Cases  Where  the  Corporation  Is  Estopped. 

We  will  now  consider  receivers'  actions  against  stock- 
holders to  recover  for  bomis  or  underpaid  stock- issued  as 
fully  paid,  or  for  stock  subscriptions  canceled  by  the 
company  where  the  liability  therefor  is  claimed  to  have 
accrued  under  such  circumstances  that  stockholders  are 
estopped  to  complain  and  only  creditors,  or  receivers  on 
behalf  of  creditors,  may  seek  redress.  It  is  sometimes 
said  that  there  is  a  divergence  of  opinion,  or  a  lack  of 
harmony,  among  courts  as  to  the  right  of  receivers  to 
sue  under  such  circumstances.  A  decision  quite  com- 
monly relied  upon  to  support  the  view  that  a  receiver 
may  not  sue  is  one  from  Illinois,  a  case  to  which  we 
have  before  referred.  We  wdll  discuss  this  case  in  a  note 
appended  hereto.^ 


pany.  In  actions  such  as  these 
under  discussion  the  receiver  can 
not  recover  if  the  creditor  can 
not.  To  give  a  valid  cause  of 
action  in  favor  of  creditors  or  of 
the  receiver  on  behalf  of  creditors 
the  transaction  complained  of  must 
be  not  only  wrongful,  but  also 
harmful.  Creditors  must  suffer 
some  injury  therefrom.  If  the 
transaction  serves  a  legitimate 
purpose,  but  is  somewhat  irregular 
in  form,  it  may  not  be  assailed. 
If,  for  instance,  when  stockholders 
are  legitimately  entitled  to  divi- 
dends and  without  the  formal  dec- 
laration of  dividends  the  corpora- 
tion pays  out  its  funds  for  the 
benefit  of  stockholders  to  amounts 
not  in  excess  of  what  might  have 
been  disbursed  as  dividends,  such 
payments  can  not  be  recovered  by 
a  receiver  from  the  stockholders 
if   the    corporation    thereafter    be- 


comes insolvent.  Little  v.  Gara- 
brant,  90  Hun  404,  35  N.  Y.  Supp. 
689.  See  also  Murphy  v.  Panton, 
96  Wash.  637,  165  Pac.  1074. 

1  Republic  Life  Ins.  Co.  v.  Swi- 
gert,  135  111.  150,  12  L.  R.  A.  328, 
25  N.  E.  680. 

The  above  case,  which  is  often 
relied  upon  in  discussions  of  the 
subject,  cited  numbers  of  cases. 
We  will  in  this  note  discuss  those 
cases. 

In  Curtis  v.  Leavitt,  15  N.  Y.  9, 
the  court  said: 

"The  appellant  as  receiver  has 
no  interest  in  or  power  over  the 
property  affected  by  the  trusts  in 
question,  except  such  as  he  de- 
rives under  the  statutes  which 
have  been  mentioned.  It  has  been 
said  in  this  case,  as  in  other  cases, 
that  he  represents  the  creditors 
and  the  stockholders,  but  for  all 
the   purposes   of   inquiry   into   his 


PRIVATE    CORPORATIONS, 


925 


It  is  to  be  remembered  that  we  are  here  consideriiio- 
an  exception  to  a  general  rule  concerning  a  corporation 


title  he  reallj^  represents  the  cor- 
poration. He  is  by  law  vested 
with  the  estate  of  the  corporate 
body  and  takes  his  title  under  and 
through  it.  It  is  true  indeed  that 
he  is  declared  to  be  a  trustee  for 
creditors  and  stockholders,  but 
this  only  proves  that  they  are  the 
beneficiaries  of  the  fund  in  his 
hands,  without  indicating  the 
sources  of  his  title  or  the  extent  of 
his  powers.  If,  then,  in  a  contro- 
versy between  the  receiver  and 
third  parties  in  respect  to  the  cor- 
porate estate,  it  is  possible  to 
form  a  conception  of  rights,  legal 
or  equitable,  belonging  to  the 
shareholders  as  individuals,  which 
the  corporation  itself  could  not 
assert  in  its  own  name,  the  re- 
ceiver does  not  represent  those 
rights.  So  far  as  shareholders  are 
concerned,  he  can  litigate  respect- 
ing the  fund  upon  precisely  the 
grounds  which  would  be  available 
to  the  corporation  if  it  were  still 
in  existence,  solvent,  and  no  re- 
ceivership had  been  constituted. 
In  regard  to  creditors,  I  should 
certainly  incline  to  take  the  same 
view  of  his  rights  and  powers  un- 
der the  statutes  referred  to." 

In  Alexander  v.  Relfe,  74  Mo. 
495,  discussing  this  question  the 
court  said: 

"He  (the  receiver)  can  not,  it  is 
true,  overthrow  any  valid  act  of 
the  corporation  which  he  repre- 
sents, but  when  acts  have  been 
done  in  fraud  of  the  rights  of 
creditors  he  may  litigate  for  their 
benefit,  though  the  act  in  question 
be  valid  as  to  the  corporation 
i.salf;     in    which    case    he    holds 


adversely  to  the  corporation." 
The  Illinois  court  says  this  state- 
ment was  not  necessary  to  the  de- 
cision. The  action  was  one  brought 
by  the  receiver  to  recover  damages 
from  a  corporation  which,  through 
ownership  of  stock  in  the  receiv- 
ership corporation,  controlled  its 
board  of  directors  and  had  brought 
about  the  transfer  to  itself  of  all  of 
the  assets  of  the  controlled  com- 
pany. The  plan  had  been  initiated 
by  the  purchase  by  the  defendant 
corporation  of  practically  all  of 
the  stock  of  the  receivership  cor- 
poration so  that,  at  the  time  of  the 
transaction  complained  of,  its  only 
stockholders  were  the  defendant 
and  a  few  others  who  actively  par- 
ticipated In  the  scheme.  The  trial 
court  gave  judgment  for  the  re- 
ceiver. The  court  of  appeals  re- 
versed this  decision  on  the  express 
ground  that  "the  receiver  was  re- 
stricted to  such  actions  as  the  cor- 
poration could  have  maintained 
had  it  been  in  existence."  The  Su- 
preme Court,  however,  upheld  the 
trial  court.  Not  only  did  it  use  the 
language  quoted  in  the  Illinois 
opinion,  but  also  that  quoted  by  us 
in  a  previous  note.  Clearly  both 
statements  were  necessary  to  the 
decision. 

The  case  of  Hyde  v.  Lynde,  4 
N.  Y.  387,  was  also  cited.  This 
was  a  receiver's  action  against  a 
policy  holder  in  a  fire  insurance 
company  on  a  canceled  deposit 
note.  Under  the  statute  when  in- 
sured property  was  sold  the  policy 
became  void  and  the  insured  could 
get  back  his  deposit  note  on  pay- 
ing his  pro  rata  share  of  existing 


926 


LAW    OF    RECEIVERS. 


receiver's  power  to  sue.    The  general  rule  is  that  a  re- 
ceiver has  only  such  choses  in  action  as  were  assets  of 


liabilities.  In  this  case  the  policy 
tolder  had  received  back  his  note 
without  paying  anything  on  the 
understanding  that  there  were  no 
debts  for  which  he  was  liable.  The 
receiver  sued  on  the  ground  that  it 
afterwards  appeared  that  a  mis- 
take had  been  made  and  that  there 
were  existing  obligations  of  which 
the  policy  holder  should  have  paid 
a  part.  The  majority  of  the  court 
ruled  that  there  had  been  no  fraud 
or  equitable  mistake  warranting 
a  change  in  the  arrangement  made 
at  the  time  the  note  was  surren- 
dered, and  that  the  arrangement 
as  made  was  binding. 

There  is  no  statement  here  of 
any  distinction  between  the  rights 
of  the  company  and  the  stock- 
holders on  the  one  hand  and  of  the 
creditors  on  the  other.  After  hav- 
ing decided  the  case  in  this  way 
the  court  then  supposes  a  case. 
"If"  the  transaction,  though  lawful 
in  itself,  had  been  done  for  a 
fraudulent  purpose  and  the  sur- 
render of  the  note  had  been  with 
intent  to  defraud  creditors,  then 
the  creditors  might  seek  their  own 
remedy,  but  the  receiver  could  not 
act  for  them.  This  part  of  the 
opinion  is  quoted  by  the  Illinois 
court.  It  is,  however,  immediately 
followed  by  the  statement:  "It  is 
not  necessary,  however,  to  decide 
that  question  in  this  case  for  there 
is  no  proof  that  the  settlement  was 
made  with  intent  to  defraud  any 
one."  This  statement  the  Illinois 
court  fails  to  mention,  an  omission 
all  the  more  noticeable  in  view  of 
its  insistence  that  certain  expres- 
sions in  the  Missouri  case  above 


referred  to  were  unnecessary  to 
the  decision.  There  is  a  dissent- 
ing opinion  to  the  effect  that  the 
mere  surrender  of  the  deposit  note 
had  nothing  to  do  with  the  policy 
holder's  liability  to  share  in  the 
company's  debts,  and  that  the  com- 
pany, or  the  receiver  for  the  com- 
pany could  enforce  that  liability, 
regardless  of  the  change  in  the 
possession  of  the  note. 

Farnsworth  v.  Wood,  91  N.  Y. 
308.  This  was  a  receiver's  action 
on  the  statutory,  or  so-called 
"added,"  liability  of  stockholders 
that  is  a  liability  for  the  debts  of 
the  company  in  an  amount,  fixed 
by  statute,  over  and  above  the  par 
or  subscription  price  of  the  stock. 
It  was  held  that  this  liability  could 
not  be  enforced  by  the  receiver, 
and  could  be  enforced  only  by 
creditors  on  their  own  behalf.  But 
it  is  admitted,  with  practical  una- 
nimity, that  the  added  liability  of 
stockholders  stands  on  an  entirely 
different  footing  from  their  liabil- 
ity for  bonus,  underpaid,  or  can- 
celed stock. 

Coope  v.  Bowles,  42  Barb..(N.  Y.) 
87.  This  was  an  action  by  the  re- 
ceiver of  a  copartnership  to  set 
aside  an  assignment  for  the  ben- 
efit of  creditors  on  the  ground  ot 
fraud  and  defect  in  the  execution 
of  the  instrument.  The  decision 
was  based  entirely  on  a  defect  in 
the  pleading  in  the  complaint,  of 
plaintiff's  standing  as  a  receiver. 
The  portion  of  the  opinion  quoted 
in  the  Illinois  case  was  stated  in 
this  connection  and  is  as  follows: 
"A  receiver  in  general  is  not 
clothed  with  any  right  to  maintain 


PRIVATE   CORPORATIONS. 


927 


the  corporation  aild  that  when  he  sues  he  must  be  pre- 
pared to  meet  such  defenses  as  might  have  been  inter- 


an  action  which  the  parties  or  the 
estate  which  he  represents  could 
not  maintain."  The  receiver  was 
one  appointed  in  statutory  pro- 
ceedings supplemental  to  execu- 
tion and  the  court,  discussing  cer- 
tain points  in  the  case  on  their 
merits  for  guidance  in  a  new  trial, 
clearly  indicated  its  opinion  to  be 
that,  on  an  amended  complaint,  the 
receiver  would  prevail,  or,  at  least, 
could    maintain   the   action. 

Piscataqua  Fire,  etc.,  Ins.  Co.  v. 
Hill,  60  Me.  178.  This  was  an  ac- 
tion by  statutory  trustees  on  vol- 
untary dissolution  against  the  trea- 
surer for  misappropriation  of 
funds.  It  was  held  that  they 
could  not  maintain  the  action. 
The  portion  of  the  opinion  which 
the  Illinois  court  uses  is  as  fol- 
lows: "They  [the  trustees]  repre- 
sent the  corporation  alone  and  not 
its  creditors  or  stockholders.  The 
creditors  or  stockholders  can  have 
no  legal  interest  in  the  property 
involved  in  this  suit.  A  receiver 
may  increase  the  general  fund  for 
the  payment  of  debts  or  distribu- 
tion but  the  property  if  recovered 
is  still  that  of  the  corporation, 
legally  as  well  as  equitably.  The 
claims  of  the  creditors  and  of  the 
stockholders,  if  they  have  any,  are 
in  the  first  instance  against  the 
corporation  and  they  have  no  other 
except  as  provided  by  law.  If  the 
conduct  of  the  corporation,  its 
officpj-s,  or  stockholders,  has  been 
such  as  to  give  other  remedies  to 
the  creditors  such  may  properly 
be  pursued  in  their  own  names. 
So  far  as  their  rights  are  in  ques- 
tion  they    must  be   vindicated    by 


themselves  and  not  by  others  in 
their  behalf.  The  same  is  true  of 
the  stockholders."  The  last  sen- 
tence is  supported  by  cases  that  set 
forth  the  general  principle  of  cor- 
poration law  that  a  stockholder 
can  not  sue  to  vindicate  a  corpo- 
rate right  without  showing  that 
he  has  received  permission  to  do 
so  or  that  the  company  has  re- 
fused to  act.  Without  questioning 
the  propriety  of  the  decision  or 
its  applicability  to  any  question 
concerning  the  powers  of  a  cor- 
poration receiver,  it  is  sufficient 
here  to  say  that  for  the  purpose 
for  which  it  was  used  by  the 
Illinois  court,  it  "proves  too 
much."  It  wipes  out  not  only  the 
exception  we  are  discussing,  but 
also  the  right  of  the  receiver  un- 
der the  general  rule  concerning 
his  power  to  litigate  to  maintain 
actions  which  the  shareholder  may 
maintain  if  he  can  avoid  the  limi- 
tations under  which  he  labors  be- 
cause of,  under  the  company's 
regime,,  the  right  of  the  company 
to  proceed  in  the  first  instance, 
and,  pending  the  receivership,  the 
receiver's   priority. 

Waterhouse  v.  Johnson,  2  Pat- 
ers (Scotch)  1812,  L.  R.  2  H.  L.  Sc. 
29.  This  was  a  receiver's — or,  as 
called  in  England,  liquidator's— 
proceeding  to  have  a  stockholder 
held  liable  for  the  value  of  his 
stock  because,  although  it  was  is- 
sued as  being  fully  paid,  it,  in 
fact,  had  not  been.  The  company 
had  issued  statements  to  the  effect 
that,  of  the  par  value  of  its  cap- 
ital stock,  all  had  been  paid  with 
the  exception  of  a  small  percent- 


928 


LAW    OF   RECEIVERS. 


posed  against  tlie  company  itself.    The  exception  is,  that 
the  receiver,  as  representing  the  creditors,  and  in  a  legal 


age  thereof,  for  which   alone  the 
sLock  was  subject  to  call,  and  the 
company  records  showed  the  same 
situation.    As  a  matter  of  fact  the 
amount  stated  to  have  been  paid 
had    not    been    paid.      In    the    re- 
ceiver's proceedings  the  defendant 
set   up    the   defense   that    he    had 
purchased  his   stock  on  the  open 
market  and  had  paid  calls  up  to 
the   full  limit  of  the   delinquency 
stated   to   exist   and   was   entirely 
ignorant  of  the  fraud  on  the  part 
of    the    company.      In    expressing 
their    opinions    to    the    House    of 
Lords,    the   Law   Peers   held    that 
the    defense    was    good.      Two    of 
them  used  expressions  to  the  ef- 
fect   that    the    receiver    had    no 
greater   rights  than  the  company 
would    have    had    and    was    under 
the  disability  of  meeting  the  same 
defenses  that  could  be  interposed 
against  the  company.   These  state- 
ments  are  what  the   Illinois  case 
uses;    but  it  is   clear  that  too  in- 
clusive   a    meaning    is    given    to 
them.     If  the   company  had  sued 
on  the  same  liability  the  same  de- 
fense would  have  been  good.     In 
addition,    the    stockholder    might 
have  successfully  claimed  that  the 
company   was   barred   by   its   own 
fraud  from  enforcing  any  liability. 
It  is  to  be  remembered  also  that, 
if  the  company  had  sued,  it  would 
have   had   to  admit  that  it  could 
use  any  money  recovered  for  any 
purpose   and   could   not  claim,   as 
the   receiver   would   be   compelled 
to    show,     that    the    money     was 
needed  and  would  be  used  simply 
to  pay  creditors.     The  facts  that 
both    defenses    would    have    been 


good  against  the  company  and 
that  the  first  was  good  against 
the  receiver  have  no  bearing  at 
all  on  the  question  as  to  whether 
or  not  the  second  defense  would 
have  been  good  against  the  re- 
ceiver's claim  for  creditors. 

Singularly  enough  the  Illinois 
case  overlooked  the  following 
statement,  found  in  the  opinion  of 
the  Lord  Chancellor:  "I  appre- 
hend .  .  .  that  it  is  unneces- 
sary to  come  to  any  precise  de- 
termination upon  that  point  here, 
but  if  the  Joint  Stock  Company 
.4cts  be  thoroughly  sifted  there 
will  no  doubt  be  considerable 
ground  for  coming  to  the  conclu- 
sion when  the  proper  time  comes 
.  .  .  that  the  official  liquidator, 
who,  in  that  capacity,  is  bound 
to  collect  all  the  assets  of  the 
company  and  distribute  them  by 
the  direction  of  the  court  among 
creditors,  is  in  a  position  in  which 
he  may  assert  rights  as  against 
the  corporation  and  assume  a  po- 
sition as  against  the  members  of 
the  company  which  the  company 
itself  possibly  might  not  be  in  a 
position  to  assert." 

In  re  British,  etc.,  Cork,  Co. 
(Leifchild's  Case)  L.  R.  1,  Eq.  231. 
This  was  likewise  a  receiver's 
proceeding  to  have  a  stockholder 
enrolled  as  liable  for  an  unpaid 
portion  of  the  value  of  his  stock 
on  the  ground  that,  though  issued 
as  fully  paid,  it  was  in  truth  not 
fully  paid.  Defendant  was  a  trans- 
feree. The  stock  had  originally 
been  issued  in  return  for  certain 
patent  rights  but  the  certificate, 
or  deed  of  transfer,  recited  on  its 


PRIVATE    CORPORATIONS. 


929 


capacity  adversary   to   tlie   corporation,   may  disaffirm 


face  that  the  purchase  price  was 
a  certain  amount,  inconsiderable 
and  much  below  par  value.  The 
stockholders  contended  that  the 
expressed  selling  price  was  merely 
nominal  and  claimed  the  right  to 
go  behind  the  writing  and  show 
the 'true  consideration.  The  re- 
ceiver contended  that  the  stock- 
holder was  bound  by  the  deed. 
The  court  ruled  in  favor  of  the 
stockholder,  and,  considering  the 
original  transaction,  ruled  that  it 
had  been  entirely  fair  and  un- 
tainted by  fraud.  The  Illinois 
court  makes  use  of  certain  ex- 
pressions found  in  the  opinion, 
but  it  is  evident  that,  taking  the 
expressions  out  of  their  context, 
it  is  made  to  appear  that  they 
■have  a  more  inclusive  significance 
than  would  be  given  to  them  when 
read  where  they  were  originally 
used,  and  than,  in  fact,  they  were 
there  intended  to  have.  As  far 
as  its  bearing  upon  the  argument 
that  the  Illinois  court  was  mak- 
ing is  concerned,  this  case  has  a 
value  identical  with  that  possessed 
by  the  other  British  case  just 
above  reviewed.  It  may  be  here 
remarked  that  the  defense  em- 
ployed in  the  Leifchild's  Case  is 
always  recognized  as  being  avail- 
able to  a  stockholder  in  a  re- 
ceiver's suit.  In  practically  all 
cases  in  which  the  receiver  sues 
■on  a  charge  that  property  re- 
ceived by  the  company  in  ex- 
change for  stock  was,  in  the 
transaction,  fraudulently  given  a 
grossly  exaggerated  value,  the  re- 
ceiver, because  the  statutes  make 
the  decision  of  the  directors  con- 
•clusive,  except  on  a  showing  of 
Iraud  or  gross  negligence,  is  com- 
I  Rec— 59 


pelled  and  is  permitted  to  go 
behind  the  record  to  show  the 
truth.  Likewise  a  stockholder 
may,  for  the  purpose  of  establish- 
ing a  defense,  be  permitted  to 
show  that  the  truth  is  at  variance 
with  the  apparent  purport  of  the 
record  as  far  as  any  inference  of 
fraud  to  be  drawn  therefrom  is 
concerned.  There  is  nothing  in 
this  principle  inimical  to  the  ex- 
istence of  the  power  of  a  receiver 
to  sue  on  behalf  of  creditors  and, 
in  a  manner,  adversely  to  the  com- 
pany and  the  shareholders. 

In  regard  to  the  Leifchild's  case 
it  is  further  said,  in  the  Illinois 
case,  that:  "It  was  further  held 
that  it  was  not  necessary  to  i  - 
quire  whether  the  creditors  could 
obtain  any  relief  by  bill  in  chan- 
cery." This  statement  was  niaue 
with  reference  not  to  an  action 
instituted  by  the  creditors  against 
the  same  defendant,  on  the  same 
claim,  and  on  the  same  ground, 
but  with  reference  to  an  action 
based  on  an  entirely  different 
ground,  namely,  fraud  in  the  or- 
ganization of  the  company  and 
necessarily  against  different  de- 
fendants. There  is  no  implication 
in  the  statement,  as  made,  that 
the  creditors  might  sue  though 
the  receiver  could  not.  The  reason 
for  the  reference  to  chancery  was 
that  under  the  English  statute, 
the  pending  matter  was  in  the 
receivership  proceedings  before 
the  receivership  court,  whereas 
the  suggested  action  would  have 
to  be  an  independent  suit.  The 
reason  why  it  was  not  necessary 
to  make  the  inquiry  was  because 
"no  such  case  has  been  presented." 

Following    its    analysis    of    the 


930 


LAW   OF    RECEIVERS. 


such  of  its  acts  as  were  illegal  or  fraudulent,  and  detri- 
mental to  the  interests  of  creditors. 


foregoing  cases  the  Illinois  court, 
as  showing  the  character  of  all  of 
the  cases  cited  by  appellants,  who 
were  contending  for  the  receiver's 
right  to  sue,  gives  the  classifica- 
tion that  we  set  forth  in  a  previ- 
ous section.  This  is  supposed  to 
be  a  classification  of  all  of  the 
cases  which  a  receiver  has  a  right 
to  maintain  in  his  special  capacity 
as  representative  of  creditors. 
"With  the  law  of  these  cases," 
says  the  court,  "we  have  no  fault 
to  find."  Then  follows  the  con- 
clusion: "We  think  the  decided 
weight  of  authority  sustains  the 
rule  in  respect  to  the  powers  of 
receivers,  where  there  has  been 
no  enlargement  of  their  powers  by 
legislative  enactment,  that  they 
have  such  rights  of  action  only 
as  were  possessed  by  the  persons 
or  corijorations  upon  whose  es- 
tates they  administer."  We  are 
unable  to  see  any  consistency  be- 
tween the  court's  conclusion  and 
its  remark  that  it  had  no  quarrel 
with  the  law  of  the  cases  classi- 
fied, if  any  validity  is  to  be  given 
to   the   classification. 

This  case  has  been  adversely 
commented  upon  by  other  courts. 
In  a  receiver's  action  against  a 
stockholder  on  a  stock  subscrip- 
tion that  had  been  wrongfully  can- 
celed by  the  company,  the  Su- 
preme Court  of  Alabama,  Hundley 
V.  Hewitt,  195  Ala.  647,  71  So.  419, 
refused  to  accept  it  as  giving  a 
correct  exposition  of  the  law.  The 
Supreme  Court  of  Indiana  in 
Marion  Trust  Co.  v.  Blish,  170  Ind. 
686,  18  L.  R.  A.  (N.  S.)  347,  84 
N.  E.  814,  85  N.  E.  344,  referred  to 


it  "because  of  its  clear  discussion 
of  the  character  of  a  receivers 
title  under  general  statutes,"  but 
considered  that  "the  conclusion 
there  reached  that  a  receiver  does 
not  represent  creditors  .  .  . 
appears  to  be  out  of  line  with 
other  authorities"  although  "it 
should  be  said  in  explanation  of 
it  that  the  court  was  dealing  with 
a  particularly  narrow  statute." 
This  same  explanation,  that  the 
opinion  was  based  upon  the  spe- 
cial provisions  of  the  statute  un- 
der which  the  receiver  had  been 
appointed,  was  advanced  in  Cole 
V.  Satsop  Co.,  9  Wash.  494,  43 
Am.  St.  Rep.  858,  37  Pac.  700. 
In  the  latter  case,  however, 
the  court,  calling  attention  to 
the  classification  of  cases  in 
the  Illinois  case  and  the  court's 
remark  that  it  had  no  fault  to 
find  with  the  law  of  those  cases, 
ruled  that  the  case  before  it  came 
under  the  third  class.  The  action 
was  based  upon  a  stock  subscrip- 
tion. The  defense  was  that  not 
all  of  the  stock  of  the  company 
had  been  subscribed  and  the 
company  was  not  authorized  to 
commence  business.  Since  the 
stockholder  knew  of  the  existing 
situation  at  the  time  he  accepted 
stock,  the  court  held  that,  though 
the  defense  might  have  been  good 
if  the  company  had  been  suing, 
it  was  not  good  against  the  re- 
ceiver suing  in  behalf  of  credi- 
tors. The  court  said:  "It  is  need- 
less to  call  attention  to  the  fact 
that  the  case  before  us  is  of  the 
class  mentioned  [Class  Three]." 
There  was  no  apparent  reason  why 


PRIVATE    CORPORATIONS. 


931 


This  subject  was  necessarily  involved  in  the  discussion 


the  creditors  themselves  might 
not  have  proceeded  against  the 
stockholders  because  there  was  no 
specific  property  to  be  seized.  The 
common  method,  however,  is  to 
proceed  through  the  intermediate 
aid  of  a  receiver. 

We  think  the  decision  in  the 
Illinois  case  may  have  been  right, 
but  the  opinion,  on  the  point  above 
reviewed,  is  certainly  poorly  con- 
sidered. We  think  the  trouble 
with  it  is  that  the  court  did  not 
say  what  it  meant.  Certainly 
what  it  said  was  not  necessary 
to  the  decision,  if  the  decision 
was  right.  At  the  very  outset  of 
its  discussion  the  court  says:  "If 
the  order  directing  proceedings 
against  the  stockholders  who  had 
transferred  their  unpaid  stock  to 
the  corporation  was  valid  and  was 
not  erroneous  it  seems  it  must 
necessarily  be  so  either  because 
the  assignment  made  by  the  com- 
pany to  the  receiver  invested  the 
latter  with  such  title,  right,  or 
power  as  would  enable  him  to 
maintain  such  suit;  or  because  a 
receiver  has  authority  under  the 
rule  which  prevails  in  chan- 
cery courts  to  avoid  the  voluntary 
and  lawful  acts  of  the  person  or 
corporation  whose  estate  he  repre- 
sents or  may  be  clothed  with  such 
power  by  the  court  of  chancery 
which  appointed  him;  or  because 
the  statute  for  the  dissolution  of 
insurance  companies  makes  the 
receiver  appointed  in  conformity 
with  its  provisions  the  representa- 
tive of  the  creditors  of  the  com- 
pany that  is  restrained  from  fur- 
ther prosecution  of  its  business." 
There  is  nothing  in  the  doctrine 
that  a  receiver  may,  for  the  bene- 


fit of  creditors,  disaffirm  a  trans- 
action by  which  the  receivership 
corporation  is  itself  bound  to  the 
effect  that  the  receiver  may 
"avoid  the  voluntary  and  lawful 
acts"  of  the  corporation.  The  very 
foundation  of  his  right  in  this  re- 
spect is  that  the  act  is  unlawful. 
When  a  receiver  sues  a  stock- 
holder, or,  for  that  matter,  a  di- 
rector or  a  stranger  to  the 
corporation,  on  the  ground  that 
the  defendant  has  wrongfully 
profited  through  some  unlawful 
act  of  the  corporation,  he  must 
always  be  prepared  to  meet  the 
defense  that  the  act  complained 
of  was  a  "valid  and  lawful"  trans- 
action, and  a  successful  mainte- 
nance of  such  a  defense  will  prove 
a  bar  to  the  receiver's  recovery 
in  the  action.  Such  was  the  situ- 
ation in  the  Leifchild's  case,  cited 
by  the  Illinois  case,  and,  without 
any  distortion  of  its  meaning,  the 
decision  in  the  former  was  a  per- 
fect precedent  for  the  decision  in 
the  latter,  when  placed  on  proper 
grounds. 

For  it  is  evident  that  the  Illinois 
court  considered  the  transaction 
complained  of  in  the  case  before 
it  to  be  a  perfectly  valid  exercise 
of  corporate  authority.  The  cor- 
poration had  permitted  subscribers 
to  stock,  who  had  paid  less  than 
twenty  per  cent  of  their  subscrip- 
tions, to  surrender  their  subscrip- 
tions and  receive  fully  paid  stock 
for  the  money  they  had  already 
paid  in.  Such  a  transaction  might 
be  perfectly  valid  as  far  as  the 
corporation  was  concerned.  See, 
Enright  v.  Heckscher,  240  Fed. 
863,  153  C.  C.  A.  549;  Noyes  v. 
Wood,   247  Fed.   72,   159    C.   C.  A. 


932 


LAW    OF    RECEIVERS. 


290;   Miirpliy  v.  Panton,  96  Wash. 
637,  165  Pac.  1074. 

It  is  evident  that,  in  the  light 
of  all  of  the  circumstances,  which 
do  not  fully  appear  in  the  report 
of  the  case,  it  was  so  considered 
in  the  case  under  roview.  From 
this  point  of  view,  the  opinion  in 
Leifchild's  case  might  have  been 
adopted  in  principle  in  support  of 
the  decision  in  the  Illinois  case. 
But  the  former  is  certainly  not 
authority  for  the  proposition  that 
there  is  no  exception  to  the  gen- 
eral rule  that  a  receiver  has  no 
rights  of  action  except  such  as  the 
receivership  corporation  had;  nor 
can  the  latter  be  properly  said  to 
amount  to  authority  to  that  effect, 
although  on  the  surface  it  appears 
to  support  such  a  proposition. 
With  its  view  of  the  facts  of  the 
case  before  it,  the  Illinois  court 
might  have  done  just  as  the  New 
York  court  did  in  Curtis  v.  Leavitt, 
supra,  assumed  without  deciding 
that  the  exception  in  favor  of  cred- 
itors did  exist,  and  still  have 
reached  the  same  conclusion  as 
to  the  merits  of  the  action.  The 
doctrine  that  there  is  such  an  ex- 
ception and  that  it  enables  a  re- 
ceiver to  sue  stockholders  for  the 
value  of  stock  issued  as  fully  paid 
when  in  fact  nothing  was  paid  for 
it,  although  the  company  itself 
could  not  have  maintained  such 
an  action,  prevails  in  Illinois,  in 
spite  of  the  case  just  reviewed. 

Gillett  V.  Chicago  Title  &  T.  Co., 
230  111.  373,  375,  82  N.  E.  891.  In 
this  case  it  is  said:  "If,  as  be- 
tween themselves  and  the  corpora- 
tion, they  [subscribers  to  stock] 
had  the  right  to  decline  to  take 
certificates  of  stock  for  which  they 
had  paid  nothing  they  had  no  such 
right  as  to  creditors.    When  they 


became  the  owners  of  the  stock, 
though  they  acquired  it  without 
paying  anything  therefor,  they  in- 
curred a  contingent  liability  to 
creditors  which  was  not  to  be 
avoided  by  refusing  to  receive  the 
certificates." 

The  force  and  meaning  of  the 
exception  is  somewhat  emphasized 
by  the  fact  that  the  court  cites  in 
support  of  its  exposition  of  the 
law  the  case  of  Sprague  v.  Na- 
tional Bank  of  America,  172  111. 
149,  64  Am.  St.  Rep.  17,  42  L.  R.  A. 
606,  50  N.  E.  19,  a  suit  by  creditors 
to  vindicate  their  own  rights. 

It  may  also  be  noticed  that  in 
this  case  it  was  also  held  that  a 
transferee  of  stock,  innocent  and 
ignorant  of  the  fraud  in  the  chain 
of  title,  could  not  be  held  liable  for 
its  value,  which,  as  pointed  out 
above,  is  in  line  with  the  holding 
in  Waterhouse  v.  Jamieson,  2  Pat- 
ers (Scotch)  1812,  L.  R.  2  H.  L. 
Sc.  29.  See  also  Cohen  v.  Toy,  etc., 
Co.,  172  111.  App.  330. 

It  may  be  stated  here,  in  pass- 
ing, that  it  is  a  somewhat  common 
practice  on  the  part  of  courts, 
even  of  courts  that  have  frequently 
sustained  the  exception  to  the  gen- 
eral rule,  unnecessarily  to  remark 
when  ruling  that  a  transaction 
complained  of  by  the  receiver  is 
valid  and  not  open  to  criticism,  or 
sustaining  some  other  defense 
raised  against  a  receiver,  such  as 
the  bona  fide  purchase  of  bonus  or 
underpaid  stock.  See  Waterhouse 
V.  Jamieson,  2  Paters  (Scotch) 
1812,  L.  R.  2  H.  L.  Sc.  29,  that  a 
receiver  has  only  such  rights  as 
the  corporation  had,  and  even  to 
say  that  if  the  rights  of  creditors 
have  been  invaded  they  must  pur- 
sue the  remedy  in  their  own  per- 
sons.   See  Bostwick  v.  Young,  118 


PRIVATE    CORPORATIONS.  933 

in  previous  sections-  setting  forth  the  character  of  the 
hability  of  stockholders  respecting  unpaid  stock  and  the 
confusion  arising  from  variant  statutes  respecting  the 
method  of  collection.  In  respect  to  the  question  of 
whether  the  corporation  itself  could  be  estopped  from 
suing  the  stockholders,  it  naturally  is  dependent  upon 
the  particular  view  held  by  the  courts  of  the  jurisdiction 
involved  in  regard  to  the  extent  to  which  a  corporation  is 
allowed  to  go  in  selling  its  stock  for  less  than  par  and 
whether  its  contracts  in  that  respect  are  valid  as  against 
its  creditors. 

In  a  comparatively  recent  case  in  New  Jersey,^  it  was 
said:     ''The  doctrine  that  corporate  stock  issued,  out- 
standing, and  unpaid  for  is  a  trust  fund  for  the  benefit 
of  creditors,  is  a  hard  and  fast  rule  imbedded  in  the  de- 
cisions of  the  courts  of  this  and  other  states,  and  is  never 
relaxed.    In  this  state,  however,  the  stockholder 's  liability 
to  creditors  no  longer  depends  alone  upon  the  trust  fund 
theory,  but  is  held  to  be  statutory."    And  in  another  case 
from  that  same  state^  it  was  stated:    ''But  in  this  state 
the  stockholders'  liability  to  creditors  does  not  depend 
alone  or  chiefly  upon   the  theory  of  'holding  out.'     It 
depends  upon  the  stockholders'  voluntary  acceptance  for 
considerations  touching  his  own  interest  of  a  statutory 
scheme  to  which  watered  stock,  under  whatever  device 
issued,  is  absolutely  a  lien,  and  which  requires  stock  sub- 
scriptions to  be  made  good  for  the  benefit  of  creditors  of 
insolvent  companies,  without  distinction  between  prior 
and  subsequent  creditors,  or  between  creditors  who  had 

App.  Div.  490,  103  N.  Y.  Supp.  607;  etc.,  Co.,  SO  N.  J    Eq    122    132    82 

Little  V.  Garabrant,  90  Hun  404,  35  Atl.   618.      (Promotion   stock  )  ' 
N.  Y.  Supp.  689.     This  practice  is  4  Easton  Nat.  Bank  v   American 

probably  responsible  for  some  of  Brick,  etc.,  Co.,  70  N.  J.  Eq   732   10 

the  seeming  confusion  among  the  Ann.  Cas.  84,  8  L.  R.  A.  (N  S  )  271 

cases  and  the  assertion  that  there  64   Atl.   917.      (Alleged   fraudulent 

is  a  variance  among  the  decisions.  valuation    given    to   patent    rights 

-  ^^^  ^'§  ^'^'  et  seq.  accepted  in  payment  for  stock  ) 

3  Holcombe    v.    Trenton    White, 


934  LAW    OF   RECEIVERS. 

notice  and  those  wlio  had  none."    The  statute  referred 
to  in  the  above  two  quotations  is  one  generally  found  in 
many  jurisdictions,  either  in  constitutional  or  statutory 
enactment,  or  in  the  provisions  of  corporation  charters, 
forbidding  the  issuance  of  stock  for  any  consideration 
other  than  money,  or  labor  performed  or  property  equal 
in  value  to  the  par  value  of  the  stock;  it  was  not  a 
statute  expressly  conferring  upon  receivers  the  right  to 
sue  on  behalf  of  creditors.     Both  of  the  cases  cited  up- 
held the  right  of  a  corporation  receiver  to  sue  stock- 
holders who  had  received  stock  for  less  than  par.^    "The 
powder  to  maintain  a  suit  of  this  character  need  not  be 
expressly  conferred  by  statute  upon  the  receiver,  but  if 
it  can  be  fairly  implied,  either  from  the  general  scope 
and  purpose  of  the  statute  or  as  an  incident  to  a  power 
expressly  given,  there  is  sufficient  warrant  for  its  exer- 
cise."    This  statement  was  made  in  support  of  a  re- 
ceiver's right  to  maintain  an  action,  for  the  benefit  of 
creditors,  to  avoid  the  company's  wrongful  cancellation 
of  a  stockholder's  subscription.^     ''The  demand  of  the 
statutes,  as  well  as  the  logic  of  the  cases,  is,  that  the 
working  capital  of  a  corporation  is  the  amount  named 
in  its  articles,  and  is,  in  theory,  paid  in  full,  either  in 
cash  or  by  the  promise  of  a  subscriber  to  whom  the  law 
will  attach  the  presumption  of  solvency.    Publication  of 
the  amount  of  the  capital  stock  is,  and  must  be,  a  con- 
tinued holding  out  to  all  the  world,  creditors  present  as 
well  as   prospective,   that  the   capital  is   paid   or   sub- 
scribed."    This  statement  is  made  in  a  case  in  which 
appellate  court,  reversing  a  judgment  of  the  trial  court, 
ordered  judgment  to  be  entered  in  favor  of  the  receiver 
against  a  stockholder  on  a  subscription  canceled  by  the 
company  without  consideration."^     This  character  of  the 
liability  of  a  stockholder  upon  his  statutory  liability  as 

5  Rosoff  V.  Gilbert  Transp.  Co.,  221  Fed.  972. 

6  Hundley  v.  Hewitt,  195  Ala.  647.  71  So.  419. 

7  Murphy  v.  Panton,  96  Wash.  637,  165  Pac.  1074. 


PRIVATE    CORPORATIONS.  935 

a  stockholder  was  set  forth  in  an  important  Delaware 
case*^  as  follows:  ''A  Delaware  corporation  can  not 
make  a  subscription  contract  which  will  free  the  sub- 
scriber from  the  statutory  liability,  for  that  statute  is 
notice  to  all  who  make  such  contracts  and  is  read  into 
and  becomes  a  part  of  every  stock  subscription  contract. 
The  fundamental  principle  is  that  shares  of  stock  in  a 
corporation  are  a  substitute  for  the  personal  liability 
of  partners,  and  the  liability  to  pay  for  stock  taken  up 
to  the  par  value  thereof  is  a  fund  for  the  benefit  of 
creditors  of  the  company,  and  whoever  takes  shares  of 
stock  of  a  Delaware  corporation  assumes  that  liability 
for  the  benefit  of  creditors  in  case  of  insolvency  of  the 
company. 

''Upon  holders  of  preferred  stock,  who  took  the  shares 
pursuant  to  a  subscription  contract,  and  upon  those  who 
acquired  shares  of  common  stock  without  a  formal  sub- 
scription, the  statutory  liability  is  of  course  imposed. 
However  acquired  the  constitutional  and  statutory  provi- 
sions as  to  what  constitutes  payment  for  stock  are  part 
of  the  contract,  express  or  implied,  respecting  both  kinds 
of  stock.  As  to  creditors,  there  is  no  difference  between 
the  liability  of  holders  of  stock  and  subscribers  to  stock, 
for  both  are  liable. 

"  'In  equity  and  as  against  creditors,  the  acceptance  of 
stock  without  paying  for  it  places  the  acceptor  in  the 
position  of  a  subscriber. '  See  v.  Heppenheimer,  69  N  J 
Eq.  36,  78,  61  Atl.  843,  860  (1905)." 

The  foregoing  quotation  is  from  a  decision  in  which 
it  was  held  that  the  holders  of  common  stock  issued 
ostensibly  as  promotion  stock— for  labor  performed  be- 
fore the  incorporation  and  not  afterwards— but  in  reality 

s  John  W.  Cooney  Co.  v.  Arling-  Court  under  the  title  of  Du  Pont  v 

ton  Hotel  Co.   (Del.  Ch.),  101  Atl.  Ball  (Del.),  106  Atl.  39.    The  modi- 

^^^-  fications   did   not,   however,  affect 

The    above    case    was    affirmed  the  point  to  which  it  is  here  cited 
with  modifications  by  the  Supreme 


936  LAW    OF    RECEIVERS. 

to  be  used  as  a  bonus  to  subscribers  of  preferred  stock- 
were  liable  to  the  receiver  for  such  proportion  of  its 
par  value  as  was  necessary  to  pay  the  debts  of  the  cor- 
poration.^    The  subquotation  is  also  from  a  receiver's 
case.     A  corporation  may,  unless  by  statute  expressly 
prohibited  from  doing  so,  sell  its  stock  for  less  than  par. 
A  creditor  who  actually  knew  of  the  terms  on  which  stock 
was  sold  could  not  complain  of  it  on  the  score  that  he 
had  extended  credit  to  the  corporation  under  the  belief 
that  its  stock  had  been  sold  for  par,  nor  could  one  who 
extended  credit  to   the   company  before   a  stockholder 
became  a  member  of  the  company  require  him  to  pay 
more  for  his  stock  than  his  agreement  with  the  company 
called  for.    If  creditors  have  not  been  injured  by  trans- 
actions had  under  this  principle  then  there  are  no  rights 
of  creditors  in  connection  therewith  to  be  remedied  by 
the  receiver   and   the  receiver  has   no  cause   of  action 
against  the  stockholders.^^     The  same  rule  holds  as  to 
"treasury  stock" — that  is  stock  Avhich  was  validly  sold 
but  returned  to  the  company  either  by  gift  or  valid  pur- 
chase—and, generally,  as  to  increase  stock.     The  com- 
pany may  sell  such  treasury  or  increase  stock  at  such 
price  as  it  may  be  able  to  obtain,  unless  it  is  prohibited 
from  doing  so  or  makes  contrary  public  statements,  with- 
out invading  the  rights  of  creditors  and  laying  founda- 
tion for  claims  against  stockholders  on  the  part  of  cred- 
itors or  the  receiver.^i     Such  stock  is  presumably  fully 

9  John  W.  Cooney  Co.  v.  Arling-  itor's  action) ;  Hospes  v.  North- 
ton  Hotel  Co.,  supra.  But  see  western  Mfg.,  etc.,  Co.,  48  Minn, 
affirmance  with  modification  under  174,  31  Am.  St.  Rep.  637.  15  L.  R.  A. 
title  of  Du  Pont  v.  Ball  (Del.).  106  470.  50  N.  W.  1117 

uHandley   v.    Stutz.    139   U.    S. 

^*^-  ^^-  417,  35  L.  Ed.  227.  11  Sup.  Ct.  530; 

10  Scoville  V.  Thayer.  105  U.  S.  ^^.^  ^  ^^^,^y^  Carolina  Gold,  etc., 
143,  26  L.  Ed.  968;  First  Nat.  Bank  ^q^  14  ped.  12;  affirmed,  119  U.  S. 
V.  Gustin  Minerva,  etc..  Min.  Co..  343^  30  L.  Ed.  420,  7.  Sup.  Ct.  231. 
42  Minn.  327,  18  Am.  St.  Rep.  510,  See  Eastoii  Nat.  Bank  v.  American 
6  L.  R.  A.  676,  44  N.  W.  198  (cred-  Brick,  etc..  Co.  (N.  J.  Eq.),  supra. 


PRIVATE   CORPORATIONS.  937 

paid  wlien  first  issued  from  the  treasury.  Moreover,  if 
there  is  some  defect  or  invalidity  in  the  issuance  of  stock 
that  appears  on  the  face  of  the  corporate  record — such  as 
the  issuance  of  stock  beyond  the  amount  allowed  by  its 
charter,  that  is,  over-issued  stock,  or  acceptance  of  a 
secured  promissory  note  in  payment  of  stock  in  a  juris- 
diction where  such  a  consideration  is  prohibited — the 
creditor  is  held  to  have  notice  of  the  infirmity  and  not  to 
have  been  misled  to  his  injury  by  the  transaction  and 
there  has  been  no  wrong  for  the  receiver  to  reinedy.^^ 
If  we  take  into  account  the  various  conditions  above 
mentioned — the  widely  prevalent  statutory  requirement 
tliat  stock  shall  not  be  disposed  of  at  less  than  its  par 
value ;  that,  unless  prohibited  in  some  way,  including  by 
its  own  voluntary  purpose  as  stated  to  the  public,  a  cor- 
poration may  lawfully  sell  its  stock  below  par ;  that  the 
record  may,  by  exhibiting  some  infirmity  in  the  issue  of 
stock,  warn  those  dealing  with  the  company  not  to  rely 
on  it  as  a  basis  for  giving  credit;  that  courts  frequently 
make  statements  concerning  the  powers  of  receivers 
which,  when  taken  out  of  their  context,  may  seem  to 
have  a  meaning  much  more  general  than  it  was  intended 
they  should  have  where  used,  it  may  be  said  that  there 
is  no  real  variance  of  decision  as  to  the  right  of  a  receiver 
to  remedy  any  injury  that  may  have  been  done  to  the 
corporation  creditors  through  wrongful  issuance  of 
stock,  even  though  the  corporation  and  the  stockholders 
may  be  barred  from  complaining.  We  have  not  observed 
any  well  considered  case  that  holds  that,  when  a  corpora- 
tion has  issued  its  stock  at  a  price  lower  than  par  when 
creditors,  either  because  of  statutory  or  charter  provi- 
sion or  for  some  other  reason  binding  on  the  company, 

12  Scoville     V.     Thayer,     supra  661;     Enright    v,    Heckscher,    240 

(over-issued    stock);     Mitchell    v.  Fed.  863,  153  C.  C.  A.  549.     With 

Porter  (Tex.  Civ.  App.),  194  S.  W.  reference  to  this  case  see  note  47, 

981.     See  also  Laredo  Imp.  Co.  v.  this  section.     The  first  case  cited 

Stevenson,  66  Fed.  633,  13  C.  C.  A.  is  an  assignee  in  bankruptcy  case 


938  '  LAW    OF    RECEIVERS. 

have  a  riglit  to  presume  that  it  was  issued  for  par,  and 
the  transaction  was  conducted  under  such  circumstances 
as  to  make  it  binding  upon  the  corporation  and  all  the 
shareholders,  the  receiver  may  not  recover  from  the  im- 
plicated stockholders,  excluding  those  who  are  insolvent, 
an  amount,  up  to  the  full  diiference  between  the  amount 
they  paid  and  the  amount  they  were  presumed  to  pay, 
sufficient  to  liquidate  all  of  the  liabilities  of  the  company, 
including  those  due  to  creditors  who  knew  the  actual 
fact  as  well  as  those  who  did  not,  and  those  due  to  prior 
as  well  as  subsequent  creditors,  plus  the  expenses  of  the 
receivership,  including  the  cost  of  collecting  from  the 
stockholders ;  and  there  is  no  case  that  holds  that,  when 
a  corporation,  under  circumstances  binding  upon  the 
compan}^  and  all  of  the  stockholders,  cancels  an  unpaid 
valid  stock  subscription,  or  obligation,  without  substi- 
tuting therefor  an  equally  valuable  asset  for  the  benefit 
of  creditors,  the  receiver  may  not  recover  from  the  stock- 
holder so  much  of  the  amount  from  the  payment  of 
w^hich  he  was  relieved  as  may  be  necessary  for  similar 
purposes.  The  well  considered  cases  all  rule  the  other 
way.^^ 

13  Peck  V.  Elliott,  79  Fed.  10,  24  61  Atl.  843;   Holcombe  v.  Trenton 

C.    C.    A.    425,    38    L.    R.    A,    616;  White,  etc.,  Co.,  80  N.  J.  Eq.  122, 

Wyman  v.  Bowman,  127  Fed.  257,  82  Atl.  618;    Easton  Nat.  Bank  v. 

62  C.  C.  A.  189;   Rosoff  v.  Gilbert  American  Brick,  etc.,  Co.,  70  N.  J. 

Transp.  Co.,  221  Fed.  972;  Hundley  Eq.  732,  10  Ann.  Cas.  84,  8  L.  R.  A. 

V.  Hewitt,  195  Ala.  647,  71  So.  419;  (N.  S.)  271,  64  Atl.  917;  Murphy  v. 

Fell  V.  Securities  Co.  of  N.  A.  (Del.  Panton,    96    Wash.    637,    165    Pac. 

Ch.),  100  Atl.  788;  Meholin  V.  Carl-  1074;     Cole    v.    Satsop    R.    Co.,   .S 

son,  17  Ida.  742,  134  Am.  St.  Rep.  Wash.   487,   494,   43   Am.   St.    Rep. 

286,  107  Pac.  755;  Gillett  v.  Chicago  858,  37  Pac.  700;   Gordon  v.  Cum- 

Title   &   T.   Co.,   230   111.   373,   375,  mings,  78  Wash.  515,  139  Pac.  489. 

82  N.  E.  891;    Cohen  v.  Toy  Gun,  PeU's  Case,  L.  R.,  8  Eq.  222. 

etc.,  Co.,  172  111.  App.  330;  Haskell  It   is   frequently   stated   that  in 

V.  Gardner    (Ind.   App.),  93   N.  E.  xespect    to    the    matter    here    dis- 

458;    Preston   v.    Jeffers,    179    Ky.  cussed    the   rights   of   corporation 

384,    200    S.    W.    654;     Webre    v.  receivers  are  analagous  to,  if  not 

Christ,  130  La.  450,  58  So.  145;  See  identiVil  with,  those  of  trustees  in 

V.  Heppenheimer,  69  N.  J.  Eq.  36,  bankruptcy.      Hundley    v.    Hewitt, 


PRIVATE    CORPORATIONS. 


939 


105  Ala.  647,  71  So.  419;  Herf  &  F. 
Chemical  Co.  v.  Brewster,  54  Tex. 
Civ.  217,  117  S.  W.  880.     It  seems 
net  improper,  therefore,  to  call  at- 
tention   here    to    a    case    which, 
though    a    bankruptcy    case,    dis- 
cusses the  matter  we  are  here  in- 
terested   in    and    in    a    way    that 
shows    that   the    court   considered 
that    its    exposition    of    the    law 
would  be  equally  applicable  to  a 
receivership  case.    The  case  is  En- 
right  V.  Heckscher,  240  Fed.  863, 
153  C.  C.  A.  549.     It  may  be  said, 
however,  that  the  corporation  in- 
volved was  a  New  Jersey  corpora- 
tion and   the   decision,   as   to   the 
various    points    involved    was,    to 
some  extent  at  least,  based  upon 
statutes     and     decisions     of    that 
state.     The  case  was  an  action  by 
the  trustee  in  bankruptcy  against 
stockholders    who    had    been    sold 
Increase  stock  for  50  per  cent  of  its 
par  value  through  a  manipulation 
intended   to  give   the   transaction 
the  appearance  of  a  sale  of  "trea- 
sury  stock,"   but   decided   by   the 
court  to  be  a  pretense  and  fraudu- 
lent as   to   creditors.     Among  the 
rulings  made  in  the  case  are   (1) 
that  stock — even  increase  stock — 
issued  below  par  is,  under  the  New 
Jersey  statute,  illegally  issued  and 
the  purchaser  is  liable  to  creditors 
for  the  difference;    (2)   that  when 
property  is  accepted  by  a  corpora- 
tion in  exchange  for  its  stock  any 
overvaluation   of  the  property  al- 
lowed by  the  company,  either  with 
fraudulent  intent  or,  even  in  the 
absence  of  fraud,  through  culpable 
negligence,  renders  the  issue  ille- 
gal and  makes  the  purchaser  liable 
for    the    difference    between     the 
real  value  of  the  consideration  as 
of  the  time  of  the  deal  and  the  par 
vCue    of    the    stock;     (3)    that   a 


transferee  of  stock  illegally  issued 
is  liable  in  the  same  way  and  to 
the  same  extent  as  the  transferrer 
if   he    has    binding   notice    of   the 
illegality;    (4)   that  an  assessment 
levied    upon    stockholders    by    the 
bankruptcy  court  is  binding  upon 
the  stockholders  as  to  the  amount 
of  the  liabilities  of  the  bankrupt 
company,  the  value  of  its  assets, 
and  the  amount  of  the  necessary 
assessment  (see,  in  re  Newfound- 
land Syndicate,  196  Fed.  443,  201 
Fed.   917,   120   C.  C.  A.  255);    (5) 
that     interest     may     be     charged 
against  a   stockholder  on   such   a 
liability  from  the  time  he  received 
his  stock;    (6)    that  a  corporation 
can  not,  after  the  rights  of  cred- 
itors   have    intervened,    relieve    a 
stockholder  of  his  contingent  lia- 
bility under  such  circumstances  by 
receiving  back  the  stock  and  issu- 
ing him  an  amount  equal  at  par 
to  the  consideration  actually  paid. 
In  considering  this  last  mentlonod 
point  the  court  said:     "But  neither 
a  board  of  directors  nor  the  stock- 
holders  themselves   can   accept  a 
surrender  of  shares  and  a  release 
of    a    shareholder    from    liability 
thereon,  when  to  do  so  would  prej- 
udice  the   rights   of  creditors.     It 
could  not  be  done  if  a  single  stock- 
holder    objected.       Cartwright     v. 
Dickinson,  88  Tenn.  476,  17  Am.  St. 
Rep.  910,  7  L.   R.  A.  706,  12  S.  W. 
1030;   Wills  V.  Nehalem  Coal  Co., 
52    Ore.    70,    96    Pac.    528;    Shelby 
County   R.    Co.   v.    Crow,    137   Mo. 
App.  461,  119  S.  W.  435.    If  all  the 
stockholders  agreed,  it  could  not 
avail,  if  debts  had  been  incurred 
which  there  were  no  means  to  pay, 
except    out    of    the    capital    stock 
which     was      released.       For     as 
against  creditors  capital  stock  and 
the  liability  attaching  to  it  can  not 


949  LAW   OF   RECEIVERS. 

§358.    General  Defenses  to  Actions  by  Receiver  on  Behalf  o2 
Corporate  Creditors. 

In  cases  coming  under  the  above  rule — or  exception  to 
the  general  rule  concerning  the  receiver's  powers^ 
various  points  incidentally  arise.  Where  the  considera- 
tion for  stock  is  labor  or  property,  and  not  money,  the 
question  of  the  good  faith  of  the  company  in  accepting 
the  property  as  equal  in  value  to  the  stock  arises.  The 
decision  of  the  company  is  presumed  to  be  correct  and 
fair  and  the  burden  of  showing  the  contrary  is  on  the 
receiver  attacking  the  transaction.  It  is  not  necessary, 
however,  to  show  actual  fraud;  it  is  sufficient  to  show 
culpable  negligence,  as  for  instance,  failure  to  make  any 
investigation  or  appraisement  of  the  property  or  ac- 
cepting merely  the  word  of  an  interested  party. ^  If  the 
decision  is  against  the  stockholder  he  may  nevertheless 
and  as  a  general  rule  be  allowed  a  credit  equal  to  what 
the  court  determines  to  be  the  real  value  of  the  labor  or 
property  as  of  the  time  when  the  stock  was  issued.^ 

be  squandered  or  surrendered.  states  a  cause  of  action  on  con- 
Upton  V.  Tribilcock,  91  U.  S.  45,  tract  and  that  is  the  nature  of  the 
23  L.  Ed.  203;  Webster  v.  Upton,  obligation  which  a  subscriber  to 
91  U.  S.  65,  23  L.  Ed.  384;  Potts  v.  stoclv  in  a  corporation  assumes  to 
Wallace,  146  U.  S.  689,  36  L.  Ed.  the  company."  Mere  general  alle- 
1135,  13  Sup.  Ct.  196.  And  where  a  gations  of  fraud  in  such  a  corn- 
stockholder  claims,  as  against  a  plaint  will  be  disregarded  as  sur- 
creditor  or  a  trustee  in  bankruptcy,  plusage.  Under  such  a  complaint  it 
that  he  surrendered  his  stock,  or  is  not  permissible  to  the  receiver 
the  number  of  his  shares  was  re-  to  prove  that  the  stock  was  ille- 
duced  at  a  time  and  under  circum-  gaily  issued  as  promotion  stock, 
stances  which  permitted  it  to  be  Lamphere  v.  Lang,  213  N.  Y.  585, 
done,  it  would  be  incumbent  on  108  N.  E.  82.  Per  contra,  see 
him  to  show  that  the  time  and  Cohen  v.  Toy  Gun  Mfg.  Co.,  172  HI. 
circumstances  were  such  that  it  App.  330.  See  also  Hundley  v. 
could  lawfully  be  done.  Payne  v.  Hewitt,  195  Ala.  647,  71  So.  419. 
Bullard,  23  Miss.  88,  55  Am,  Dec.  i  Holcombe  v.  Trenton  White, 
74.  The  defendant  has  shown  etc.,  Co.,  80  N.  J.  Eq.  122,  82  Atl. 
nothing  of  the  kind  in  this  case."  618.     See  Honeyman   v.  Haughey 

An    allegation    in    a    receiver's  (N.  J.  Ch.),  66  Atl.  582. 

complaint    that    stock    had    been  2  Pell's  Case,  L.  R.,  8  Eq.  222; 

issued    and    unpaid    for    "plainly  Enrlght  v.  Heckscher,  supra;    See 


PRIVATE    CORPORATIONS.  941 

Tlie  question  of  the  liability  of  a  transferee  of  the  stock 
is  another  that  may  incidentally  arise  in  such  an  action. 
The  rule  is  that  there  is  open  to  him  the  defense  of  being 
an  innocent  purchaser  for  value.  If  he  successfully  main- 
tains such  a  defense  he  escapes  liability ;  but  if  he  takes 
the  stock  with  knowledge — not  necessarily  actual,  but 
legal  knowledge — of  the  fraud  or  illegality  connected  with 
its  original  issuance  he  is  liable.^ 

Such  defenses  as  that  the  stock  was  'treasury"  stock 
or  increase  stock  and  subject  to  be  sold  at  less  than  par 
are  determined  in  accordance  with  principles  of  general 
corporation  law,  just  as  they  would  be  if  the  action  had 
been  brought  by  a  creditor  in  person. 

Under  the  common  law  a  stockholder  in  a  corporation 
was  deemed  not  to  be  a  party  to  any  contract  made  by  the 
company  and  was  therefore  held  not  to  be  liable  for  its 
debts  beyond  the  amount  of  his  subscription  to  its  stock,^ 
In  many  jurisdictions,  however,  he  is  by  constitutional 
and  statutory  provisions  made  liable  to  a  greater  amount. 
This  added  liability  of  the  stockholder  is  commonly  desig- 
nated as  "statutory,"  to  distinguish  it  from  his  liability 
on  his  subscription.  In  some  instances  the  amount  of  this 
liability  is  made  equal  to  the  par  value  of  the  stock  and 
is  spoken  of  as  double  liability ;  in  others  it  is  made  pro- 
portionate to  the  amount  of  the  stock  holdings  as  com- 
pared with  the  total  amount  of  the  company's  stock 
issued  and  is  spoken  of  as  proportionate  liability.  In  all 
instances  the  statutory  liability  is  created  for  the  benefit 
of  creditors.  It  is,  however,  in  a  certain  sense  different 
from  the  liability  to  creditors  that  we  have  just  been 
discussing.  The  latter  was  in  the  first  instance  an  asset 
of  the  company.  The  company,  however,  by  some  con- 
tract with  the  stockholder,  waived,  or  surrendered,  this 

V.    Heppenheimer,    supra;    Easton  3  Waterhoiise  v.  Jamieson,  supra. 

Nat.  Bank  v.  American  Brick,  etc.,  4  See  Hicks  v.  Burns,  38  N.  H. 

Co.,  supra.  141,  145. 


()42  LAW    OF    RECEIVERS. 

asset  as  far  as  it,  the  company,  was  concerned,  and  was 
thereafter  estopped  from  claiming  any  further  liability 
on  the  part  of  the  stockholder.^    However,  the  estoppel 
as  to  the  company  is  not  effective  against  creditors  and 
the  liability  of  the  stockholder  remains  an  asset  in  the 
receiver's   hands   which   he   can   enforce    on   behalf   of 
creditors.    The  statutory  liability  of  the  stockholder,  how- 
ever, is  not  generally  an  asset  of  the  company  and  rarely, 
if  ever,  can  be  enforced  by  it.     It  generally  is  made  by 
the  statutes  an  asset  of  the  individual  creditors  to  be 
enforced  by  each  one  according  to  his   own  interests. 
Under  some  statutes,  the  receiver  is  vested  with  the  right 
of  action  on  behalf  of  the  creditors  as  a  sort  of  trustee. 
This  is  the  equitable  view  of  the  matter;  and  since,  in 
equity,  a  corporation  receiver  takes  his  title  through  and 
under  the  corporation,  it  is  the  rule  in  equity  that  the 
receiver  does  not  acquire  this  liability  as  an  asset  which 
he  can  enforce  for  the  benefit  of  the  estate  which  he  is 
administering;  nor  does  he,  in  the  absence  of  express 
statutory  provisions,  acquire  it  for  the  benefit  of  any 
set  of  creditors  of  the  estate.     ''It  would  seem  to  be 
quite  clear  that  if  this  added  liability  of  stockholders  is 
an  asset  of  the  corporation,  the  receiver  of  such  corpora- 
tion, when  insolvent,   should  be  authorized  to   enforce 
the  liability.     If  on  the  contrary,  the  added  liability  of 
stockholders  is  a  provision  for  the  benefit  of  creditors 
and  not  to  be  considered  an  asset  of  the  corporation,  the 
creditors  only  would  have  the  right  of  action  and  be 
entitled  to  enforce  the  so-called  added  liability.     ,     .     . 
The  liability  by  our  statute  is  expressly  declared  to  be 
for  all  debts  contracted,  and  is  obviously  for  the  benefit 
of  the  creditor,  and  can  not  be  deemed  an  asset  of  the 
corporation.     The  corporation,  therefore,  not  being  en- 
titled to  invoke  the  statutory  right  we  can  not  see  by 

5L.iim  V.  American  Wlieel  &  Vehicle  Co.,  165  Cal.  657,  Ann.  Cas. 
1915A,  816,  133  Pac.  303. 


PRIVATE    CORPORATIONS.  943 

what  construction  the  receiver  could  claim  to  be  entitled 
to  claim  a  right  or  remedy  not  existing  in  the  corporation 
itself.'"^  It  is  commonly  said  that  this  statutory  liability 
is  in  the  nature  of  collateral  security  for  the  creditors 
and  that  because  of  it  the  stockholders  stand  as  pro  tanto 
sureties  for  the  debts  of  the  corporation;'^  and  the  view 
above  expressed,  to  the  effect  that  it  is  not  to  be  enforced 
by  the  receiver,  is  held  even  where  the  statutes  expressly 
vest  all  the  estate  and  assets  of  the  company  in  the  re- 
ceiver,^ 

When  the  receiver  is  viewed  as  the  representative  of 
all  of  the  creditors,  and  when  it  is  considered  that  the 
benefits  of  the  statutes  imposing  added  liability  upon  a 
stockholder  are  generally  limited  to  creditors  whose 
claims  accrued  during  the  period  that  he  owned  stock, 
there  is  no  gainsaying  the  logic  of  these  decisions.  If 
the  receiver  recovered  the  statutory  amounts  for  which 
stockholders  were  liable  and  placed  the  money  in  the 
general  funds  of  the  estate  for  the  benefit  of  all  creditors, 
a  certain  inequality  would  follow  respecting  creditors, 
and  thus  the  rule  that  imposes  upon  the  receiver  an  atti- 
tude of  impartiality  toward  all  parties  interested  in  the 
estate  would  be  violated.*^  Besides  it  being  a  fundamental 
rule  of  corporation  receiverships  that  equality  is  equity, 
such  a  receivership  is  imposed  upon  a  corporate  estate 
to  prevent  a  promiscuous  scramble  for  their  rights 
among  its  creditors,  with  resultant  inequalities  due  to  a 
host  of  circumstances  of  which  some  creditors  could  take 
advantage  one  against  the  other,  and  to  gather  the 
estate  under  the  administration  of  a  court  for  equitable 

eClapp  V.  Smith,  22  N.  M.  153,  454,  20  Blatchf.  525;  Brown  v. 
159  Pac    523.  Allebach,   166  Fed.  488. 

Tin    re    British,    etc.,    Cork    Co.  ^  Bolton   v.   Mayer,   90   Md.   711, 

714,  78  Am.  St.  Rep.  456,  47  L.  R.  A. 
(Leifchild's    Case),    L.    R.    1,    Eq.      g^„    ^^  ^,.    „„^ 

231;    Waterhouse    v.    Jamleson,    2  9  See  Marion  Trust  Co.  v.  Blish, 

Paters  (Scotch)  1812,  L.  R.,  2  H.  L.  170  Ind.  686,  18  L.  R.  A.  (N.  S.) 
<Sc.)  29;  Jacobson  v.  Allen,  12  Fed,      347,  84  N,  E.  814,  85  N,  E,  344. 


944  LAW    OF   RECEIVERS. 

distribution  among  the  various  classes  of  interested 
parties  and  equal  distribution  within  each  class.  This 
situation  would  be  remedied  somewhat  if  the  receiver 
were  permitted  to  marshal  the  added  liability  of  all  the 
stockholders  into  a  special  fund  to  be  apportioned  among 
creditors  entitled  thereto  according  to  their  respective 
rights,  and  creditors  wdio  participated  therein  were  per- 
mitted to  share  in  the  general  fund  of  the  estate  accord- 
ing to  the  balances  of  their  claims  remaining  unpaid. 
But  obviously  this  can  not  be  done  under  statutes  which 
give  the  right  of  action  in  such  matters  solely  to  the 
creditors  as  a  personal  right  of  action.  That  the  receiver- 
ship court  has  the  requisite  machinery  for  permitting 
such  a  marshalling  and  distribution  is  indicated,  to  some 
extent,  by  the  following  language  used  in  connection  with 
the  matter  of  the  collection  of  stock  subscriptions  by  a 
trustee  in  bankruptcy:  ''The  cause  of  action  is  for  the 
unpaid  subscription.  To  the  creditors  it  makes  no  differ- 
ence whether  the  failure  to  pay  was  the  result  of  an  ex- 
press contract  or  the  result  of  fraud.  If  there  could  be 
difference  in  the  rights  of  the  trustee,  it  would  seem 
that  he  ought  to  be  more  bound  by  a  contract  than  by 
fraud.  And  if  the  contract  to  receive  less  in  money  than 
the  face  of  the  stock  will  not  defeat  his  right  to  recover, 
neither  should  it  be  defeated  by  a  fraudulent  agreement 
to  receive  less  in  propert}^  Compare  1  Cook  on  Stock- 
holders, §  47,  with  Elyton  Land  Co.  v.  Birmingham  Co., 
92  Ala.  407, 12  L.  R.  A.  307,  25  Am.  St.  Rep.  79,  9  South. 
129.  For  it  has  long  been  held  in  this  state  that  capital 
stock  is  a  trust  fund  for  the  payment  of  debts.  High- 
tower  V.  Thornton,  8  Ga.  486,  52  Am.  Dec.  412.  The 
liability  on  the  part  of  the  stockholder  to  pay  his  sub- 
scription in  money  or  in  money's  worth  arises  out  of 
his  relation  to  that  trust  fund,  and  is  imposed  by  law. 
.  .  .  This  liability  can  be  enforced  by  the  trustee  in 
bankruptcy.    For  while  he  represents  the  corporation  in 


PRIVATE    CORPORATIONS.  945 

a  sense  he  also  represents  the  creditors.  Inasmuch  as 
all  the  subscribers  who  have  not  paid  in  full  can  be  joined 
as  defendants  in  one  suit  (Dalton  Co.  v.  McDaniel,  56  Ga. 
195  [1]  ;  Moore  v.  Ripley,  106  Ga.  556,  32  S.  E.  647  [1]  ; 
1  Cook  Corp.  §  206),  it  is  manifestly  to  their  interest,  to 
that  of  the  creditors,  and  to  that  of  the  estate,  that  the 
trustee  should  be  permitted  to  be  the  plaintitf  in  that 
action.  It  avoids  a  multiplicity  of  suits.  Civil  Code, 
§3989  [4586];  compare  §§4842,  4846  [5415,  5419].  It 
permits  the  court  to  pass  upon  the  rights  of  the  several 
creditors,  and  to  determine  whether  any  are  precluded 
from  the  right  to  share  in  the  fund  when  realized.  It 
also  enables  the  court  in  one  action  to  have  an  account- 
ing, to  determine  the  varying  rights  of  each  creditor, 
whether  any  of  the  subscribers  are  insolvent,  to  mold  a 
decree  accordingly,  and  to  do  complete  equity  in  one 
proceeding.  "^'^  That  certain  creditors  having  a  special 
equity  in  a  particular  fund  might  proceed  in  the 
receivership  court  to  collect  it  was  suggested  as  a  pos- 
sibility in  the  Indiana  case  that  we  have  just  cited,  in 
which  it  was  held  that  the  receiver,  as  representative  of 
all  of  the  creditors,  could  not  enforce  payment. ^^  There 
is  authority  for  the  proposition  that  a  receiver  may  en- 

10  Allen  V.  Grant,  122  Ga.  552,  50      and,  presumably,  in  reliance  upon 
S.  E.  494.    See  Note  13,  supra.  it.     It  was  in  answer  to  this  con- 

11  Marion    Trust    Co.    v.    Blish,      tention    of   the   receiver   that    the 

court   made   the   ruling   stated    in 


supra.  In  this  case  the  receiver 
sought  to  collect  an  unpaid  stock 
subscription.     The  stockholder  in- 


the  text  and,  in  connection  there- 
with, offered  the  suggestion  men- 
tioned. 


terposed  the  defense  of  false  rep-  j^   ^^^y    ^^    ^^^^   ^^^,^   ^^^^   ^^^^ 

resentations  used  by  the  company  enough    details    are    given   in    the 

to  induce  his  subscription.    To  this  report  of  the  case  to  enable  one 

defense  the  receiver  replied  that,  to   determine    whether   or   not,    if 

on     the     principle    that    innocent  the  receiver  had  responded  to  the 

parties   should  not  be  allowed   to  stockholder's  defense  by  a  charge 

suffer,   this   defense   could   not  be  of  laches,  the  decision  might  have 

held  good  against  those  who  had  been  different.     See  Reel  v.  Bram- 

become  creditors  subsequently  to  mer,  56   Ind.  App.  180,  101  N.  E. 

the    making    of    the    subscription  1043. 
I  Rec— 60 


946  LAW   OF    RECEIVERS. 

force,  for  tlie  benefit  of  the  particular  creditors  inter- 
ested, statutory  liability  placed  upon  directors  for  the 
pawient  of  illegal  dividends.^-    This  is,  of  course,  upon 
the  theory  that  such  dividends   so  paid  were  and  are 
funds  belonging  to  the  corporation.    We  have  seen  also 
that  a  group  of  creditors,  willing  to  bear  the  burden  of 
the  costs,  may  be  permitted  to  contest,  for  their  own  bene- 
fit and  to  the  exclusion  of  creditors  not  joining,  the  valid- 
ity of  a  mortgage. ^^    In  view  of  these  considerations  we 
think  it  may  be  said  that  the  argument  that  the  statutory 
liability  of  a  stockholder  is  merely  collateral  security 
and  is  not  and  never  was  an  asset  of  the  company  to  be 
passed  over  to  the  receiver  is  simply  based  on  the  gen- 
eral  form   of   the   statutes   imposing   the   liability,   not 
merely  the   ' '  rule   of  convenience, ' '  which   operates   at 
many  stages  of  the  receivership  proceedings.^^     How^ 
ever  all  this  may  be,  the  general  rule  is  that,  unless  per- 
mission to  enforce  this  liability  is  expressly  bestowed 
upon  the  receiver  by  statute,  he  has  no  authority  to  do 
so.i^    In  some  jurisdictions  the  right  is  expressly  granted 
to  the  receiver  by  statute. 

12  Metzger  v.  Joseph,  111  Miss.  Bank  v.  Ellis,  172  Mass.  39,  70 
385,  71  So.  645.  Am.  St.  Rep.  322,  42  L.  R.  A.  396, 

13  Equitable  Trust  Co.  v.  Great  51  N.  E.  207;  Clapp  v.  Smith,  22 
Shoshone,  etc.,  W.  P.  Co.,  245  Fed.  N.  M.  153,  159  Pac.  523. 

697   158  C.  C.  A.  99.  A    receiver's    action    based    on 

(A  writ  of  certiorari  in  the  above  stockholder's     statutory     liability 

case  is  pending  in  United  States  can  not  be  justified  on  the  theory 

Supreme  Court.)  that  it  is  an  action  by  one  of  a 

14  Fell  V.  Securities  Co.  (Del.  class  in  favor  of  all.  Hammond  v. 
Ch.),  100  Atl.  788;  Graves  V.Denny,  Cline,  170  Ind.  452,  84  N.  E.  827. 
15  Ga.  App.  718,  84  S.  E.  187.  Such  an  action  can  not  be  justified 

15  Republic  Iron  &  Steel  Co.  v.  as  being  based  on  an  order  of  court 
Carlton,  189  Fed.  126;  Jacobson  v.  levying  an  assessment  against 
Allen,  12  Fed.  454,  20  Blatchf.  525;  stockholders  on  such  liability,  since 
Tiger  Shoe  Mfg.  Co.'s  Trustee  v.  the  court,  being  without  jurisdic- 
Shanklin,  125  Ky.  715,  102  S.  W.  tion  of  the  subject  matter,  had  no 
295;  Colton  v.  Mayer,  90  Md.  711,  authority  to  make  the  order.  Idem. 
714,  78  Am.  St.  Rep.  456,  47  L.  R.  A.  Where  a  receiver  can  not  en- 
617,    45    Atl.    874;     Hancock    Nat.  force  a  stockholder's  statutory  lia- 


PRIVATE    CORPORATIONS.  947 

Several  states,  Minnesota,  Ohio,  and  Kansas  among 
others,  have  statutes  expressly  relating  to  the  enforce- 
ment of  the  stockholder's  statutory  liability  and  pro- 
viding for  the  appointment  of  a  receiver  to  collect  the 
amounts  due.    It  may  be  said,  as  generally  applicable  to 
the  statutes,  that  they  provide  for  a  liability  that  is 
secondary  and  contingent  while  the  corporation  is  a  going 
concern  but  which  become  primary  and  enforceable  upon 
the  insolvency  of  the  corporation.    The  proceedings  under 
the  statutes  have  a  two-fold  purpose,  (1)  the  levying  of 
an  assessment  upon  the  stockholders ;  that  is,  the  issuing 
of  a  decree  declaring  the  amount  which  each  stockholder 
is  liable  to  pay;  and   (2)   the  enforcement  of  payment 
under  the  assessment.    The  first  purpose  is  accomplished 
in  a  proceeding  commenced  in  the  home  jurisdiction  of 
the  company;  and,  in  so  far  as  the  court,  before  which 
this  proceeding  is  had,  is  able,  under  the  general  prin- 
ciples of  law  relating  to  the  jurisdiction  of  a  court  to 
render  a  money  judgment  against  a  defendant  not  per- 
sonally served  with  process  and  not  voluntarily  appear- 
ing and  submitting  to  the  court's  jurisdiction,  to  obtain 
the  necessary  jurisdiction,  the  second  purpose  is  also 
accomplished  in  this  same  proceeding.    For  the  purpose 
of  enforcing  the  collection  of  the   assessment  against 
stockholders  who  can  not  lawfully  be  made  amenable  to  a 
money  judgment  rendered   by  the   home   court  in   the 
proceeding   mentioned    a    receiver    is    appointed.      The 
questions    that    usually    arise    in    actions    brought    by 
such  a  receiver  are:     (1)   The  capacity  of  the  receiver 
to  sue,^  especially  in  a  foreign  jurisdiction ;  (2)    the  extent 
to  w^hich  the  stockholder,  as  being  represented  in  the 

bility  a  creditor  may  enforce  his  ration  for  conducting  business  in 

own  right  thereto  pending  the  re-  the   name   of  the   corporation    be- 

ceiversliip   proceedings.  fore  sufficient  stock  has  been  sold 

On  a  theory  similar  to  that  that  to   warrant  its   engaging  in   busi- 

applies  to  a  stockholder's  statutory  ness  can"  not  be  collected  by  the 

liability,   a   statutory   liability   im-  receiver.      Wells    v.    Du  Bose     140 

posed  upon  organizers  of  a  corpo-  Ga.  187,  78  S.  E.  715, 


948  LAW    OF    RECEIVERS. 

parent  proceedings  by  the  corporation  itself,  is  bound 
by  the  assessment  decree  therein  made;  and  (3)  the  bear- 
ing of  the  statutes  of  limitation.  Naturally  enough,  these 
statutes  are  widely  variant  as  found  in  the  different  juris- 
dictions, and  in  any  particular  jurisdiction  are  subject  to 
frequent  amendment.  Decisions  under  them  are  there- 
fore not  of  general  application  and  must  be  read  in  the 
light  of  the  particular  statutes  which  they  interpret.  Much 
confusion  has  arisen  in  respect  to  this  phase  of  the  subject 
as  applied  to  receiver  by  reason  of  the  failure  of  the  court 
to  note  the  fact  in  its  opinion  that  a  particular  decision 
was  rendered  under  the  particular  phraseology  of  a  stat- 
ute on  this  subject.  And  a  like  confusion  has  undoubtedly 
been  caused  by  arguments  of  counsel  based  on  reasoning 
found  in  decisions  based  on  statutory  construction  with- 
out giving  due  consideration  to  the  phraseology  of  the 
statute  which  was  involved  in  the  case.  Cases  are  cited, 
however,  sufficient  in  number  and  sufficiently  varied  in 
character,  we  believe,  to  enable  the  practitioner  to  get  a 
good  view  of  the  general  principles  applicable  to  the  sub- 
ject and  to  enable  him  to  form  an  accurate  opinion  as  to 
the  proper  conclusion  under  a  given  statute  in  any  par- 
ticular case.^*^ 

10  Irvine  v.  Elliott,  203  Fed.  82;  Where  under  the  express  provi- 
Mottinger  v.  Hendricks,  208  Fed.  sions  of  the  statute  the  authority 
824-  Irvine  v  Baker,  225  Fed.  834;  to  maintain  an  action  to  enforce 
Irvine  v.  Putnam.  190  Fed.  321,  167  a  liability  of  stockholders  .respect- 
Fed  174;  Goss  v.  Carter,  156  Fed.  ^"^  ^^^ts  of  the  corporation  is 
_  .  ,^^  „  ,  given  to  a  receiver,  he  becomes  a 
746,    84    C.   C.   A.    402;    French   v.  ^       .         .                  ' 

quasi  assignee  and  representative 

Busch,    189   Fed.    480;    Walters   v.  ^^  ^^^^  creditors  for  that  purpose, 

Porter,  3  Ga.  App.  73,  59  S.  E.  452;  ^^^^  j^^gy  g^^  jq^  that  purpose  in  a 

Hamilton    v.    Eisendrath,    185    111.  foreign   jurisdiction.      Bernheimer 

App.    502;    Elson    v.    Wright,    134  y.  Converse,  206  U.  S.  516,  51  L.  Ed. 

Iowa  634,  112  N.  W.  105;  Converse  1163,  27  Sup.  Ct.  755;  Drey  v.  Con- 

V.  Ayer,  197  Mass.  443,  84  N.  E.  98;  verse,  206  U.  S.  516,  51  L.  Ed.  1163, 

Olson  V.  Warroad  Mercantile  Co.,  27  Sup.  Ct.  755;  Converse  v.  Ham- 

136  Minn.  310,  161  N.W.  713;  Hunt  ilton,    224    U.    S.    243,    Ann.    Cas. 

V.   Hauser   Malting   Co.,   90   Minn.  1913D,  1292,  5G  L.  Ed.  749,  32  Sup. 

282,  96  N.  W.  85.  Ct.    415;     Selig    v.    Hamilton,    234 


PRIVATE    CORPORATIONS.  949 

B.    T>iif>/  of  Breeivcr  Toward  Contracts  of  Corporation  and  of  Himself. 

§  359.     Litigation  Concerning  the  Receiver's  Own  Transactions. 

After  the  receiver  assumes  control  of  the  corporate 
property  and  the  management  of  the  business,  he  occu- 
pies toward  the  property  and  the  business,  as  far  as  third 


U.  S.  652,  Ann.  Cas.  1917A,  104,  58 
L.  Ed.  1518,  34  Sup.  Ct.  926. 

A  receiver  of  an  insolvent  cor- 
poration was  entitled  to  set  off  the 
amount  due  from  a  stockholder  on 
his  statutory  liability  for  debt  of 
the  corporation  against  the  claim 
of  the  stockholder's  estate  for 
money  due  from  the  corporation. 
Coyle  V.  Taunton  Safe  Deposit  & 
Trust  Co.,  216  Mass.  156,  103  N.  E. 
288. 

The  statutory  liability  of  a  stock- 
holder does  not  include  liability  for 
the  expenses  of  the  receivership. 
Idem. 

An  order  of  court  levying  an  as- 
sessment for  statutory  liability 
against  stockholders  of  a  corpora- 
tion belonging  to  a  class  of  corpo- 
rations whose  stockholders  are  by 
statute  expressly  exempt  from 
such  liability  is  void  and  can  not 
serve  as  a  valid  foundation  for  a 
receiver's  action  against  stock- 
holders; the  charter  is  determina- 
tive of  the  character  of  the  cor- 
porate business  for  this  purpose. 
Marin  v.  Augedahl,  32  X.  D.  536, 
156  N.  W.  101. 

A  judgment  creditor  on  a  lost 
claim  is  entitled  to  the  benefit  of 
the  stockholder's  liability  to  be 
collected  by  the  receiver.  Henley 
V.  Myers,  76  Kan.  723,  17  L.  R.  A. 
(N.  S.)   779,  93  Pac.  168,  173. 

The  statutes  of  limitation  on  a 
receiver's    claim   against   a   stock- 


holder for  his  statutory  liability 
begin  to  run  from  the  time  of  the 
entry  of  a  decree  making  an  as- 
sessment. Irvine  v.  Putnam,  167 
Fed.  174.  See  Shipman  v.  Tread- 
well,  208  N.  Y.  404,  102  N.  E.  634; 
209  N.  Y.  545,  102  N.  E.  1113;  Ir- 
vine v.  Bankard,  181  Fed.  206.  It 
is  to  be  remembered  in  connection 
with  these  actions  that,  since  re- 
ceivers authorized  to  enforce  the 
statutory  liability  are,  as  a  rule, 
vested  by  statute,  with  the  legal 
title  to  assets  which  they  are  au- 
thorized to  claim,  and  may,  there- 
fore, sue  in  their  own  name  in  any 
jurisdiction,  the  statute  under  con- 
sideration in  any  case  may  be  a 
statute  of  jurisdiction  different 
from  that  in  which  the  action  is 
pending.  See  Irvine  v.  Elliott,  20"3 
Fed.  82.  As  to  whether  or  not  a 
statute  amending  the  law  so  as  to 
make  this  liability  enforceable 
only  by  a  receiver  instead  of  by 
each  creditor  in  his  own  behalf  is 
obnoxious  to  the  constitutional  in- 
hibition against  the  impairment  of 
contracts  as  to  the  stockholder. 
See  Henley  v.  Myers,  76  Kan.  723, 
17  L.  R.  A.  (N.  S.)  779,  93  Pac.  168, 
173;  as  to  creditors,  see  Harrison 
v.  Remington  P.  Co.,  140  Fed.  385, 
5  Ann.  Cas.  314,  3  L.  R.  A.  (N.  S.) 
954,  72  C.  C.  A.  405. 

The  citizenship  of  the  receiver, 
and  not  of  the  creditor,  determines 
the  jurisdiction  of  a  federal  court. 
Irvine  v.  Bankard,  181  Fed.  206. 


950  LAW    OF    RECEIVERS. 

parties  are  concerned,  a  position  similar  to  that  of  any 
private  owner.  He  protects  the  property  of  the  estate 
from  interference  with  or  injury  by  the  acts  of  others  and 
if  his  rights  in  these  matters  are  violated  he  has  the  same 
remedies  as  any  owmer  would  have.  On  the  other  hand 
it  is  incumbent  upon  him  to  use  and  manage  the  jjroperty 
with  due  regard  to  the  rights  of  others ;  he  must  exercise 
tlie  same  degree  of  care  tow^ard  others  in  this  regard  as 
^^any  owner  is  required  to  exercise,  and  if  others  arc 
injured  through  negligence  in  the  performance  of  his 
duties  in  this  regard  he  is  liable  as  an  owner  w^ould  be. 
The  same  thing  is  true  of  his  transactions  in  the  operation 
of  the  business  of  the  corporation.  Those  wdio  deal  with 
him  do  so  as  they  would  with  any  private  business  person, 
subject  to  the  limitation  that  they  are  presumed  to  know 
that  he  has  authority  to  act  only  within  the  lines  pre- 
scribed by  the  court.  lie  may  enforce  his  own  contracts 
and  they  may  be  enforced  against  him  just  as  if  he  were 
acting  in  his  own  behalf.  Since  in  these  matters  he  is 
acting  for  the  court,  and  in  reality  it  is  the  court  that  is 
acting  through  its  officer,  or  servant,  or  agent,  the  receiver 
may  sue  or  be  sued  concerning  them  without  previous  per- 
mission of  the  court,  and  the  receiver  sues  or  is  sued  in 
his  own  name.^ 

1  See  Butterworth  v.  Degnon  C.  Co.,  53  Hun  636,  6  N.  Y.  Supp.  735; 

Co.,  214  Fed.  772,  744,  131  C.  C.  A.  Singerly  v.  Fox,  75  Pa.  li2;    Gui- 

184;  Ames  v.  American  Telephone  marin    &    Co.    v.    Southern,    etc., 

&    Telegraph    Co.,    166    Fed.    820;  Trust  Co.,  100  S.  C.  12,  84  S.  E.  298. 


Breed  v.  American  Tel.  &  Tel.  Co., 
166  Fed.  825;   Wason  v.  Frank,  7 


When  the  receiver  sues  an  as- 
signee for  the  benefit  of  creditors 
to  recover  property  in  the  latter's 
Colo.  App.  541,  44  Pac.  378;  Pou-  ^^^^^^^^^^  ^e  is  not  subject  to  the 
der  V.  Catterson,  127  Ind.  434,  26  imitations  placed  upon  a  creditor 
N.  E.  66;  Maxwell  v.  Missouri  Val-  suing  a  similar  defendant  with  ref- 
ley  Ice,  etc.,  Co.,  181  Iowa  108,  164  erence  to  the  necessity  of  making 
N.  W.  329;  Wilson  v.  Welch,  157  a  previous  demand,  proving  a 
Mass.  77,  31  N.  E.  712;  Robinson  v.  claim,  etc.  .American  Bonding  Co. 
Mills,  25  Mont.  391,  65  Pac.  114;  v.  WMlliams,  62  Tex.  Civ.  App.  319, 
Farnsworth  v.  Western  Union  Tel.       131  S.  W.  652. 


PRIVATE    CORPORATIONS. 


951 


It  may  be  said  that  in  all  actions  in  wbicli  a  receiver 
is  a  party,  those  relating  either  to  his  own  transactions 
or  the  transactions  of  the  receivership  company,  apart 
from  such  details  as  are  affected  by  the  fact  that  a  re- 
ceiver is  a  party,  all  issues  raised  and  all  questions  re- 
lating to  matters  of  procedure  and  the  like  are  governed 
by  the  same  rules,  or  principles,  of  law  or  equity  as  would 
control  in  litigation  between  parties  associated  wdth  the 
action  in  a  purely  private,  or  individual  capacity.- 


2  Allen  V.  Roydhouse,   232  Fed. 
1010  (standard  of  duty  of  a  corpo- 
ration    director;     instructions     to 
jury).    Wright  v.  Ankeny,  217  Fed. 
985.     (Where  several  stockholders 
are  sued  in  one  action  on  their  sub- 
scriptions    to     stock     the     action 
against  each  is  regarded  as  a  sev- 
eral and  independent  action  so  far 
as  the  right  to  move  the  suit  from 
a  state  to  a  federal  court  is  con- 
cerned.)    Peck  V.  Elliott,  79  Fed. 
10,  24  C.  C.  A.  425,  38  L.  R.  A.  616 
(right  of  corporation  to  increase 
its  stock;   presumption  as  to  pay- 
ment of  tax   on   increase   stock). 
Hollander  v.  Heaslip,  222  Fed.  808, 
137  C.  C.  A.  1  (effect  of  condition 
in   a  contract).     Pittsburgh,    etc., 
Co.  v.  Duncan,   232   Fed.   584,   146 
C.  C.  A.  542   (relation  of  one  cor- 
poration to  another  as  determined 
by  ownership  of  stock  in  one  by 
the  other).     Rowland  v.  Corn,  232 
Fed.  35,  146  C.  C.  A.  227  (standard 
of  duty  of  a  director  when  selling 
his  own  property  to  the  company; 
difference  between  charge  of  con- 
spiracy   in    a    civil    and    a    crim- 
inal action).     Wright  v.  Ankeny, 
supra    (right   to   sue   non-resident 
for  a  money  judgment).    Brown  v. 
Allebach,  166  Fed.  488  (sufficiency 
of  notice  to  meet  statutory  require- 
ment).   French  v.  Busch,  189  Fed. 


480    (sufficiency    of    pleading    the 
giving  of  statutory  notice;    neces- 
sity   for    pleading    place    of    pay- 
ment).     Schofield    V.    Baker,    242 
Fed.  657  (filing  cost  bill).    Lusk  v. 
Batkin,  240  U.  S.  236,  60  L.  Ed.  621, 
36  Sup.  Ct.  263   (validity  of  state 
tax  on  foreign  corporation).     Val- 
lery   v.    Denver,   etc.,    R.    Co.,    236 
Fed.  176,  149  C.  C.  A.  366  (standard 
of  duty  of  a  corporation   owning 
control  of  stock  in,  and  controlling 
directors   of   another).      Noyes    v. 
Wood,  247  Fed.  72,  159  C.  C.  A.  290 
(standard  of  duty  of  directors  in 
dealing  with  company  concerning 
their  own  interests).    James  Brad- 
ford Co.  V.  United,  etc.,  Co.   (Del. 
Ch.),  95  Atl.  308  (whether  contract 
usurious  or  not).    Graves  v.  Denny, 
15  Ga.  App.  718,  84  S.  E.  187  (effect 
of  plea  of  general  issue  in  suit  on 
unconditional  contract  in  writing). 
Lynn  v.   McCue,  94  Kan.  761,  147 
Pac.  808  (whether  or  not  contract 
is     usurious;      whether     sale     of 
pledged  property  amounted  to  con- 
version;   necessity    for    tendering 
payment  of  debt  in  action  for  con- 
version of  pledged  property).  Hop- 
per V.  Brodie,  130  Md.  443,  100  Atl. 
644    (venue   where   several    defen- 
dants).    Olson  V.  Warroad  M.  Co., 
136  Minn.  310,  161  N.  W.  713   (au- 
thority of  agent  to  bind  company; 


952  LAW    OF    RECEIVERS. 

§  359a.    Duty  of  Receiver  Respecting  Executory  Contracts. 

We  have  just  been  consideriug  one  exception  to  the 
general  rule  that  the  receiver,  deriving  his  title  under 
and  through  the  company,  takes  the  estate  as  he  finds  it, 
acquiring  all  the  company's  rights  and  assets,  and  being 
subject  to  all  of  its  obligations  and  liabilities.  This  excep- 
tion is  to  the  effect  that  tlie  receiver  may,  under  certain 
circumstances,  disaffirm  the  acts  of  the  corporation  and 
recover,  for  the  benefit  of  creditors,  assets  that,  once 
belonging  to  the  company,  had  been  lost  to  it  before  the 
initiation  of  the  receivership.  This  exception  tended  to 
benefit  the  creditors  by  increasing  the  assets  of  the  estate. 
We  have  now  to  consider  another  exception  to  the  general 
rule  concerning  the  receiver's  title:  an  exception  that 
tends  to  benefit  those  interested  in  the  estate  by  reducing 
its  liabilities. 

This  exception  has  to  do  with  executory  contracts  of 
the  corporation  in  force  at  the  time  of  the  appointment 
of  the  receiver.  The  general  duty  of  a  receiver  respect- 
ing executory  contracts  has  been  previously  discussed 
and  the  general  rules  therein  set  forth  are  applicable  to 
corporation  receivers.^  That  appointment  and  the  pass- 
ing over  of  the  entire  control  of  the  corporate  business 
to  an  officer  of  the  court,  puts  it  out  of  the  power  of  the 
company  to  perform  its  end  of  any  such  contract.  There 
results,  therefore,  a  breach  of  the  contract,  as  far  as  the 
company  is  concerned,  giving  a  cause  of  action  for  dam- 
ratification  of  agent's  acts).  Metz-  defendants).  Underbill  v.  Rutland 
ger  V.  Joseph,  111  Miss.  385,  71  So.  R.  Co.,  90  Vt.  462,  98  Atl.  1017  (au 
645  (whether  statute  penal  or  not  thority  of  agent  to  bind  company; 
as  affecting  period  of  limitation  ratification  of  agent's  acts).  Rea 
of  action).  Clapp  v.  Smith,  22  v.  Eslick,  87  Wash.  125,  151  Pac. 
N.  M.  153,  159  Pac.  523  (effect  of  256  (whether  contract  community 
amendment  of  remedial  statute  on  obligation  or  that  of  individual 
pending  suit).    Holcombe  v.  Ames,      spouse). 

87  N.  J.  Eq.  486,  100  Atl.  609  (re-  i  See  §§  34  et  seq..  supra.  And  in 

moval  of  action  from  state  to  fed-      respect     to     public     utilities,     see 
eral  court  where  there  are  several      chapter  devoted  to  that  topic. 


PRIVATE    CORPORATIONS.  953 

figes  to  the  other  party  if  he  is  ready,  willing  and  able 
to  perform.    If  the  matter  stopped  there,  and  the  receiver 
had  nothing  further  to  do  than  to  receive  a  claim  for  dam- 
ages and  see  that  it  was  properly  recognized  on.  distribu^ 
tion,  then  the  course  of  proceeding  would  be  in  accord- 
ance with  the  general  rule.     But  such  is  not  the  course 
allowed  by  equity.     The  receiver  is  given  the  right  to 
determine  whether  or  not  the  contract  was  a  prudent 
one  for  the  company  to  enter  into.    If  the  receiver  were 
compelled  to  carry  out  the  contract,  transactions  under  it 
would  be  in  his  own  name  and  any  liabilities  accruing 
therefrom  would  be  expenses  of  the  receivership  itself, 
and  under  the  general  rule  of  priorities  on  distribution 
would  be  entitled  to  be  paid  ahead  of  the  claims  of  gen- 
eral creditors  of  the  company.    Since,  in  many  instances, 
the  condition  of  the  company's  affairs  that  warrants  the 
creation  of  a  receivership  is  due  to  the  assumption  by  the 
company  of  improvident  and  ruinous  contracts,  through 
inefficiency  or  carelessness,  or,  perhaps,  even  fraud  on 
the  part  of  its  managers,  and  since  the  other  party  to  the 
contract  is  presumed  to  have  known  of  its  real  character 
and  value,  it  is  considered  inequitable  to  place  upon  the 
general  creditors,  wiiose  contracts  have  been  completed 
and  whose  claims  will  probably  not  be  paid  in  full,  any 
further  burdens  from  the  continuance  of  the  contract; 
and  the  receiver  is  given  the  right  to  reject,  or  disaffirm, 
it,  if  he  decides  that  such  would  be  the  outcome  of  his 
operating  under  it.     He  is  appointed,  rather  to  protect 
and  preserve  the  property  placed  in  his  charge  than  to 
execute  contracts  made  by  its  owner.   On  the  other  hand, 
if  the  contract  turns  out  to  be  a  meritorious  one  in  the 
hands  of  the  receiver  and  one  whose  continuance  would 
work  to  the  benefit  of  the  general  creditors,  it  is  not  con- 
sidered inequitable  to  give  him  the  right  to  adopt  it  and 
compel  the  other  party  to  do  for  him  what  it  had  con- 


954  LAW    OF    RECEIVERS. 

traded  to  do  for  the  company.^  The  rule  in  this  respect 
has  been  stated  as  follows :'^  ''The  general  rule  laid  down 
is  that  a  receiver  is  not  liable  upon  the  covenants  and 
contracts  of  the  person  or  corporation  for  whose  prop- 
erty he  is  appointed  receiver,  unless  he  adopts  the  con- 
tracts as  his  own.  The  general  rule  is  that  no  executory 
contract  is  binding  upon  the  receiver  until  adopted  by 
him.  It  is,  however,  his  duty  to  refuse  to  be  bound  by 
any  contract  which  would  prove  burdensome,  or  imperil 
the  fund  intrusted  to  his  care  as  receiver." 

It  is  his  duty  to  investigate  for  the  purpose  of  deter- 
mining w^hat  election  to  make,  and  he  is  entitled  to  reason- 
able time  for  this  purpose.  Speaking  of  an  instance  in 
which  the  receiver,  for  the  purpose  of  determining  what 
course  to  pursue,  had  performed  a  portion  of  the  part  of 
the  contract  remaining  unfilled  at  the  time  of  his  appoint- 
ment, the  court  said  :^  ' '  It  seems  to  us  that  he  pursued 
the  proper  course.  On  taking  possession  as  receiver,  he 
found  a  contract  which  might  develop  into  an  exceedingly 
valuable  asset.  Had  he  repudiated  it,  without  investiga- 
tion, he  would  have  been  guilty  of  a  clear  dereliction  of 
duty.  He  was  in  duty  bound  to  proceed  with  the  con- 
tract if  it  were  beneficial  to  the  estate  administered  by 
him  and  to  abandon  it  if  not  beneficial.  He  had  a  reason- 
able time  to  investigate  before  deciding  this  problem. 

2  Curtis  V.  Walpole,  etc.,  Co.,  227  etc.,  Co.,  227  Fed.  698;  Du  Pont  v. 
Fed.  698;  Maxwell  v.  Missouri  Val-  Standard  Arms  Co.,  9  Del.  Ch.  315, 
ley  Ice,  etc.,  Co.,  181  Iowa  108,  164  81  Atl.  1089;  Spencer  v.  World's 
N.  W.  329;  Brown  v.  Warner,  78  Columbian  Exposition,  163  111.  117, 
Tex.  543,  22  Am.  St.  Rep.  67,  11  45  N.  E.  250;  Fountain  v.  Stickney, 
L.  R.  A.  394,  14  S.  W.  1032;  Scott  145  Iowa  167,  139  Am.  St.  Rep.  410, 
V.  Rainier  P.,  etc.,  Co.,  13  Wash.  123  N.  W.  947;  Brown  v.  Warner, 
108,  42  Pac.  531.  supra;    Scott  v.  Rainier,  etc.,  Co., 

3  Maxwell  v.  Missouri  Valley  Ice,  supra. 

etc.,  Co.,  181  Iowa  108,  164  N.  W.  The  rule  stated  above  is  not  ob- 

329.  viated  by  the  fact  that  the  com- 

4  Butterworth  v.  Degnon  Con-  pany  may  appear  to  be  solvent, 
tracting  Co.,  214  Fed.  772,  131  Empire  Distilling  Co.  v.  McNulta, 
C.   C.   A.   184;    Curtis   v.   Walpole,  77  Fed.  700,  23  C.  C.  A.  415. 


PRIVATE    CORPORATIONS.  955 

...    He  had  no  riglit  to  go  on  with  a  contract  which  q 

was  certain  to  subject  the  creditors,  whose  interest  he 
was  bound  to  protect,  to  additional  loss." 

As  stated  above,  an  executory  contract  is  not  binding 
upon  the  receiver  until  he  adopts  it ;  it  is  not  one  that  is 
binding  upon  him  until  he  disaffirms  it.  Parties  to  flie 
corporate  contracts  are  supposed  to  know  this  rule.  A 
party  to  a  contract  may  at  any  time,  especially  when  occa- 
sion for  some  performance  under  it  arises,  call  upon 
the  receiver  to  announce  his  election  or  may  call  upon 
the  court  to  make  any  equitable  order  to  protect  his 
rights  pending  the  receiver's  decision.^  But,  in  the  ab- 
sence of  such  an  order,  or  an  express  understanding  with 
the  receiver,  or  conduct  on  the  part  of  the  receiver 
amounting  to  and  binding  as  an  adoption  of  the  con- 
tract, any  performance  by  the  receiver  is  not  to  be  under- 
stood as  being  under  the  contract,  and  any  liability  accru- 
ing in  favor  of  the  receiver  from  such  performance  is 
to  be  adjusted  on  a  quantum  meruit  basis  since  the 
services  due  were  rendered  by  the  receiver  as  a  receiver 
and  not  by  the  corporation.^  If  a  contract  is  indivisible  a 
receiver  may  not  adopt  part  and  reject  the  rest;  he  must 
adopt  or  reject  it  as  a  whole  ;^  neither  may  a  receiver, 
without  an  order  of  court,  make  a  binding  agreement 
as  to  any  material  modification  of  the  terms  of  an  execu- 
tory contract.*^ 

If  the  receiver  rejects  the  contract,  then  it  is  considered 
that  there  has  been  a  breach  thereof  as  of  the  time  of  the 
appointment  of  the  receiver.  Since  the  company  is  held 
responsible  for  the  fact  of  the  receivership,  and  on  the 
theory  that  the  receivership  was  caused  by  the  company's 

5  See  Hanna  v.  Florence  Iron  Co.,  222  N.  Y.  290,  118  N.  E.  629; 
Guimarin  &  Co.  v.  Southern,  etc..  Trust  Co.,  100  S.  C.  12,  84  S.  E.  298. 

ti  Butterworth  v.  Degnon  Contracting  Co.,  214  Fed.  772,  131  C.  C,  A. 
184. 

7  Hanna  v.  Florence  Iron  Co.,  222  N.  Y.  290,  118  N.  E.  629. 

8  St.  Joseph  Gas  Co.  v.  Barker,  243  Fed.  206. 


956  LAW   OF   RECEIVERS. 

own  acts,  the  other  party  is  entitled  to  damages  for  the 
breach,  to  be  measured  as  they  would  be  measured  be- 
tween the  company  and  the  other  party,  irrespective  of 
the  fact  that  a  receivership  has  intervened.  If  the  dam- 
ages can  be  measured  by  any  method  of  computation  gen- 
erally recognized  in  such  cases,  as,  for  instance,  the 
breach  of  a  contract  to  purchase  merchandise,  where  ex- 
pected profits  would  be  the  measure  of  damages,  a  claim 
therefor  may  be  presented  against  the  estate  in  the  same 
manner  as  any  other  claim  is  presented.  The  claim  ranks 
as  that  of  a  general  creditor.^ 

If,  pursuant  to  the  terms  of  the  contract,  and  prior  to 
the  receivership,  steps  have  been  taken  to  claim  a  breach 
on  account  of  failure  of  the  company  to  comply  with  its 
provisions,  the  receiver  is  bound  thereby,  and  he  must 
remedy  the  situation  within  the  required  time  or  a  breach 
will  be  established.^" 

§  360.     Position  of  Receiver  Toward  Leases  of  the  Corporation. 

Leases  stand  upon  the  same  footing  as  other  executory 
contracts.  The  receiver  has  a  reasonable  time  in  which 
to  determine  whether  or  not  the  lease  shall  be  continued. 
If  he  abandons  the  lease  the  landlord  has  a  claim  for 
damages,  the  measure  thereof  being  the  same  as  in  any 

9  Curtis   V.    Walpole    Tire,    etc.,      breach  is  viewed  as  produced  by 
Co.,  227  Fed.   698;    Malcomson  v.      operation  of  law.    People  v.  Globe, 
Wappoo  Mills,  88  Fed.  680;   Penn-      etc.,  Ins.  Co.,  91  N.  Y.  174.     See, 
svlvania  Steel  Co.  v.  New  York  C.      ^^  ''^  ^^^^^n  &  Co.,  175  Fed.  312. 
Ry.  Co.,  198  Fed.  721,  117  C.  C.  A.  ^  previous  demand  upon  the  of- 

fleers  of  the  receivership  company 


503;    Wells  v.   Hartford,  etc.,   Co., 
76  Conr.  27,  55  Atl.  599;   Maxwell 


to  perform  the  contract  is  not  es- 
sential   to    the    institution    of    an 


v.  Missouri  Valley  Ice,  etc.,  Co.,  ^^^.^^  ^g^j^g^  ^^^  receiver  for  a 
181  Iowa  108,  164  N.  W.  329.  breach.  Chas.  E.  &  W.  F.  Peck  v. 
A  different  rule  may  prevail  Southwestern  Lumber  &  Export- 
where,  the  receiver  being  ap-  ing  Co.,  131  La.  177,  59  So.  113. 
pointed  in  a  case  conducted  by  the  lo  In  re  Ross  &  Son,  10  Del.  Ch. 
state  and  looking  toward  the  disso-  434,  95  Atl.  311;  Kuebler  v.  Haines, 
lution     of     the     corporation,     the  229  Pa.  274,  78  Atl.  141. 


PRIVATE    CORPORATIONS.  957 

case  of  a  breach  of  a  covenant  to  lease  by  a  lessee.^  For 
the  period  that  he  occupies  the  property,  or  retains  pos- 
session of  it  under  the  lease,  the  receiver  pays  only  rea- 
sonable rental;  the  claim  for  this  rental  ranks  as  an  ex- 
pense of  the  receivership.^  If  the  landlord  has  a  statu- 
tory, or  other  lien,  for  his  rent,  this  survives  the  appoint- 
ment of  a  receiver.^  If  the  receiver  adopts  the  lease  he 
pays  the  covenanted  rental  and  the  charge  is  an  expense 
of  the  receivership.^  The  general  rules  applicable  to 
leases  held  by  one  over  whom  a  receiver  is  appointed 
were  discussed  in  the  subdivision  devoted  particularly 
to  leases.^ 

E.    Management  of  the  Property  as  a  Going  Concern. 

§  381.     Conducting  Property  or  Business  as  a  Going  Concern. 

The  propriety  of  the  receiver  conducting  the  business 
of  the  receivership  as  a  going  concern,  where  it  consists 
of  a  mercantile  or  other  commercial  business,  is  not  now 
seriously  questioned  and  courts  as  a  matter  of  course 
authorize  receivers  to  so  conduct  the  business  of  receiver- 
ships with  the  view  to  preserving  the  business  as  a  going 
concern  pending  the  litigation,  if  a  sale  of  the  receiver- 
ship property  is  not  contemplated,  and  if  such  a  sale  is 
contemplated  as  the  ultimate  end  of  the  receivership  for 
the  purpose  of  selling  the  property  to  the  best  advan- 
tage.^   In  the  earlier  cases,  the  courts  were  undoubtedly 

1  In  re  Mullings  Clothing  Co.,  rental  as  it  accrues,  it  has  been 
238  Fed.  58,  151  C.  C.  A.  134;  held  that  the  court  may  compel 
Woodland  v.  Wise,  112  Md.  35,  190,  the  landlord  to  leave  the  receiver 
76  Atl.  502.  in  undisturbed  possession  and  rely 

2  Atkinson  &  Co.  v.  Aldrich  C.  upon  a  sale  of  the  corporation  as- 
Co.,  248  Fed.  134.  sets   for  his   compensation.     Parr 

3  C.  T.  Patterson  Co.  v.  Port  v.  Blue  Ridge  Coal  Co.,  72  W.  Va. 
Barre  Lumber  Co.,  136  La.   60,  66  174,  77  S.  E.  894. 

So.   418.  ^  See  §  235,  supra. 

4  If  the  court  desire  the  receiver  i  Guaranty  Trust  Co.  v.  Interna- 
to  continue  as  lessee  but  there  are  tional  Steam  Pump  Co.,  231  Fed. 
not    funds    on    hand    to    pay    the  594,   145  C.   C.   A.   480;    American 


958  LAW   OF   RECEIVERS. 

reluctant  to  operate  a  business  througli  a  receiver,  but 
where  the  duration  of  the  receivership  was  apparently 
temporary  and  the  necessity  of  operation  was  apparent 
in  order  to  preserve  the  good  will,  which  was  often  the 
greatest  element  of  value  of  a  business,  they  very  nat- 
urally authorized  the  receiver  to  conduct  operations  until 
it  could  be  determined  what  final  disposition  of  the  receiv- 
ership property  would  be  necessary. 

Where  a  receivership  is  created  in  a  suit  which  does  not 
involve  the  dissolution  of  the  corporation,  it  is  generally 
expected  that  the  receivership  property  will  be  restored 
to  the  corporation  when  the  issues  in  the  case  have  been 
decided,  and  naturally  the  preservation  of  the  property, 
if  it  be  a  business  property,  necessarily  involves  the  con- 
tinuation of  the  business  by  the  receiver  pending  the 
receivership  so  as  to  prevent  loss  and  continue  it  as  a 
going  business. 

When,  however,  the  purpose  of  the  action  in  which  the 
receiver  has  been  appointed  is  the  dissolution  of  the  cor- 
poration, then  a  question  is  naturally  presented  as  to 
whether  it  is  for  the  best  interests  of  the  receivership  to 
continue  the  business  with  a  view  to  selling  it  as  a  going 
business  or  to  close  up  its  affairs  with  the  least  possible 
delay.  Where  the  dissolution  of  the  corporation  is  be- 
cause of  its  insolvent  condition,  a  court  naturally  will  not 
desire  to  run  a  business  which  the  persons  most  inter- 
ested have  been  unable  to  run  successfully.    If,  however, 

Pig  Iron,  etc.,  Co.  v.  German,  126  Co.,  87  Ore.  74,  169,  Pac.  519,  re- 
Ala.  194,  85  Am.  St.  Rep.  21,  28  So.  ceiver  operated  a  hotel  under  or- 
603;  Graver  v.  Greer,  107  Tex.  356,  der  of  court. 

179  S.  W.  862.  In   Jacob   v.   Uncle   Sam   Plant- 
Todd  V.  Lippincott,  258  Fed.  205,  ing  &  Mfg.  Co.   (La.),  81  So.  604, 
is  an  instance  of  a  very  success-  a  receiver  was   placed  in  charge 
fully  conducted  receivership.  of  a  corporation  conducting  a  plan- 
In    Michel    V.    V^illiam    Necker,  tation  and  was  directed  to  borrow 
Inc.   (N.  J.  Ch.),  106  Atl.  449,  the  money  to  pay  taxes  and  proceed 
receiver  continued  in  operation  an  with  its  operation.     The  corpora- 
undertaking  business.  tion,  though  embarrassed,  was  not 
In  Henderson  v,  Tillamook  Hotel  insolvent. 


PRIVATE    CORPORATIONS.  959 

the  failure  of  the  business  lias  been  because  of  insufficient 
capital  or  temporary  financial  embarrassments  and  the 
creditors  and  the  corporation  itself  through  its  officers 
desire  to  continue  the  business  as  a  going  concern,  it  is 
within  the  discretion  of  the  court  to  allow  its  receiver  to 
do  so,  and  it  may  allow  funds  to  be  obtained  through  the 
sale  of  receiver's  certificates.^  A  distinction,  however, 
exists  as  to  the  conducting  of  operations  as  between 
strictly  private  corporations  and  public  utilities  as  far  as 
such  operations  may  be  dependent  upon  the  issuance  of 
receiver's  certificates  for  that  purpose.  In  a  private  cor- 
poration receivership  the  court  will  not  as  against  the 
objection  of  creditors  issue  receiver's  certificates  for 
operating  funds  and  make  such  certificates  a  prior  lien 
to  other  existing  heirs.  Whereas  a  broader  rule  obtains 
in  respect  to  public  utilities  on  account  of  the  interest  of 
the  public  in  having  the  service  furnished  and  the  fact 
that  every  public  utility  receivership  has  in  it  the  germ 
of  a  sale  of  the  property  as  a  going  concern  or  of  a  reor- 
ganization for  the  purpose  of  continuing  the  service.^  Of 
course,  where  the  business  of  the  corporation  is  in  such 
a  condition  that  it  is  a  going  concern  at  the  time  of  the 

2  International  Trust  Co.  v.  v.  Chester  County  Electric  Co.,  9 
Decker  Bros.,  152  Fed.  78,  11  L.  R.  Del.  Ch.  247,  80  Atl.  801;  Cronan 
A.  (N.  S.)  152,  81  C.  C.  A.  302;  v.  District  Court,  15  Idaho  184,  96 
Pusey  &  Jones  v.  Pennsylvania  Pac.  768;  International  Trust  Co. 
Paper  Mills,  173  Fed.  634;  Haines  ^-   decker  Bros.,   152   Fed.   78.   11 

Ti     1  XI71,     1  r^       ooA  TT'^A   ocQ  L.   R.  A.    (N.   S.)    152,  81  C.  C.  A. 

V.  Buckeye  Wheel  Co.,  224  Fed.  289,  v  /         i 

-„^  ^  ^    .    ,-«r    TT     ^  rriu  302;  Nowcll  V.  International  Trust 

139  C.  C.  A.  525;  Horton  v.  Thomas  ^^^  ^^^  ^^  ^ 

McNally    Co.,    168    App.    Div.    248,  ^^^ 

153    N.    Y.    Supp.    429;     Karn    v.  j;^  ^^^^^  instances  the  issuance 

Rorer  Bron  Co.,  86  Va.  754,  11  S.  E.  ^j  receivers'   certificates   for   pur- 

431;    Lockport  Felt  Co.  v.  United  poses  of  preserving  the  property 

Box  Board  &  Paper  Co.,  74  N.  J.  have  been  denied  in  the  cases  ot 

Eq.  686,  70  Atl.  980;  Lewis  v.  Lin-  private    corporations.      Hooper    v. 

den  Steel  Co.,  183  Pa.  St.  248,  38  Central  Trust  Co.,  81  Md.  559,  29 

Atl.  606.  L.   R.  A.  262,  32  Atl.  505;    Perrin, 

3  Title  Ins.,  etc.,  Co.  v.  California  etc.,  Printing  Co.  v.  Cook  Hotel, 
Development  Co.,  171  Cal.  227,  152  etc.,  Co.,  118  Mo.  App.  44,  93  S.  W. 
Pac.  564;  Central  Trust  &  Sav.  Co.  337. 


960  L-^W   OF   RECEIVERS. 

receivership  and  the  income  appears  to  be  such  as  to 
warrant  continuing  the  business  in  operation,  the  court 
is  only  then  concerned  with  the  question  whether  the 
preservation  of  the  business  requires  its  operation.  If 
the  financial  needs  of  the  corporation  are  merely  such 
as  may  be  procured  from  a  resort  to  its  income  capacity 
or  excess  of  assets  over  liabilities,  money  may  be  obtained 
for  operation  expenses  without  the  necessity  of  issuing 
receiver's  certificates,  which  displace  prior  liens.  This 
is  the  situation  in  most  of  the  cases  where  the  court 
authorizes  the  receiver  to  continue  operations  of  the  busi- 
ness. The  court  merely  authorizes  him  to  continue  it  as 
a  going  business. 

When  a  business  which  is  being  conducted  by  a  re- 
ceiver is  being  dissipated  by  the  expenses  of  operation, 
the  receiver  should  apply  to  the  court  for  permission  to 
sell  the  property.^ 

A  receiver  should  obtain  an  order  of  the  court  author- 
izing him  to  operate  the  business,  since  without  such  an 
order  from  the  receivership  court  he  is  personally  liable 
for  losses  resulting  from  such  operations.^ 

§362.    Duty   of   Receiver   Regarding   Pending   Contracts    of 
Employment. 

Contracts  for  personal  employment  stand,  in  general, 
on  the  same  basis  as  other  executory  contracts.  If  the 
receiver  does  not  continue  the  contract,  the  question  as 
to  whether  or  not  the  employee  is  entitled  to  damages  is 
determined,  practically,  according  to  general  principles 
of  law.  If  the  contract  was  one  terminable  at  will,  there 
could,  of  course,  be  no  question  of  damages;  if  it  was 
the  employment  of  an  elective  officer  under  provisions  of 

4  state  Cent.  Sav.  Bank  v.  Fan-  leans,  etc.,  Milk  Co.,  122  La.  717, 
ning,  etc.,  Chain  Co.,  118  Iowa  698,      48  So.  162. 

92  N.  W.  712.  A  receiver  should  not  turn  over 

5  State  Cent.  Sav.  Bank  v.  Fan-  a  milling  property  to  another  per- 
ning,  etc.,  Chain  Co.,  118  Iowa  698,  son  to  operate.  Shadewold  v. 
92  N.  W.  712;  Villere  v.  New  Or-  White,  74  Minn.  208,  77  N.  W.  42. 


PRIVATE    CORPORATIONS, 


961 


the  charter  or  by-laws,  or  an  employment  of  some  other 
servant,  for  a  stated  period  or  on  condition  that  notice 
of  intention  to  terminate  it  should  be  given  by  the  com- 
pany, but  carrying  wages  payable  periodically  in  an 
amount  fixed  for  the  period,  damages  are  not  allowed,  on 
the  theory  that  tlie  intervention  of  a  receivership  was  an 
event  that  might  well  have  been  in  the  minds  of  the  par- 
ties at  the  time  the  contract  was  made  as  one  liable  to 
occur  and  prevent  the  company's  further  fulfillment  of 
the  contract,  and  on  somewhat  the  same  principles  that 
apply  in  the  case  of  the  death  of  an  employer  ;^  if,  how- 


1  McElheney  v.  Jasper  Trading 
Co.,  12  Ga.  App.  790,  78  S.  E.  727; 
Law  V.  Waldron,  230  Pa.  458,  Ann. 
Cas.  1912A,  467,  79  Atl.  647. 

An  executive  officer  of  a  corpo- 
ration is  not  entitled  to  a  salary 
allowance  for  salary  accruing  un- 
der his  contract  for  services,  after 
the  appointment  of  a  receiver. 
Williamson  County  Bkg.  &  T.  Co. 
V.  Roberts-Buford  Dry  Goods  Co., 
118  Tenn.  340,  12  Ann.  Cas.  579, 
9  L.  R.  A.  (N.  S.)  644,  101  S.  W. 
421. 

On  a  receivership  of  an  insol- 
vent corporation,  the  termination 
of  an  existing  contract  for  the 
services  of  a  general  manager  by 
the  receiver  does  not  entitle  the 
manager  to  damages  since  the  pos- 
sibility of  such  a  termination  is 
implied.  Du  Pont  v.  Standard 
Arms  Co.,  9  Del.  Ch.  315,  81  Atl. 
1089. 

A  corporation  receivership  ter- 
minates a  contract  previously 
made  by  the  corporation  employ- 
ing a  general  counsel  at  a  yearly 
salary,  which  was  terminable  at 
will,  and  no  action  or  notice  by 
its  officers  or  directors  was  neces- 
sary to  effect  such  termination 
II  Rec— 61 


since  their  powers  are  suspended. 
Burton  v.  Bay  State  Gas  Co.  of 
Delaware,  188  Fed.  161,  110  C.  C. 
A.  197. 

In  the  case  of  an  uncompleted 
employment  contract,  the  recei"- 
ership  of  the  employer's  property 
and  business  has  been  regarded  as 
preventing  completion  by  opera- 
tion of  law,  leaving  neither  party 
further  bound  by  it,  and  leaving 
the  employee  no  allowable  claim 
for  damages.  People  v.  Globe  Ina 
Co.,  91  N.  Y.  174. 

In  Commonwealth  v.  Eagle  Fire 
Ins.  Co.,  14  Allen  344,  it  was  held 
that  inasmuch  as  the  exercise  of 
the  functions  of  the  president  of 
a  corporation  were  suspended 
during  the  receivership,  he  was 
not  entitled  to  salary.  But  where 
the  contract  between  the  corpora- 
tion is  not  so  much  one  of  per- 
sonal service  as  one  of  an  agency, 
such  as  that  of  an  advertising 
agent  of  a  newspaper  publishing 
company  the  receiver  may  refuse 
to  adopt  the  contract  and  thus 
leave  the  party  to  his  remedy  of 
damages  for  breach  of  the  con- 
tract by  the  corporation.  Com- 
mercial Pub.  Co.  V.  Beckwith,  161 
N.  Y.  329,  60  N.  E.  642. 


962  LAW   OF   RECEIVERS. 

ever,  the  employment  was  for  a  stated  period  with  wages 
fixed  at  a  certain  amoimt  for  the  period,  tliough,  possibly, 
to  be  paid  in  installments  during  its  course,  the  contract 
is  regarded  as  indivisible  and  damages  are  allowed.^ 

§  363.    Right  of  Receiver  to  Employ  and  Discharge  Employees 
Connected  With  the  Receivership. 

Most  of  the  controversies  which  have  arisen  with  re- 
spect to  employments  by  receivers  have  occurred  in  con- 
nection with  railroad  employment,  and  will  be  discussed 
under  the  chapter  devoted  to  Public  Utilities,  since  there 
are  phases  in  connection  with  the  topic,  and  especially 
in  so  far  as  the  right  to  strike  is  concerned,  Avhich  are 
affected  to  some  extent  by  the  fact  of  the  public's  interest 
in  the  continued  operation  of  a  public  utility  by  whomso- 
ever may  be  in  possession  thereof. 

In  respect  to  private  corporations,  the  receiver  in  em- 
ploying servants  and  agents  to  aid  him  in  operating  the 
receivership  property  is  in  no  better  nor  worse  condition 
than  private  employers,  with  the  exception  that  in  the 
case  of  a  conspiracy  to  interfere  unlaw^fully  with  the 

2  Miller  v.  Cosmic  Cement,  Tile  missal,  on  the  theory  that  the  re- 

&  Stone  Co.,  109  Md.  11,  71  Atl.  91.  ceivership  was  the  equivalent  of 

Judgment,  Rosenbaum  v.  United  disablement     at     completing     the 

States     Credit-System     Co.     (Sup.  contract. 

1897),   60   N.  J.   Law  294,   37  Atl.  In   Spader  v.  Mural   Decoration 

595,      reversed;      Rosenbaum      v.  Mfg.  Co.,  47  N.  J.  Eq.  18,  20  Atl. 

United   States   Credit-System  Co.,  378,  contracts  existed  with  certain 

61  N.  J.  L.  543,  40  Atl.  591.  employees    for    a    term    of    years 

Baker  v.  D.  Appleton  &  Co.,  187  for  service  as  salesmen  and  fore- 

N.  Y,  548,  80  N.  B.  1104,  affirming  men.     Before  the  expiration  of  the 

107  App.  Div.  358,  95  N.  Y.  Supp.  agreement  the  corporation  employ- 

125;    Lenoir  v.   Linville   Improve-  ing  them  became  insolvent  and  a 

ment  Co.,  117  N.  C.  471,  23  S.  E.  receiver    was    appointed    over    it. 

442,  51  L.  R.  A.  146.  It   was    held    that   the   employees 

In    Isaac    McLean    Sons    Co.    v.  were     entitled     to     damages     for 

William  S.  Butler  &  Co.,  227  Fed.  breach     of    the     contract,     which 

325,  damages  were  allowed,  based  claim  for  damages  should  be  de- 

on  the  agreed  salary  for  the  con-  termined     like     other     claims     ot 

tract  period,  less  what  was  earned  that   character   and   presented    in 

under  other  employment  after  dis-  the  receivership  like  other  claims. 


PRIVATE   CORPOEATIONS.  963 

operation  of  tlie  receivership  property,  tlie  employees  or 
other  persons  aiding  in  the  conspiracy  would  be  guilty 
of  contempt  of  court,  whereas  they  would  not  be  so  guilty 
in  the  case  of  a  private  employer  unless  protected  by 
some  injunctional  order.^ 

Where  the  provisions  of  a  Workmen's  Compensation 
Act  are  not  made  exclusive,  a  receiver  may  elect  whether 
to  operate  under  its  provisions  or  not.^ 

§  364.    Rights  of  Employees  in  Case  of  Grievances. 

The  receiver  is  the  arm  of  the  court.  He  is  the  agent 
of  the  court  in  respect  to  the  business  affairs  of  the 
receivership  and  the  property  covered  by  it.  In  his  rela- 
tion to  employees  the  receiver  should,  undoubtedly,  take 
the  same  position  which  the  court  is  presumed  to  take. 
It  is  the  duty,  of  course,  of  the  court  to  do  justice  to 
every  employee  connected  with  the  receivership,  and  pre- 
vent, by  its  orders,  oppression,  injustice,  or  wrongs 
toward  any  of  its  employees.^  In  the  case  of  grievances 
on  the  part  of  employees  of  the  receivership,  they  un- 
doubtedly have  a  right  to  petition  the  court  to  be  heard 
in  regard  to  the  matter  and  the  court  will  investigate  tlie 
matter  so  presented  to  it.^ 

§365.     Right  of  Employees  of  Receiver  to  Belong  to  Trade- 
Unions. 

The  right  of  employees  to  belong  to  trade-unions  has 
been  recognized  in  connection  with  railroad  receiver- 
ships.'   But  it  has  been  held  that  although  the  receiver 

1  Thomas  v.  Cincinnati,  N.  O.  &  i  Farmers  Loan  &  Trust  Co.  v. 
T.  P.  Ry.  Co.,  62  Fed.  803;  Re  Central,  etc.,  Banking  Co.,  166  Fed. 
Doolittle,  23  Fed.  544;  United  333  (a  railroad  receivership  case). 
States  V.  Kane,  23  Fed.  748;  Re  2  Continental  Trust  Co.  v.  To- 
Higgins,  27  Fed.  443.  See  full  dis-  ledo,  St.  L.  &  K.  C.  R.  Co.,  59  Fed. 
cussion  of  the  subject  under  Pub-  514  (a  railroad  receivership  case), 
lie  Utilities.  i  Thomas  v.  Cincinnati,  etc.,  Ry. 

2  Devine  v.  Delano,  272  Del.  166,  Co.,  62  Fed.  803  (opinion  by  Judge 
Ann.  Cas.  1918A,  689,  111  N.  E.  742.  Taft). 


964  LAW   OF    RECEIVERS. 

may  deal  with  a  trade-union  regarding  the  terms  and 
conditions  of  the  employment  that  the  same  schedules 
must  apply  to  all  employees  regardless  of  whether  they 
are  members  of  the  union  or  not.-  This  is  on  the  ground 
that  the  court  will  not  discriminate  between  employees. 

The  equity  courts  are  the  means  by  which  the  rules  of 
law  are  kept  abreast  of  the  complex  industrial  changes 
and  current  methods  of  commercial  life.  They  adapt 
their  remedies  to  the  new  conditions  wdtli  which  business 
affairs  are  confronted  with  a  view  to  doing  full  and  com- 
plete justice  to  all  parties  concerned,  and  it  is  not  doubted 
that  the  equity  courts  will  be  able  to  properly  meet  and 
dispose  of  all  phases  of  employment  on  the  part  of  its 
receivers  regardless  of  whether  the  situation  has  ever 
arisen  before  or  not.  This  idea  is  well  illustrated  by  the 
remarks  of  the  court  in  one  of  the  earlier  cases,^  w^here 
the  court  said:  "Every  just  order  or  rule  known  to 
equity  courts  was  born  of  some  emergency,  to  meet  some 
new  conditions,  and  was,  therefore,  in  its  time,  without 
precedent.  If  based  on  sound  principles,  and  beneficent 
results  follow^  their  enforcement,  affording  necessary 
relief  to  the  one  party  without  imposing  illegal  burdens 
on  the  other,  new  remedies  and  unprecedented  orders  are 
not  unwelcome  aids  to  the  chancellor  to  meet  the  constant 
and  varying  demands  for  equitable  relief," 

The  extent  to  which  the  employees  of  a  receiver  may 
enforce  their  demands  by  means  of  a  strike  are  set. forth 
under  that  heading  in  the  chapter  on  Public  Utilities. 

§  366.    Payment  of  Wages  to  Persons  Employed  by  the  Receiver. 

The  persons  employed  by  the  receiver  in  administering 
the  estate  are  naturally  paid  by  the  receiver  from  receiv- 
ership funds  in  his  hands  as  part  of  the  necessary  costs 
of  administration,  and  the  general  rules  in  regard  to 

2  Waterhouse  v.  Comer,  55  Fed.  3  Toledo,  etc.,  Ry.  Co.  v.  Pennsyl- 

149,  19  L.  R.  A.  403  (a  railroad  re-  vanla  Co.,  54  Fed.  746,  751,  19 
ceivership  case).  L.  R.  A.  395. 


PRIVATE    CORPORATIONS. 


965 


omployments  and  the  rights  arising  thereunder  apply/ 
And  where  the  statute  provides  for  the  payment  and  the 
manner  in  which  it  shouhl  be  paid  and  funds  to  which  it 
attaches,  the  matter  is  governed  by  the  specific  terms  of 
the  statute-  as  to  whether  they  create  a  mere  priority  or 
a  lien  upon  the  receivership  property. 

§  367.     Payment  of  Wages  Earned  Immediately  Prior  to  the 
Receivership. 

The  same  general  rules  respecting  the  giving  of  a 
preference  which  are  applicable  to  public  utility  corpora- 
tions are  applicable  to  a  private  corporation  respecting 
a  preference  of  claims  for  wages  prior  to  the  appoint- 
ment of  the  receiver.  The  basic  foundation  of  this  rule 
is  a  diversion  of  income  to  bondholders  or  betterments 
instead  of  payment  of  the  operating  expenses  of  the 
concern.^ 


1  Brown  v.  A.  B.  C.  Fence  Co., 
52  Hun  151,  5  N.  Y.  Supp.  95; 
Grabbe  v.  Moffit,  133  Iowa  54,  110 
N.  W.  142;  Hilliard  v.  Sterling- 
worth  Ry.  Supply  Co.,  236  Pa.  St. 
82,  Ann.  Cas.  1913D,  1115,  84  Atl. 
680. 

Under  the  rule  that  net  earn- 
ings, while  property  is  in  the  pos- 
session of  a  receiver  appointed  by 
a  court,  may  be  applied  to  the 
payment  of  claims  having  supe- 
rior equities  to  that  of  the  bond- 
holders; held,  that  if  a  balance  of 
salary  due  the  president  of  the 
road  was  a  prior  claim,  he  had 
Avaived  it  by  the  published  annual 
report  as  such  president,  in  which 
he  had  put  his  salary  each  year 
among  the  paid  items.  If  his  sal- 
ary was  not  in  fact  paid  he  was 
only  a  general  creditor.  Addison 
v.  Lewis,  75  Va.  701. 

A  claim  of  contractors  for  build- 


ing an  extension  of  the  road  did 
not  come  within  the  rule.  Addison 
V.  Lewis,  75  Va.  701. 

2  In  re  Pleasant  Hill  Lumber  Co., 
126  La.  743,  52  So.  1010. 

1  In  Le  Hote  v.  Boyet,  85  Miss. 
636,  3  Ann.  Cas.  705,  38  So.  1,  the 
court  allowed  a  preference  in  pay- 
ment of  claims  for  wages  for  ser- 
vices performed  for  the  corpora- 
tion before  the  appointment  of  a 
receiver  upon  a  showing  that  such 
services  were  necessary  to  con- 
tinue the  business  and  preserve 
the  property.  See,  also,  Drennen 
V.  Mercantile  Trust,  etc.,  Co.,  115 
Ala.  592,  67  Am.  St.  Rep.  72,  39 
L.  R.  A.  623,  23  So.  164;  Dickinson 
V.  Saunders,  129  Fed.  16,  63  C.  C. 
A.  666  (but  under  statutory  provi- 
sions) ;  Jones  v.  Arena  Pub.  Co., 
171  Mass.  22,  50  N.  E.  15. 

The  leading  case  in  the  federal 
courts  allowing  a  preference  for 
wages  claimed  for  services  prior  to 


966 


LAW   OF   RECEIVERS. 


The  matter  of  whether  wages  earned  within  a  short 
period  prior  to  the  receivership  have  a  certain  priority 
of  pajTiient  or  constitute  a  lien  upon  the  corpus  of  the 
receivership  property  is  one  which  is  generally  regulated 
by  the  statutes  of  the  various  states,  and  resort  must  be 
had  to  such  statutes,  which  are  often  variant  as  to  form, 
to  ascertain  the  exact  status  of  such  claims  in  respect  to 
the   receivership  property.^     Claims   for   services   ren- 


the  receivership  is  Fosdick  v. 
Schall,  99  U.  S.  235,  25  L.  Ed.  339. 

In  Wood  V.  Guarantee  Trust, 
etc.,  Co.,  128  U.  S.  416,  32  L.  Ed. 
472,  9  Sup.  Ct.  131,  the  court 
pointed  out  that  the  doctrine  of 
Fosdick  V.  Schall,  99  U.  S.  235,  25 
L.  Ed.  339,  had  never  been  ap- 
plied to  any  but  railroad  cases, 
and  called  attention  to  the  pecu- 
liar property  of  a  railroad  com- 
pany and  its  functions  as  com- 
pared to  a  mere  private  corpora- 
tion. 

In  this  connection  see,  also,  Cal- 
houn V.  St.  Louis,  etc.,  R.  Co.,  14 
Fed.  9,  9  Biss.  330;  Blair  v.  St. 
Louis,  etc.,  R.  Co.,  22  Fed.  471; 
American  Loan  &  T.  Co.  v.  East, 
etc.,  R.  Co.,  46  Fed,  101;  Finance 
Co.  v.  Charleston,  etc.,  R.  Co.,  52 
Fed.  524;  Central  Trust  Co.  v. 
Chattanooga  Southern  R.  Co.,  69 
Fed.  295;  Douglas  v.  Cline,  12 
Bush  (Ky.)  608;  Mcllhenny  v, 
Binz,  80  Tex.  1,  26  Am.  St.  Rep. 
705,  13  S.  W.  655;  Litzuberger  v. 
Jarvis-Conklin  Trust  Co.,  8  Utah 
15,  28  Pac.  871. 

2  Geppelt  V.  Middle  West  Stone 
Co.,  90  Kan.  539,  135  Pac.  573. 

Under  Rev.  St.  1908,  §§  6998- 
7000,  making  claims  for  wages  in 
case  of  suspension  of  business 
or  receivership  preferred  claims, 
claims  of  employees  for  labor  are 
in  a  preferred  class,  to  be  paid  in 


preference  to  other  simple  contract 
creditors,  but  do  not  create  an 
express  statutory  lien  superior  to 
all  other  liens  without  reference 
to  priority,  though  the  proviso 
that  the  act  shall  not  be  construed 
to  extend  to  creditors  holding 
mortgages  for  debts  actually  ex- 
isting before  the  labor  was  per- 
formed is  disregarded.  Central 
Sav.  Bank  v.  Newton,  59  Colo.  150, 
147  Pac.   690. 

Wages  which  are  part  due  may 
be  made  a  claim  prior  to  a  mort- 
gage under  a  statute  giving  me- 
chanics and  laborers  employed 
in  mills  a  lien  on  goods  manufac- 
tured by  their  labor.  Security 
Trust  Co.  V.  Bank  of  Bernice,  239 
Fed.  665,  152  C.  C.  A.  499. 

Under  a  New  York  statute  giv- 
ing preference  to  the  wages  of 
an  "employee"  of  a  corporation 
and  defining  such  an  employee, 
and  under  the  state  court's  inter- 
pretation of  a  similar  statute,  it 
was  held  by  the  federal  court  that 
an  attorney  employed  by  a  public 
utility  corporation  to  procure  op- 
tions on  certain  properties  at  a 
fixed  wage  per  day  and  certain 
expenses,  was  not  an  employee 
under  the  statute.  Gay  v.  Hudson, 
etc..  Power  Co.,   178   Fed.   499. 

Laborers  in  the  employment  of 
a  corporation  whose  property  is 
put  into  the  hands  of  a  receiver 


PRIVATE    CORPORATIONS. 


967 


dered  the  corporation  prior  to  the  receivership  must  be 
proved  in  the  same  manner  in  respect  to  facts  concerning 
them  as  would  be  required  in  the  absence  of  receivership 
proceedings.^  Statutes  giving  preferences  to  salaries 
and  wages  due  employees  of  a  corporation  over  other 
creditors  in  case  of  the  insolvency  or  receivership  of  the 
corporation  create  a  personal  privilege  which  does  not, 
ordinarily,  pass  with  an  assignment  of  the  debt.* 

The  preference  accorded  to  railroad  employees  was 
denied  in  the  case  of  a  navigation  company  upon  the 
theory  that  a  navigation  company  Avas  in  a  different  posi- 
tion from  that  of  a  railroad  company  in  that  the  sov- 
ereign power  had  not  contributed  to  its  construction  in 
a  way  in  which  the  sovereign  power  contributes  to  rail- 
road companies.^ 


who  takes  immediate  possession 
thereof,  with  whom  they  properly 
file  their  claims,  are  not  required 
to  file  claims  with  a  sheriff  who 
had  levied  upon  all  such  property 
four  days  before  the  appointment 
of  the  receiver,  unaer  Iowa  Acts. 
23d  Gen.  Assem.,  chap.  48,  giving 
a  preference  to  the  laborers  of  a 
corporation  whose  property  Is 
seized  or  put  into  the  hands  of  a 
receiver,  and  requiring  them  to 
file  such  claim  with  the  officer 
seizing  the  property  or  with  the 
receiver.  St.  Paul  Title  Ins.  &  T. 
Co.  V.  Diagonal  Coal  Co.,  95  Iowa 
551,  64  N.  W.   606. 

Under  some  statutes  of  this 
character  it  is  held  that  the  pref- 
erence given  to  labor  claims  is 
only  priority  of  payment  over 
other  simple  contract  creditors, 
and  that  it  does  not  create  an  ex- 


press statutory  lien  superior  to 
all  other  liens  without  reference 
to  priority.  Seymour  v.  Berg,  227 
111.  411,  10  Ann.  Cas.  340,  81  N.  E. 
339;  McDaniel  v.  Osborn,  166  Ind. 
1,  117  Am.  St.  Rep.  354,  2  L.  R.  A. 
(N.   S.)    615,   75  N.  E.   647. 

3  Mizell  V.  Elmore  &  Hamilton 
Contracting  Co.,  219  Fed.  528,  135 
C.  C.  A.  278. 

4  Southern  Ry.  Co.  v.  Bretz,  181 
Ind.  504,  104  N.  E.  19;  Riverside 
Contracting  Co.  v.  City  of  New 
York,  218  N.  Y.  596,  Ann.  Cas. 
1918C,  1075,  113  N.  E.  564;  Riche- 
son  V.  National  Bank  of  Mena,  96 
Ark.  556,  132  S.  W.  912. 

5  Bound  V.  South  Carolina  R. 
Co.,  50  Fed.  312,  313  (refusing  a 
preference  for  arrears  of  salary 
of  a  general  frieght  and  passenger 
agent  of  a  navigation  company). 


968  LAW    OF   RECEIVERS. 

F.    Sialtts  of  Receivers  in  Foreign  Jurisdictions  Ecspccting  Property 
of  the  Corporations. 

§368.     Assets  Located  in  a  Jurisdiction  Other  than  that  of 
the  Domicile  of  the  Corporation. 

The  preceding  sections  concerning  the  administration 
of  the  estate  of  a  corporation  that  has  passed  under  a 
receivership  have  dealt  primarily  with  reference  to  the 
marshaling  of  the  corporate  assets  located  within  the 
domiciliary  jurisdiction  of  the  corporation  by  a  receiver 
appointed  by  a  court  having  authority  therein.  How- 
ever, with  the  great  modern  increase  in  the  practice  of 
casting  business  ownershij^s  or  managements  into  cor- 
porate form,  it  seldom  happens  that  a  corporation  con- 
fines its  enterprises  to  its  domiciliary  locality,  and  prac- 
tically every  large  corporation  extends  its  business 
beyond  that  locality  and  acquires  assets  and  assumes 
liabilities  in  many  otlier  judicial  jurisdictions.  When  a 
corporation  receivership  extends  to  the  closing  up  of  its 
affairs  and  the  distribution  of  all  of  its  assets  equitably 
among  all  of  its  creditors  and  stockholders,  not  only 
must  the  home  assets  and  liabilities  be  taken  care  of,  but 
there  must,  as  well,  be  a  marshaling  of  the  foreign  assets 
and  a  jDrovision  for  the  foreign  debts.  These  foreign 
affairs  are  administered  through  one  of  three  agencies : 
(1)  The  receiver  appointed  by  the  court  of  its  own  domi- 
cile; (2)  a  receiver  appointed,  for  the  special  purpose 
of  aiding  and  completing  the  administration  of  the  for- 
mer, by  a  court  having  authority  within  a  foreign  juris- 
diction, within  wdiich  the  corporation  has  assets;^  (3)  an 
independent  receiver  appointed  within  such  foreign 
jurisdiction. 2  These  agencies  may,  for  convenience,  be 
respectively  spoken  of  as  a  domiciliary  receiver,  an 
ancillary  receiver,  and  a  foreign  independent  receiver.^ 

1  See  §  337  et  seq.,  supra.  ion    that    courts    usually    use    the 

2  See  §  328,  supra.  term  "foreign  receivers"  to  desig- 

3  It  is  to  be  remembered  in  read-  nate  receivers  other  than  those 
ing  any  judicial  decision  or  opin-  appointed  within  their  own  juris- 


PRIVATE    CORPORATIONS.  969 

In  the  administration  of  such  corporate  foreign  estates 
there  are  two  underlying  and  controlling  principles: 
(a)  Each  state,  or  jurisdiction,  has  the  right  to  protect 
its  own  resident,  or  citizen,  creditors  of  the  corporation ; 
and  (b)  in  accordance  with  the  provisions  of  the  consti- 
tution of  the  United  States  [Article  IV,  §2:  ''The  citi- 
zens of  each  state  shall  be  entitled  to  all  privileges  and 
immunities  of  citizens  in  the  several  states"]  all  credi- 
tors of  the  corporation,  both  home  and  foreign,  are  en- 
titled to  share  equally,  according  to  their  equitable  rank, 
in  all  of  the  assets  of  the  estate. 

§  369.     Right  of  Foreign  Jurisdiction  to  Protect  Its  Resident 
Creditors. 

An  important  corollary  of  the  former  of  these  two 
principles  is  that  the  question  as  to  whether  or  not  the 
domiciliary  receiver  may  enforce  the  collection  of  assets 
located  in  a  foreign  jurisdiction  by  the  aid  of  the  courts 
of  that  jurisdiction  is  a  matter  of  comity  between  the 
jurisdictions  to  be  determined  by  the  laws  and  the  policy 
and  the  practice  of  the  courts  of  the  foreign  jurisdiction. 
Under  this  principle,  the  general  rule  is  that  a  mere 
chancery   receiver,   including   not   only   a   receiver    ap- 
pointed by  a  court  of  equity  by  virtue  of  its  inherent 
powers  but  also  a  receiver  appointed  under  a  statute 
that   is   virtually   only   declaratory   of   the    equity   rule, 
or    law,   has   not   the   privilege   of   suing  in   a  foreign 
jurisdiction    and    may    not    be    empowered    to    do    so 
merely   by   an   order    of   the    appointing   court    direct- 
ing him  to   do   so.      This   rule   was   applied   in   Booth 
V.  Clark,  a  comparatively  early  decision  of  the  United 
States    Supreme    Court,   considered   as   a   leading   case 
on   the   subject.^      After  a   very  careful  historical   re- 
view of  the  matter,  the  court  said:    ''Our  industry  has 

diction,  even  though  the  receivers  i  Booth  v.  Clark  (1854),  58  U.  S. 

referred  to  may  be  domiciliary  in      322,  15  L.  Ed.  164. 
the  sense  in  which  we  have  above 
used  the  term. 


970  LAW   OF    RECEIVERS. 

been  tasked  unsuccessfully  to  find  a  case  in  which  a  re- 
ceiver has  been  permitted  to  sue  in  a  foreign  jurisdiction 
for  the  property  of  the  debtor.  So  far  as  we  can  find,  it 
has  not  been  allowed  in  an  English  tribunal ;  orders  have 
been  given  in  the  English  chancery  for  receivers  to  pro- 
ceed to  execute  their  functions  in  another  jurisdiction, 
but  we  are  not  aware  of  its  ever  having  been  permitted 
by  the  tribunals  of  the  last.  We  think  that  a  receiver 
has  never  been  recognized  by  a  foreign  tribunal  as  an 
actor  in  a  suit.  He  is  not  within  that  comity  which 
nations  have  permitted,  after  the  manner  of  such  nations 
as  practice  it,  in  respect  to  the  judgments  and  decrees  of 
foreign  tribunals,  for  all  of  them  do  not  permit  it  in  the 
same  manner  and  to  the  same  extent,  to  make  such 
comity  international  or  a  part  of  the  laws  of  nations. 
.  .  .  In  those  countries  of  Europe  in  which  foreign 
judgments  are  regarded  as  a  foundation  for  an  action, 
whether  it  be  allowed  by  treaty  stipulations  or  by  comity, 
it  has  not  as  yet  been  extended  to  a  receiver  in  chancery. 
In  the  United  States,  where  the  same  rule  prevails  be- 
tween the  states  as  to  judgments  and  decrees,  aided  as  it 
is  by  the  first  section  of  the  fourth  article  of  the  consti- 
tution and  by  the  Act  of  Congress  of  May  26,  1790,  by 
w^hich  full  faith  and  credit  are  to  be  given  in  all  of  the 
courts  of  the  United  States  to  the  judicial  sentences  of 
the  different  states,  a  receiver  under  a  creditor 's  bill  has 
not  as  yet  been  an  actor  as  such  in  a  suit  out  of  the  state 
in  which  he  was  appointed.  .  .  .  We  think  that  a  re- 
ceiver could  not  be  admitted  to  the  comity  extended  to 
judgment  creditors,  without  an  entire  departure  from 
chancery  proceedings,  as  to  the  manner  of  his  appoint- 
ment, the  securities  which  are  taken  from  him  for  the 
performance  of  his  duties,  and  the  direction  which  the 
court  has  over  him  in  the  collection  of  the  estate  of  the 
debtor,  and  the  application  and  distribution  of  them.  If 
he  seeks  to  be  recognized  in  another  jurisdiction,  it  is 
to  take  the  fund  there  out  of  it,  without  such  court  hav- 


PRIVATE    CORPOKATIONS.  971 

ing  any  control  of  his  subsequent  action  in  respect  to  it, 
and  without  his  having  even  official  power  to  give  secur- 
ity to  the  court,  the  aid  of  which  he  seeks,  for  his  faith- 
ful conduct  and  official  accountability.  All  that  could  be 
done  upon  such  an  application  from  a  receiver,  according 
to  chancery  practice,  would  be  to  transfer  him  from  the 
locality  of  his  appointment  to  that  where  he  asks  to  be 
recognized,  for  the  execution  of  his  trust  in  the  last, 
under  the  coercive  ability  of  that  court;  and  that  it  would 
be  difficult  to  do,  where  it  may  be  asked  to  be  done,  with, 
out  the  court  exercising  its  province  to  determine  whether 
the  suitor,  or  another  person  within  its  jurisdiction,  was 
the  proper  person  to  act  as  a  receiver." 

It  is  true  that  in  the  case  just  referred  to,  the  receiver 
was  not  a  corporation  receiver.    He  was  one  appointed 
by  a  New  York  state  court,  under  a  statute,  to  proceed, 
in  the  interest  of  a  judgment  creditor,  against  equitable 
assets  of  the  debtor.^     However,  the  principle  as  laid 
down,  is  of  general  application,  and  is  so  regarded  by  the 
courts.    Accordingly,  Ave  find  it  said  by  the  United  States 
Circuit  Court  of  Appeals  for  the   Sixth   Circuit,  in   a 
recent  case,  in  which  a  corporation  receiver  of  an  Ala- 
bama corporation,  appointed  by  an  Alabama  state  court 
under  a  state  statute,  commenced  suit  in  a  federal  court 
in  Ohio,  that:   ''It  is  the  settled  rule  that  a  mere  chan^ 
eery  receiver  is  but  an  officer  of  the  court  appointing 
him,  and  that  in  the  absence  of  some  conveyance  or  stat- 
ute vesting  in  him  title  to  the  debtor's  property  he  can 
not  sue  in  the  courts  of  a  foreign  jurisdiction  for  its 
recovery  upon  the  mere  order  of  the  appointing  court, 
or  without  other  authority  than  that  arising  from  his 
appointment  as   receiver;   and   that  in   the   absence   of 
actual  conveyance    ...    the  question  whether  the  re- 
ceiver has  title  is  governed  by  the  statutes  of  the  state 
by  whose  court  the  appointment  was  made."     The  con- 
clusion in  the  case  was  that  under  the  statute,  as  inter- 

2  See  Booth  v.  Clark,  supra. 


972  LAW   OF    RECEIVERS. 

preted  by  the  Alabama  courts,  the  receiver  had  no  ri^lit 
to  sue  except  as  authorized  to  do  so  by  the  appointing 
court  and  that  he  could  not  under  the  instant  statute  be 
authorized  to  sue  in  a  foreign  jurisdiction.^ 

In  the  case  of  Booth  v.  Clark,  the  action  was  laid  in 
the  federal  court  of  the  District  of  Columbia  and  the  con- 
test was  between  the  receiver  appointed  by  the  New 
York  state  court  and  a  trustee  appointed  in  voluntary 
bankruptcy  proceedings  in  New  Hampshire.  At  the  out- 
set of  its  argument  the  court  stated  the  question  of  the 
case  to  be:  ^'As  an  officer  of  a  court  of  chancery,  for  a 
particular  purpose,  will  he  [the  receiver]  be  recognized 
as  such  by  a  foreign  judicial  tribunal,  and  be  allowed  to 
take  from  the  latter  a  fund  belonging  to  the  debtor  for 
its  application  to  the  payment  of  a  particular  creditor 
within  the  jurisdiction  of  the  receiver's  appointment, 
there  being  other  creditors  in  the  jurisdiction  in  which  he 
now  sues  contesting  his  right  to  do  sol"  While  it  thus 
appears  that  there  was  not  involved  in  the  case  any 
necessity  of  a  court's  protecting  creditors  who  were  resi- 
dents, or  citizens,  of  its  own  jurisdiction,  there  is,  in  the 
argument,  as  shown  by  the  above  quotations,  at  least  an 
implication  that  the  reason  usually  given  for  not  permit- 
ting a  chancery  receiver  to  sue  outside  of  the  appointing 

3  Sterrett  v.  Second  Nat.  Bank,      tional  M.  F.  Ins.  Co.,  90  S.  C.  544, 
etc.,  246  Fed.  753,  754,  159  C.  C.  A.      Ann.  Cas.  1913D,  221,  74  S.  .E.  33; 
55.      See    Hale    v.    Allinson,    188       Howard  v.   Chesapeake   &   O.  Ry. 
U.  S.  56,  47  L.  Ed.  380.  23  Sup  Ct.      ^o.,   11  App.   Cas.    (D.  C.)    300. 
244;  Great  Western  Min.,  etc.,  Co.  ^n  action  against  a  foreign  cor- 

poration,  having  an  agency  in  the 


V.  Harris,  198  U.  S.  561,  49  L.  Ed 

1163,  25   Sup.  Ct.  770;    Keatley  v 


state,  is  not  prevented  from  pro- 
ceeding to  judgment,  by  a  subse- 
Furey,  226  U.  S.  399,  57  L.  Ed.  273.  ^^^^^^  ^^^^.^^  dissolving  the  corpo- 
33  Sup.  Ct.  121;  Southern  Bldg.  &  ration  and  appointing  receivers  to 
L.  Assn.  v.  Price.  88  Md.  155,  42  ^{nd  up  its  affairs,  made  in  the 
L.  R.  A,  206.  41  Atl.  53;  Homer  v.  state  of  its  creation,  unless  it  is 
Barr  P.  E.  Co..  180  Mass.  163,  91  shown  that  the  corporation  is  ut- 
Am.  St.  Rep.  269.  61  N.  E.  883;  terly  extinct.  Hunt  v.  Columbian 
Leman  v.  MacLennan,  75  Ohio  St.  Ins.  Co.,  55  Me.  290,  92  Am.  Dec. 
643,  80   N.  E.  1129;    Frink  v.  Na-      592, 


PRIVATE    CORPORATIONS.  973 

jurisdiction  is  the  court's  duty  to  protect  such  creditors. 
In  the  case  cited  from  the  Sixth  Circuit  there  was  no 
question  of  creditors  other  than  those  represented  by 
the  receiver  and  the  decision  was  rested  on  another 
ground,  as  follows:  ^'A  disposition  by  this  court  of  the 
appeal  without  determination  of  the  merits  is  unfortu- 
nate. .  .  .  But  lack  of  title  in  plaintiff  is  not  a  mere 
*  technicality'  in  the  ordinary  meaning  of  that  term,  for 
there  is  always,  theoretically  at  least,  a  possibility  that 
defendant  may  be  subjected  to  further  suit  by  the  owner 
of  the  title  and  right  of  action." 

This  reason,  however,  had  not  appealed  to  the  trial 
court;  and  while,  as  thus  appears,  other  reasons  for  not 
permitting  a  chancery  receiver  to  sue  in  a  foreign  juris- 
diction may  be  sometimes  assigned,  as  a  practical  propo- 
sition the  right  of  local  creditors  to  be  protected  is  the 
one  usually  given.    In  a  South  Carolina  case,  in  which  a 
North  Carolina  corporation  and  its  receiver,  appointed 
by  a  federal  court  in  North  Carolina,  were  sued  on  a 
claim  against  the  receiver  himself  and  one  not  accruing 
under  the  corporation  management,  the  plaintiff  having 
attached  corporate  funds  in  South  Carolina,  the  court 
said:    ''It  appears  in  the  record  that   [the  appointing 
court]  had  directed  the  application  for  an  ancillary  re- 
ceiver in  the  federal  court  of  South  Carolina;  yet  this 
had  not  been  done,  but,  in  case  the  ancillary  receiver 
should  thereafter  be  appointed,  it  was  the  purpose  of  the 
receiver  to  take  the  fund  out  of  the  jurisdiction  of  the 
courts  for  South  Carolina,  both  federal  and  state,  and 
require  the  domestic  creditor  to  go  into  the  foreign  juris- 
diction to  recover  his  claim.    It  further  appeared  that  it 
was  the  intention  of  the  receiver  to  distribute  between 
the  creditors  of  the  bankrupt  and  the  creditors  of  the 
receiver  'equitably.'     Equitably  may  mean  equally.     If 
this  is  not  his  intention  it  ought  to  appear.    The  creditors 
of  the  bankrupt  and  the  creditors  of  the  receiver  are  not 
in  the  same  class.    The  creditors  of  the  receiver  in  the 


974 


LAW   OF    RECEIVERS. 


administration  of  the  bankrupt  estate  must  be  paid  in 
full  before  there  is  anything  to  be  distributed  equitably 
between  the  creditors  of  the  bankrupt  estate.  .  .  . 
There  is  no  showing  in  the  record  that  there  is  any  other 
creditor  who  is  in  the  same  class  with  the  respondents." 
The  appeal  was  by  the  receiver  from  an  order  of  the 
lower  court  denying  the  receiver's  motion  to  vacate  the 
attachment,  and  the  order  was  affirmed.* 


4  Guimarin  &  Co.  v.  Southern 
L.  &  T.  Co.,  100  S.  C.  12,  84  S.  E. 
298. 

On  the  same  principle  a  state 
may  protect  its  own  resident,  or 
citizen,  debtors  of  a  corporation 
against  an  action  instituted  under 
such  circumstances  as  to  be  ob- 
noxious to  the  views  or  policy  of 
the  state  as  to  what  constitutes 
due  process  of  law.  Under  a  stat- 
ute of  New  York  the  state  super- 
intendent of  banks  was  empow- 
ered to  take  possession,  under 
certain  circumstances,  of  a  bank, 
and,  if  he  deemed  it  necessary, 
levy  an  assessment  against  stock- 
holders upon  their  statutory  added 
liability,  without  any  judicial  pro- 
ceeding, or  the  appearance  of  the 
stockholders  or  of  the  corporation. 
Having  done  so  in  a  certain  case, 
the  superintendent  and  certain 
Tennessee  stockholders  appeared 
in  the  courts  of  that  state  to  en- 
force collection  of  the  assessment. 
In  affirming  an  order  of  the  trial 
court  dismissing  the  action,  the 
state  Supreme  Court  said: 

"The  statutory  rule  quoted  could 
be  applied  here  only  through 
comity.  Should  comity,  a  favor,  be 
extended  here,  in  support  of  the 
arbitrary  non-judicial  action  of  the 
superintendent  of  banks  of  the 
state  of  New  York,  which  would 
cast   upon   our   own   citizens    the 


burden  of  either  going  to  New 
York  in  person,  or  by  agents,  and 
at  great  expenditure  of  time  and 
money  investigating  all  of  the  as- 
sets and  liabilities  of  a  great  bank- 
ing institution  in  that  state?  The 
unreasonableness  of  such  a  course 
is  manifest  on  its  mere  statement. 
Cases  may  be  easily  imagined 
where  the  initial  expense  of  such 
an  investigation  would  be  much 
more  than  the  liability  sought  to 
be  enforced.  In  such  instances 
the  mere  demand  by  suit  would 
be  equivalent  to  a  compulsion  to 
pay,  and  so  the  party  would  be 
deprived  of  his  day  in  court.  If 
the  rule  could  so  operate  in  any 
case  it  ought  not  to  be  enforced  in 
this  jurisdiction  at  all.  So  the 
question  recurs:  Shall  we  enforce 
a  liability  bond  solely  on  the  arbi- 
trary action  of  the  superintendent 
of  banks  of  the  state  of-  New 
York?  We  decline  to  do  so.  .  .  . 
But  we  should  add  in  this  connec- 
tion that  the  question  is  not 
whether  the  New  York  act  is  valid. 
That  is  an  inquiry  for  the  New 
York  courts,  under  the  constitu- 
tion of  that  state,  and  we  do  not 
express  an  opinion  on  it.  We  do 
say,  however,  that  it  is  against  the 
policy  of  this  state  to  vest  such 
powers  in  a  mere  ministerial  offi- 
cer, powers  which  we  regard  as 
of  a  highly  judicial  nature,  to  be 


PRIVATE    CORPORATIONS. 


975 


That  the  protection  of  domestic  creditors  has  been  a 
dominant  reason  for  restricting  the  chancery  receiver's 
right  to  sue  is  shown  by  the  fact  that,  at  least  in  more 
recent  years,  the  restriction  has  not  been  enforced  in  the 
absence  of  a  showing  that  there  were  domestic  creditors 
or  a  positive  law  or  policy  of  the  jurisdiction  against 
doing  so.^  In  other  words,  the  fact  of  a  receivership  in 
the  domicile  state  of  a  corporation  will  not  in  the  absence 


exercised  only  by  courts  after  due 
notice  and  the  appearance  of 
parties  in  person  or  by  represen- 
tation." Van  Tuyl  v.  Carpenter, 
135  Tenn.  629,  188  S.  W.  234. 

5  The  rule  that  a  receiver  has 
no  extra-territorial  jurisdiction  is 
subject  to  a  well  established  ex- 
ception which  allows  him  to  sue 
extra-territorially  where  there  are 
no  domestic  creditors  and  where  it 
is  not  against  the  public  policy 
of  the  state  in  which  the  suit  is 
brought.  Rogers  v.  Riley,  80  Fed. 
759. 

The  limitations  under  which  a 
foreign  receiver  may  enforce  a 
claim  to  the  property  of  the  non- 
resident debtor  are  those  pre- 
scribed by  the  law  and  policy  of 
the  state  wherein  the  property  is 
situated.  Zacher  v.  Fidelity  Trust, 
etc.,  Co.,  106  Fed.  593,  45  C.  C.  A. 
480. 

See  Pollock  v.  Carolina  Inter- 
state Building  &  Loan  Assn.,  48 
S.  C.  65,  59  Am.  St.  Rep.  695,  25 
S.  E.  977:  Patterson  v.  Lynde,  112 
111.  196,  207;  Chicago,  etc.,  Ry.  Co. 
V.  Keokuk,  etc.,  Packet  Co.,  108 
111.  317,  48  Am.  Rep.  557;  Waters- 
Pierce  Oil  Co.  V.  Bell,  71  Mo.  App. 
653;  Van  Tuyl  v.  Carpenter, 
135  Tenn.  629,  188  S.  W.  234;  Har- 


dee V.  Wilson,  129  Tenn.  511,  167 
S.  W.  475. 

A  receiver  of  a  foreign  corpora- 
tion appointed  by  the  court  of  the 
state  of  its  domicile  and  consid- 
ered as  a  common-law  receiver  is 
not  vested  with  the  legal  title  to 
real  estate  of  the  corporation  sit- 
uated in  South  Dakota,  where  the 
corporation  has  not  voluntarily,  or 
otherwise,  conveyed  the  property 
to  the  receiver.  Joy  v.  Midland 
State  Bank,  26  S.  D.  244,  128  N.  W. 
147. 

"Our  law  prefers  the  claims  of  the 
domestic  attaching  creditors  to 
those  of  foreign  creditors,  or 
claimants,  and  this  policy  will  be 
upheld  against  indirect  as  well  as 
against  direct  attacks."  Clark  v. 
Supreme  Council  of  Order  of 
Chosen  Friends,  146  Cal.  598,  80 
Pac.  931. 

Every  remedy  to  gather  in  the 
assets  is  afforded  unless  it  would 
interfere  with  the  policy  of  the 
state  or  impair  the  rights  of  its 
own  citizens.  A  state  that  does 
not  discriminate  between  its  own 
citizens  and  those  of  a  foreign 
state  discharges  all  the  obliga- 
tions required  by  the  rule  of  cour- 
tesy. Mubon  V.  Ongley  Electric 
Co.,  156  N.  Y.  196,  50  N.  E.  805. 


97G 


LAW    OF    RECEIVERS. 


of  ancillary  receivership  prevent  a  foreign  creditor  from 
asserting  his  rights.*' 

§  370.     Effect  of  Having  Ancillary  Receivers  Appointed. 

One  method  of  overcoming  the  above  noticed  restric- 
tion upon  the  right  of  a  domiciliary  receiver  to  sue  for 
assets  in  a  foreign  jurisdiction  is  to  have  ancillary  re- 
ceivers appointed  in  the  foreign  jurisdictions  in  which 
assets  are  located.  Such  receivers  may  be  given  all  the 
powers  and  rights  as  to  the  local  assets  of  the  corpora- 
tion as  the  domiciliary  receiver  may  have  in  the  home 
jurisdiction  or  such  as  they  might  have  in  the  jurisdic- 
tions in  which  they  are  appointed  if  they  were  there 
domiciliary  receivers.^  Such  receivers,  however,  are 
under  the  control  and  direction  of  the  courts  appointing 


6  Choctaw,  etc.,  R.  Co.  v.  Wil- 
liams, etc.,  Co.,  75  Ark.  365,  87 
S.  W.  632;  Hunt  v.  Columbian  Ins. 
Co.,  55  Me.  290,  92  Am.  Dec.  592; 
Taylor  v.  Columbian  Ins.  Co.,  96 
Mass.  (14  Allen)  353;  Osgood  v. 
Maguire,  61  N.  Y.  524;  Woerishof- 
fer  V.  North  River  Const.  Co.,  99 
N.  Y.  398,  2  N.  E.  47;  Kruger  v. 
Bank  of  Commerce,  123  N.  C.  16, 
31  S.  E.  270. 

1  On  the  application  for  an  an- 
cillary receiver  in  a  federal  juris- 
diction, while  a  stockholder  may 
intervene  to  contest  the  appoint- 
ment, he  may  not  attack  the  ap- 
pointment of  the  domiciliary  re- 
ceiver in  the  home  federal  district. 
McGraw  v.  Mott,  179  Fed.  646,  103 
C.  C.  A.  204. 

An  ancillary  receiver,  appointed 
by  a  federal  court  in  Massachu- 
setts, M'ith  all  the  powers  granted 
to  the  domiciliary  receiver,  may 
use,  in  a  Massachusetts  court,  to 
recover  from  one  W'ho  had  acted 
as  trustee  of  the  corporation,  prof- 


its wrongfully  made  by  him  in  the 
execution  of  his  trust,  when  the 
order  of  original  appointment  au- 
thorized the  receiver  to  sue  in  any 
court  to  recover  assets  of  the  cor- 
poration. Bay  State  Gas  Co.  v. 
Rogers,  147  Fed.  557. 

Title  to  the  local  personal  assets 
of  a  corporation  vests  in  an  ancil- 
lary receiver  appointed  in  New 
York  where  the  order  of  appoint- 
ment of  the  domiciliary  receiver 
vested  title  to  the  corporate  assets 
in  that  official.  Smith  v.  Eighth 
Ward  Bank,  31  App.  DIv.  6,  52  N. 
Y.  Supp.  290. 

Where  an  action  had  been  com- 
menced in  New  York  by  a  foreign 
corporation  to  recover  unpaid  as- 
sessments on  capital  stock  it  was 
proper  for  an  ancillary  receiver 
appointed  in  that  state  to  continue 
the  action  in  the  company's  name, 
under  the  New  York  statute  relat- 
ing to  the  effect  of  a  transfer  of 
interest  upon  a  pending  action. 
Sigua  Iron  Co.  v.  Brown,  171  N.  Y. 
488,  64  N.  E.  194. 


PRIVATE    CORPORATIONS. 


977 


lL(;m  anJ  not  uiuler  the  control  of  the  domiciliary  court; 
and  the  former  courts,  before  permitting  the  assets  col- 
lected in  their  jurisdictions  to  be  sent  to  the  domiciliary 
court  for  distribution  will  provide,  in  such  ways  as  may 
be  necessary,  for  the  due  protection  of  local  creditors.^ 


2Thornley  v.  J.  C.  Walsh  Co., 
200  Mass.  179,  86  N.  E.  355;  Brun- 
Tier  V.  York  B.  Co.,  78  W.  Va.  702, 
90  S.  E.  233. 

The  New  York  statutes  relating 
to  the  duties  of  a  receiver  of  an 
insolvent  corporation  do  not  apply 
to  an  ancillary  receiver;  and  while 
such  a  receiver  is  amenable  to  the 
orders  of  the  court  appointing  him 
and   may   seek   instructions    from 
such  court  as  to  his  proper  course 
in  the  details  of  his  administration, 
his     accounts     will     not     be     sur- 
charged,   if   they    have    been    sub- 
mitted   to    and    approved    by    the 
domiciliary  court,  simply  because 
he  has  failed  to  seek  the  counsel 
of  the  local  court  if  his   conduct 
otherwise  has  been  proper  and  due 
regard  to  the  rights  of  local  cred- 
itors has  been  shown.     Strauss  v. 
Casey  Machine,  etc.,  Co.,  68  Misc. 
Rep.  474,  124  N.  Y.  Supp.  32. 

When  a  domiciliary  receiver, 
having  been  appointed  ancillary 
receiver,  attacks  as  invalid  an  at- 
tachment levied  upon  assets  in  the 
ancillary  jurisdiction  subsequent 
to  the  domiciliary  but  prior  to  the 
ancillary  appointment,  on  the 
ground  that  the  corporation  was 
dissolved  at  the  time  of  the  levy, 
the  attack  is  derogatory  to  the 
receiver's  own  ancillary  title,  and 
a  motion  to  vacate  the  attachment 
on  that  ground  will  be  denied. 
Hammond  v.  National  Life  Assn., 
58  App.  Div.  453,  69  N.  Y.  Supp. 
585;  appeal  dismissed,  168  N.  Y. 
262,  61  N.  E.  244. 
II  Rec— 62 


A  foreign  receiver  of  a  corpora- 
tion  having   been    appointed    and 
having  collected  the  local  assets, 
and   having   turned   them   over   to 
an  ancillary   bankruptcy   receiver, 
after  the  latter  had  been  appointed 
trustee  by  the  primary  bankruptcy 
court,    the    ancillary    proceedings 
having    been    made    necessary    by 
the   fact  that  the   assets   were   in 
the   possession,   not  of  the    bank- 
rupt,   but    of    the    state    court    at 
the  time  of  the  adjudication,  and 
notwithstanding  that  the   trustee, 
under    the    bankruptcy    law,    was 
vested  with  title,  it  was  the  duty 
of  the  ancillary  court  to  hold  the 
local    fund    subject    to    statutory 
preferred  claims  of  local  creditors. 
"The  object  of  bestowing  ancillary 
jurisdiction  would  naturally  be  to 
invest  the  tribunal,   whose  aid  is 
once  invoked,  with  power  itself  to 
control      the      agencies      coming 
within   its   territorial   jurisdiction, 
and    likewise    the    property    found 
and      sought      to      be      recovered 
therein    on    behalf    of    the    bank- 
rupt's estate.     It  would  be  an  an- 
omalous  proceeding  which   would 
suffer  an   ancillary   receiver  or  a 
trustee   in   bankruptcy   at   his   op- 
tion to  withdraw  property  recov- 
ered through  the  aid  of  the  ancil- 
lary tribunal  and  regardless  alike 
of  the  tribunal  itself  and  resident 
suitors  there  appearing  and  claim- 
ing priorities  or  liens  against  the 
property.     This  would  be  to  make 
the   ancillary  tribunal  a  mere   in- 
strument of  the  official  instituting 


978 


LAW   OF   RECEIVERS. 


§  371.    Eflfect  of  Various  Statutes  Making  Receiver  an  Assignee 
or  Quasi-Assignee  of  Estate. 

Legislatures  liave  devised  another  method  for  over- 
coming the  territorial  limitations  attaching  to  a  chancery- 
receiver's  powers  to  marshal  the  assets  of  a  receivership 
corporation.  Statutes  have  been  enacted  giving  courts 
power  to  appoint  receivers  in  whom,  upon  their  appoint- 
ment, shall  vest  the  title  to  all  of  the  corporate  assets 
wherever  they  may  be  situated.  At  least  as  far  as  per- 
sonal property  is  concerned,  such  property  being  gener- 
ally considered  as  having  no  situs  of  its  owm  and  as  fol- 
lowing the  person  of  its  owner,  such  statutory  provision 
effectually  bars  any  objection  to  the  receiver's  being 
accorded  the  privilege  of  suing  extra-territorially  on  the 
score  of  danger  to  the  defendant  from  liability  to  a  sec- 
ond suit,  and  we  find  it  frequently  stated  to  be  the  general 
rule  that  such  a  statutory  receiver  may  sue  in  any  juris- 


the  action,  since  it  would  deny  to 
the  tribunal  power  to  pass  upon 
the  rights  of  adverse  claimants 
and  even  of  a  person  found  in 
possession  of  the  property.  Such 
a  proceeding  would  hardly  square 
with  due  process  of  law;  it  would 
savor  rather  of  violence.  .  .  . 
Ancillary  jurisdiction,  it  is  true, 
signifies  power  to  aid  primary 
jurisdiction.  But  the  power  in  an 
ancillary  tribunal  to  take  posses- 
sion of  property  at  all  is  founded 
on  the  interest  therein  of  the  per- 
son or  estate  in  whose  right  the 
proceeding  is  maintained;  and'  this 
interest  can  not,  in  the  nature  of 
things,  be  ascertained  without 
passing  upon  such  adverse  inter- 
ests as  may  be  claimed  by  others 
in  the  property.  When,  therefore, 
an  ancillary  tribunal  takes  posses- 
sion, whether  with  or  without  op- 


position, such  possession  draws  to 
that  tribunal  power,  indeed,  im- 
poses a  duty,  to  determine  all 
questions  of  priorities  and  liens 
affecting  the  property.  This  ap- 
plies with  especial  force  to  the 
rights  of  resident  adverse  claim- 
ants." Emerson  v.  Castor,  236 
Fed.  29,  149  C.  C.  A.  239. 

In  New  York  it  has  been  held 
that  an  ancillary  receiver  is  a  final 
receiver  as  to  property  of  a  for- 
eign corporation  in  the  state,  and 
thus  within  its  general  statute. 
Mubon  v.  Ongley  Electric  Co.,  156 
N.  Y.  196,  50  N.  E.  805. 

Creditors  residing  outside  of  the 
jurisdiction  of  the  court  appointing 
an  ancillary  receiver  are  not  al- 
lowed to  intervene  in  its  proceed- 
ings and  present  their  claims  since 
their  remedy  is  participation. 
Sands  v.  E.  S.  Greeley  &  Co.,  80 
Fed.  195. 


PRIVATE   CORPORATIONS. 


979 


diction.*  It  is  not  necessary  that  the  statute  should  de- 
clare the  corporate  title  to  be  vested  in  the  receiver;  it  is 
sufficient  if  the  statute  provides  that  the  receiver  may 


1  Bernheimer  v.  Converse,  206 
U.  S.  516,  51  L.  Ed.  1163,  27  Sup. 
Ct.  755;  Converse  v.  Hamilton,  224 
U.  S.  243,  Ann.  Cas.  1913D,  1292, 
56  L.  Ed.  749,  32  Sup.  Ct.  415;  Goss 
v.  Carter,  156  Fed.  746,  84  C.  C.  A. 
402;  Mottinger  v.  Hendricks,  208 
Fed.  824;  Ballard  v.  Audubon,  etc., 
Bank,  222  Fed.  57,  137  C.  C.  A. 
595;  Strout  v.  United  Shoe  M,  Co., 
195  Fed.  313;  Lyon  v.  Russell,  41 
App.  Cas.  (D.  C.)  554;  Howarth  v. 
Lombard,  175  Mass.  570,  49  L.  R.  A. 
301,  56  N.  E.  888;  Wamsley  v. 
H.  L.  Horton  &  Co.,  153  N.  Y.  687, 
48  N.  E.  1107,  affirming  42  N.  Y. 
Supp.  767,  12  App.  Div.  312;  Royal 
Trust  Co.  V.  Harding,  155  App.  Div. 
104,  140  N.  Y.  Supp.  9,  affirming 
order,  78  Misc.  Rep.  309,  137  N.  Y. 
Supp.  1101;  In  re  People's  Surety 
Co.  of  New  York,  82  Misc.  Rep.  518, 
144  N.  Y.  Supp.  131;  Van  Tuyl  v. 
Carpenter,  135  Tenn.  629,  188  S.  W. 
234;  Hardee  v.  Wilson,  129  Tenn. 
511,  167  S.  W.  475;  Oilman  v. 
Ketcham,  84  Wis.  60,  36  Am.  St. 
Rep.  899,  23  L.  R.  A.  52,  54  N.  W. 
395;  Parker  v.  Stoughton  Mill  Co., 
91  Wis.  174,  51  Am.  St.  Rep.  881, 
64  N.  W.  751. 

A  statute  of  Missouri  provided 
that  the  State  Superintendent  of 
Insurance  might  institute  proceed- 
ings looking  toward  the  dissolu- 
tion of  an  insurance  company  and 
that,  if  a  decree  of  dissolution  was 
made,  all  of  the  corporate  assets 
should  vest  "in  fee-simple  and  ab- 
solutely" in  the  superintendent  to 
be  disposed  of  for  the  benefit  of  all 
interested  persons.  A  Judgment 
for  a  very  large  sum  having  been 


rendered    in    Missouri    against    a 
Missouri     insurance     corporation, 
the   insurance    superintendent   in- 
stituted    proceedings     under     the 
statute  and  a  temporary  receiver 
was  appointed.    Thereupon  certain 
policyholders    in    Louisiana    com- 
menced an  action  in  a  Louisiana 
state  court  against  the  company, 
the  temporary  receiver,  the  local 
agent  holding  certain  local  assets, 
and  others,  "the  object  of  which 
was  to  have  the  assets  in  Louisi- 
ana declared  a  trust  fund  and  ap- 
plied to  the  payment  of  the  claims 
of    Louisiana    policyholders     and 
creditors  in  preference  to  others," 
and  a  receiver  of  the  local  assets 
was  appointed.    The  company  hav- 
ing  been   subsequently   dissolved, 
the  state  superintendent  was,  on 
his  own  motion,  made  a  party  to 
the  Louisiana  action,  and  filed  a 
petition   to   have   the   case   trans- 
ferred to  the  federal  circuit  court 
for   the   district   of   Louisiana   on 
the  ground  of  diversity  of  citizen- 
ship.    The   state   receiver   moved 
to  have  the  case  remanded  to  the 
state  court  on  the  ground  that  the 
Missouri  superintendent,  being  sim- 
ply an  officer  of  that  state,  was 
without  capacity  to  sue  in  Louis- 
iana.   From  an  order  granting  this 
motion  an  appeal  was  taken  to  the 
United  States  Supreme  Court.    In 
the  course  of  its  opinion  the  Su- 
preme Court  argued  as  follows: 

"The  entire   controversy  is   be- 
tween the  appellees,  representing 
the  Louisiana  creditors  and  policy, 
holders  on  the  one  side,  and     . 
the  statutory  representative  of  the 


980 


LAW    OF    RECEIVERS. 


sue  or  may  he  authorized  to  sue  extra-territorially.-  The 
question  as  to  the  receiver's  right  to  sue  is  determined 
by  the  interpretation  jjlaced  upon  the  statute  by  the 
courts  of  the  state  in  which  it  was  enacted.^     The  rii^ht 


corporation  and  its  property  on 
the  other,  as  to  their  respective 
rights  to  what  the  appellees  claim 
are  Louisiana  assets  belonging 
primarily  to  Louisiana  creditors. 
The  superintendent  is  not  an 
officer  of  the  Missouri  state  court, 
but  the  person  designated  by  law 
to  take  the  property  of  any  dis- 
solved life  insurance  corporation 
of  that  state.  .  .  .  We  are  aware 
that,  except  by  virtue  of  some 
statutory  authority,  an  adminis- 
trator appointed  in  one  state  can 
not  generally  sue  in  another,  and 
that  a  receiver  appointed  by  a 
state  court  has  no  extra-territorial 
power;  but  a  corporation  is  the 
creature  of  legislation  and  may  be 
endowed  with  such  powers  as  its 
creator  sees  fit  to  give  it.  Neces- 
sarily it  must  act  through  agents, 
and  the  state  which  creates  it 
may  say  who  those  agents  shall 
be.  One  may  be  its  representa- 
tive when  in  active  operation  and 
in  full  possession  of  all  its  powers, 
and  another  if  it  has  forfeited  its 
charter  and  has  no  lawful  exis- 
tence, except  to  wind  up  its  affairs. 
.  .  .  [The  superintendent],  there- 
fore, became,  by  operation  of  law, 
the  successor  of  the  corporation  in 
the  litigation  these  appellees  insti- 
tuted in  Louisiana."  The  order  re- 
manding was  reversed.  Relfe  v. 
Rundle,  103  U.  S.  222,  26  L.  Ed. 
337. 

2  Irvine  v.  Baker,  225  Fed.  834. 

3  Sterrett  v.  Second  Nat.  Bank, 
246  Fed.  753,  159  C.  C.  A.  55.     See 


Harris-Woodbury    Lumber    Co.    v. 
Coffin,  179  Fed.  257. 

In  Kelly  v.  Dolan,  218  Fed.  966, 
the  court  in  drawing  attention  to 
the  distinction  between  the  pow- 
ers of  chancery  and  statutory  re- 
ceiver in  this   respect,  said: 

■'The  sound  principle  would 
seem  to  be  that  it  is  denied  only 
the  right  to  do  the  things  which 
the  court  of  its  appointment  has 
prohibited  ft  from  doing.  If  that 
court  sanctions  the  exercise  of  the 
right,  it  would  further  seem 
that  the  court  of  another  jur- 
isdiction should  permit  it  to 
do  (if  no  other  reason  exists 
for  refusal)  what  the  court  of 
its  appointment  would  permit  to 
be  done  there.  This  view,  al- 
though in  conflict  with  Harper  v. 
News  Co.  (C.  C),  128  Fed  979, 
would  seems  to  be  in  accord  with 
Porter  v.  Sabin,  149  U.  S.  479,  37 
L.  Ed.  815,  13  Sup.  Ct.  1008.  Har- 
per V.  News  Co.,  moreover,  was  the 
case  of  a  chancery  receivership, 
and  the  present  case  is  being  con- 
sidered as  one  of  a  statutory  re- 
ceiver, upon  whom  has  devolved 
the  title  to  the  chose  in  action. 
Such  a  receiver,  because  he  has 
the  legal  title,  may  assert  his  right 
of  action  anywhere,  on  the  prin- 
ciple that  title  under  the  law  of 
the  situs  is  a  good  title  every^ 
where.  As  the  title  is  thus  in  the 
receiver,  and  in  him  alone,  it 
would  logically  follow  that  no  one 
else,  and  therefore  no  stockholder, 
could  maintain  the  action. 


PRIVATE    CORPORATIONS. 


981 


of  the  receiver  to  sue  extra-territorially  must  be  alleged 
and  proved.^ 

However,  sucli  recognition  of  this  statutory,  or  invol- 
untary, transfer  of  title  to  the  receiver  is  only  a  matter 
of  comity  among  the  jurisdictions  and  is  not  accorded  in 
opposition  to  any  law  or  policy  of  a  jurisdiction  designed 
to  protect  its  own  residents,  or  citizens.  This  proposition 
was  pointed  out  in  the  case  of  Booth  v.  Clark,  above 
referred  to.  It  was  there  pointed  out  that,  although 
England,  contrary  to  an  earlier  policy,  and  some  other 
nations  of  Europe  had  adopted  a  policy  of  recognizing 


'•If  this  were  an  action  at  law, 
this  result  would  surely  follow. 
Inasmuch,  however,  as  it  is  a  pro- 
ceeding in  equity,  it  may  be  that  it 
can  be  sustained  as  a  proceeding 
for  the  redress  of  an  injury  to  the 
corporation  to  which  the  receiver 
is  a  necessary  party,  because  he 
has  succeeded  to  the  rights  of  the 
corporation,  and  to  which  the 
stockholder  is  also  a  party,  be- 
cause required  to  be  one  in  order 
to  meet  the  terms  of  the  permis- 
sion to  sue  granted  by  the  court 
of  the  receiver's  appointment,  and 
in  order  that  the  stockholder  may 
be  made  answerable  for  the  costs. 
This  would  further  appear  to  ac- 
cord with  the  requirements  of  the 
real  situation.  If  injury  has  been 
done  to  the  corporation,  the  wrong 
should  be  redressed.  Whether  the 
Injury  has  been  done  can  only  be 
determined  by  an  action.  The  ac- 
tion might  be  brought  by  the  re- 
ceiver. The  court  could  require 
its  receiver  to  bring  the  action. 
Permitting  it  to  be  brought  for  the 
benefit  of  the  corporation  and  of 
the  receiver  by  a  stockholder 
would  seem  to  be  in  effect  the 
same  thing.  As  it  is  clear  the  cor- 
poration could  not  maintain  an  ac- 


tion, application  to  it  would  be 
futile.  The  other  objections  to  a 
stockholder  being  ordinarily  per- 
mitted to  maintain  an  action  do 
not  apply,  when  the  action  can  be 
brought  only  when  it  has  the  sanc- 
tion of  the  court.  As  the  question 
here  involved  will  remain  in  the 
case  until  final  decree,  it  is  not 
necessary  for  us  now  to  go  fur- 
ther than  to  decline  to  dismiss  the 
bill  at  this  time  on  this  ground." 

■i  Royal  Trust  Co.  v.  Harding, 
affirming  78  Misc.  Rep.  309,  137 
N.  Y.  Supp.  1101;  order  affirmed 
155  App.  Div.  104,  140  N.  Y.  Supp. 
9. 

Where  a  domiciliary  receiver 
sues  extra-territorially,  the  full 
faith  and  credit  clause  of  the 
United  States  constitution  does 
not  preclude  inquiry  by  the  for- 
eign court  as  to  whether  or  not 
the  appointing  court  had  jurisdic- 
tion of  the  subject-matter  and  the 
parties.  The  presumption  in  favor 
of  the  domiciliary  court,  as  a  court 
of  general  jurisdiction,  is  dispu- 
table, especially  where  it  acts  by 
virtue  of  statutory  authority  and 
not  in  the  exercise  of  its  inherent 
power.  Folger  v.  Columbian  Ins. 
Co.,  99  Mass.  267,  96  Am.  Dec.  747. 


982 


LAW   OF    RECEIVERS. 


the  title  placed  in  bankruptcy  trustees  by  tlie  statutes  of 
other  countries,  such  policy  had  not  yet  been  adopted  by 
the  federal  courts  and  some  of  the  state  courts  of  the 
United  States.^  The  domiciliary  receiver  may  not  be 
permitted  to  dispossess  a  foreign  receiver  who  had  been 
appointed  and  taken  possession  of  the  local  assets  before 
the  domiciliary  receiver  had  taken  any  steps  to  reduce 
them  to  possession;  although  he  may  be  permitted  to 
intervene  in  the  local  proceedings,  which  may  thereafter 
be  considered  of  an  ancillary  character,  or  given  such 
other  recognition  as  may  not  be  inconsistent  with  a  due 
regard  to  the  rights  of  local  creditors.^  Liens  obtained 
upon  the  local  assets  may,  under  the  local  laws  and 
policy,  be  valid  against  any  claim  of  the  domiciliary  re- 
ceiver, though  acquired  after  his  appointment.  In  a 
New  York  case'^  this  proposition  was  stated  as  follows: 


5  Booth  V.  Clark,  58  U.  S.  322, 
15  L.  Ed.  164. 

In  this  connection  the  court 
said:  "In  New  York,  'the  ubiquity 
of  the  operation  of  the  bankrupt 
law,  as  respects  personal  prop- 
erty,' was  denied  in  Abraham  v. 
Plestoro,  3  Wend.  (N.  Y.)  538,  20 
Am.  Dec.  738.  Chancellor  Kent 
considers  it  to  be  a  settled  part  of 
the  jurisprudence  of  the  United 
States,  that  a  prior  assignment 
under  a  foreign  law  will  not  be 
permitted  to  prevail  against  a  sub- 
sequent attachment  of  the  bank- 
rupt's effects  found  in  the  United 
States.  The  courts  of  the  United 
States  will  not  subject  their  citi- 
zens to  the  inconvenience  of  seek- 
ing their  dividends  abroad,  when 
they  have  the  means  to  satisfy 
them  under  their  own  control.  We 
think  that  it  would  prejudice  the 
rights  of  the  citizens  of  the  states 
to  admit  a  contrary  rule.  The  rule, 
as  it  is  well  affords  an  admitted 
exception  to  the  universality  of  the 


rule  that  personal  property  has  no 
locality  and  follows  the  domicile 
of  the  owner.  This  court,  in  Og- 
den  V.  Saunders,  12  Wheat.  (U.  S.) 
213,  6  L.  Ed.  606,  disclaimed  the 
English  doctrine  upon  this  sub- 
ject; and  in  Harrison  v.  Sterry,  5 
Cranch  (U.  S.),  289,  3  L.  Ed.  104, 
this  court  declared  that  the  bank- 
rupt law  of  a  foreign  country  is 
incapable  of  operating  a  legal 
transfer  of  property  in  the  United 
States." 

6  Barley  v.  Gittings,  15  App.  Cas. 
(D.  C.)  427;  State  ex  rel.  American 
Bankers'  Assur.  Co.  v.  McQuillin, 
260  Mo.  164,  168  S.  W.  924;  Ameri- 
can &  B.  Mfg.  Co.  V.  International 
P.  Co.,  173  App.  Div.  319,  159  N.  Y. 
Supp.  582;  People  v.  Granite  State 
Provident  Assn.,  161  N.  Y.  492,  55 
N.  E.  1053,  affirming  41  App.  Div. 
257,  58  N.  Y.  Supp.  510;  Irwin  v. 
Granite  State  Provident  Assn.,  56 
N.  J.  Eq.  244,  38  Atl.  680. 

7  McNelus  V.  Stillman,  172  App. 
Div,  307,  158  N.  Y.  Supp.  428.    The 


PRIVATE   CORPORATIONS. 


983 


''So  far  as  it  was  competent  for  the  Legislature  of  New 
Jersey  to  transfer  the  property  of  the  corporation  to  the 
receiver,  owing  to  the  insolvent  condition  of  the  company, 


quotation   in  the  text  is  from  an 
opinion  in  proceedings  had  to  en- 
force an  attachment.    An  assignee 
of  a  foreign  creditor  of  a  New  Jer- 
sey corporation  commenced  an  ac- 
tion   against    the    corporation    in 
New   York  and   attached,   or  gar- 
nished, an  unpaid  stock  subscrip- 
tion of  a  resident  stockholder.     A 
domiciliary  receiver  had  been  ap- 
pointed before  the  action  was  com- 
menced, but,  although  the  domicil- 
iary  court   levied   an   assessment 
upon  stockholders  on  their  unpaid 
subscriptions,   it   does   not  appear 
that  the  domiciliary  receiver  had 
ever  taken  any  steps  in  New  York. 
After  judgment  against  the  corpo- 
ration had  been  obtained,  proceed- 
ings   to    enforce    the    attachment 
were  had.    The  defense  was  inter- 
posed that  only  the  receiver  had  a 
right  to  collect  the  subscriptions. 
See  Choctaw  Coal  &  Mining  Co. 
V.  Williams-Echols  Dry  Goods  Co., 
75  Ark.  365,  87  S.  W.  632;    Hum- 
phreys V.  Hopkins,  81  Cal.  553,  15 
Am.  St.  Rep.  76,  6  L.  R.  A,  792,  22 
Pac.  892;  Stockbridge  v.  Beckwith, 
6   Del.   Ch.   72,   33   Atl.   620;    Corn 
Exchange  Bank  v.  Rockwell,  58  111. 
App.   506;    Holbrook  v.   Ford,   153 
111.   633,   46   Am.   St.    Rep.    917,   27 
L.  R.  A.  324,  39  N.  E.  1091;   Gray 
V.  Covert,  25  Ind.  App.  561,  81  Am, 
St.  Rep,  117.  58  N.  E.  731;   Shloss 
V.    Metropolitan    Surety    Co.,    149 
Iowa  382,  128  N.  W.  384;  Zacher  v. 
Fidelity   Trust,   etc.,   Co.,   109   Ky. 
441,  59  S.  W.  493;   Buswell  v.  Su- 
preme Sitting,  etc.,  161  Mass.  224, 
23    L.    R.   A.   846,    36   N.   E.    1065; 
Stevens  v.  Tilden,  122  Minn.  250, 


142  N.  W.  315;  Tompkins  v.  Bla- 
key,  70  N.  H.  584,  49  Atl.  Ill; 
Petersen  v.  Chemical  Bank,  32  N. 
Y.  21,  88  Am,  Dec,  298;  Howarth 
v.  Angle,  162  N.  Y.  179,  47  L.  R.  A. 
725,  56  N.  E.  489,  affirming  39  App. 
Div.  151,  57  N.  Y.  Supp.  187;  Fil- 
kins  V.  Nunnemacher,  81  Wis.  91 
51  N.  W.  79. 

A  domiciliary  receiver  having 
sued  to  recover  certain  assets  in 
a  foreign  jurisdiction,  having  com- 
promised the  claim  sued  upon,  re- 
ceived part  of  the  money  due  in 
settlement  of  the  compromise,  and 
having  had  the  money  received 
distributed  by  the  domiciliary 
court,  it  was  too  late  for  creditors 
in  the  foreign  jurisdiction  to  have 
the  compromise  set  aside  in  order 
that  they  might  attach  or  garnish 
the  asset.  Seminole  Securities  Co. 
V.  Southern  Life  Ins.  Co.,  182 
Fed.  85. 

A  domiciliary  receiver  may  move 
in  the  courts  of  New  York  to  va- 
cate an  attachment  on  the  ground 
that  it  has  been  unlawfully  issued, 
and  that  no  right  has  been  ac- 
quired thereunder  by  the  attach- 
ing creditor.  Hammond  v.  Na- 
tional Life  Assn.,  58  App.  Div.  453. 
69  N.  Y.  Supp.  585,  affirming  31 
Misc.  Rep.  182,  65  N.  Y.  Supp.  407. 
A  domiciliary  receiver  appointed 
by  a  state  court  may  defend  an 
action  instituted  in  a  federal  court 
of  a  foreign  jurisdiction  against 
the  receivership  corporation.  Rust 
V.  United  W.  Co.,  70  Fed.  129,  17 
C.  C.  A.  16, 

The  comity  that  is  extended  by 
a  foreign  state  court  to  a  domicil- 


984  LAW    OF    RECEIVERS. 

there  can  be  no  doubt  but  that  such  is  the  effect  of  the 
New  Jersey  statute.  The  cause  of  action,  however,  on 
the  stock  subscription  against  a  resident  of  this  state, 
was,  for  the  purposes  of  our  attachment  law,  a  debt  due 
and  owing  to  the  corporation  here;  and  by  the  express 
provisions  of  said  section  646  of  the  Code  of  Civil  Pro- 
cedure, it  was  subject  to  levy  under  an  attachment,  and 
with  respect  to  creditors  of  the  corporation  pursuing 
their  legal  remedies  in  the  courts  of  this  state  effect  is 
not  given  here  to  the  involuntary  transfer  of  the  property 
of  the  debtor  by  virtue  of  foreign  statutory  law.  Ham- 
mond V.  Nat.  Life  Ass'n,  58  App.  Div.  453,  69  N.  Y.  Supp. 
585,  appeal  dismissed  168  N.  Y.  262,  61  N.  E.  244 
Hibernia  Bank  v.  La  combe,  84  N.  Y.  367,  384,  38  Am 
Rep.  518;  Barth  v.  Backus,  140  N.  Y.  230,  35  N.  E.  425 
23  L.  R.  A.  47,  37  Am.  St.  Rep.  545 ;  Nat.  Park  Bank  v 
Clark,  92  App.  Div.  262,  87  N.  Y.  Supp.  185.  See,  also 
Mabon  v.  Ongley  Electric  Co.,  156  N.  Y.  196,  50  N.  E.  805 ; 
and  Hallenborg  v.  Greene,  66  App.  Div.  590,  597,  599,  73 
N.  Y.  Supp.  403. 

''In  the  view  we  take  of  the  case,  as  herein  indicated, 
it  is  unnecessary  to  consider  whether,  if  the  contentions 
made  in  behalf  of  the  respondents  were  tenable,  they 
could  be  effectually  interposed  now,  after  the  recovery  of 
judgment  on  tlie  debt  owing  to  appellant  by  the  corpora- 

iary  receiver  is  not  affected  by  the  valid     against    foreign     creditors, 

fact  that  he  was  appointed  by  a  Ward  v.  Connecticut  P.  M.  Co.,  71 

federal  court.     Stevens  v.  Tilden,  Conn.  345,  71  Am.  St.  Rep.  207,  42 

122  Minn.  250,  142  N.  W.  315.  L.  R.  A.  706,  41  Atl.  1057. 


Where    a    corporation    was    dis- 


A  corporation  having  been  dis- 
solved and  a  domiciliary  receiver 
solved  and  a  receiver  appointed  at  ^^^^,.^^  ^^^^  appointed,  and  a  con- 
the  instance  of  a  very  large  ma-  yeyance  of  real  estate  in  a  for- 
jority  of  its  stockholders,  a  con-  gign  jurisdiction  having  been 
veyance  of  the  corporate  assets  made  to  the  receiver,  title  to  the 
made  to  the  receiver  by  the  proper  real  estate  vested  in  the  receiver 
corporate  officers  pursuant  to  an  either  by  virtue  of  his  appoint- 
order  of  the  court  will  be  regarded  ment  or  the  conveyance.  Sayre  v. 
as    a    voluntary    conveyance    and      Sage,  47  Colo.  559,  108  Pac.  160. 


PRIVATE    CORPORATIONS  985 

tion,  with  the  attachment  remaining  .tnvacated  and  that 
judgment  remaining  in  full  force  aii.f  effect.  We  express 
no  opinion  with  respect  to  the  effec'r  the  dissolution  of  the 
Steel  Company  might  have  oi?  plaintiff's  judgment 
against  it  (see  Sinnott  v.  Hanan,  214  N.  Y.  454,  108  N.  E. 
858;  and  Rodgers  v.  Ins.  Co.,  148  N.  Y.  34,  42  N.  E.  515)^ 
for  it  does  not  appear  that  it  has  been  dissolved,  and  the 
point  has  not  been  presented. 

''We  are  asked  on  grounds  of  comity  to  remit  the 
creditor  of  the  corporation  to   the  jurisdiction   of  the 
courts  of  New  Jersey,  where  he  would  be  permitted  to 
participate  with  the  other  creditors  of  the  corporation  in 
any  of  its  assets;  but  the  question  of  comity  was  not 
overlooked  in  the  decisions  above  cited,  and  it  has  long 
been  the  established  rule  in  this  state  that,  where  the 
invoUmtary  transfer  has  taken  place  here,  the  right  of 
creditors,  whether  domestic  or  foreign,  to  pursue  legal 
remedies  and  acquire  by  attachment  in  foreign  jurisdic- 
tions a  lien  on  the  property  of  the  debtor  superior  to  the 
title   previously   acquired    by   the   involuntary   transfer 
here,  is  recognized.    Warner  v.  Jaff'ray,  96  N.^  Y.  248,  48 
Am.  Rep.  616;  Barth  v.  Backus,  supra.     These  prece- 
dents are  controlling,  and  this  court  is  not  at  liberty  to 
consider  the  question  de  novo.     In  Wulff  v.  Roseville 
Trust  Co.,  164  App.  Div.  399,  149  N.  Y.  Supp.  683,  we 
were  able  to  distinguish   them,   and   on  motion   of  the 
assignee  of  the  assets  of  a  New  Jersey  trust  company, 
the  affairs  of  which  had  been  liquidated,  we  vacated  an 
attachment  obtained  here  by  the  assignee  of  a  depositor 
with  the  insolvent  trust  company;  but  we  so  decided  on 
the  ground  that  the  deposit  was  made  subject  to  the  laws 
of  New  Jersey,  by  which,  in  case  of  insolvency,  the  assets 
became  a  trust  fund  for  the  benefit  of  all  creditors.    We 
do  not  consider  that  our  decision  in  that  case  is  applicable 
here,  and  evidently  counsel  for  respondents  does  not,  for 
it  has  not  been  cited.    So  far  as  appears,  it  is  immaterial 
to  respondents  to  whom  they  respond  on  the  liability  of 


986  LAW   OF    RECEIVERS. 

their  testator,  and  there  can  be  no  doubt  but  that  a  recov- 
ery and  satisfaction  in  this  action  will  fully  protect 
them. ' ' 

The  policy  of  refusing  to  recognize  the  rights  of  a 
statutory  domiciliary  receiver  is  usually  limited  in  favor 
of  the  citizens  of  the  jurisdiction;  it  may,  however,  be 
extended  to  residents,  even  though  they  are  not  citizens, 
but  is  usually  not  extended  to  citizens  of  the  domiciliary 
jurisdiction.^  The  differences  among  jurisdictions  in 
respect  to  their  policy  in  this  matter  and  changes,  from 
time  to  time,  in  the  policy  of  a  particular  jurisdiction 
will  explain  many  seeming  divergences  among  court 
decisions  respecting  the  rights  of  receivers  with  refer- 
ence to  assets  located  in  jurisdictions  other  than  the 
appointing  jurisdictions.  It  is  to  be  remembered  also 
that  the  decisions  of  federal  courts  are  frequently  con- 
trolled by  the  policy  of  states  by  whose  laws  they  are 
guided. 

A  domiciliary  receiver  may  sue  a  non-resident  debtor 
of  the  corporation  or  a  non-resident  party  claiming  ad- 
versely to  the  corporation  just  as  a  private  person  may 
sue  a  non-resident,  subject  to  the  same  limitations  as  to 
obtaining  a  judgment  in  personam  against  a  party  who 
is  not  personally  served  with  process  and  who  does  not 
voluntarily  appear  in  an  action  f  or  he  may,  if  he  obtains 
a  domestic  judgment  against  a  party,  sue,  as  a  judgment 

sRhawn  v.  Pearce,  110  111.  350,  A  foreign  creditor  may  not  by 

51  Am.  Rep.  691;  Heyer  v.  Alexan-  assigning  his  claim  to  a  resident, 

der,  108  111.  385;  May  v.  First  Nat.  or  citizen,  obtain  advantages  ac- 

Bank,   122  111.  551,  13  N.  E.  806;  corded    to    a    resident    or    citizen 

Juillard  v.  May,  130  111.  87,  22  N.  E.  creditor.    Receivers  of  State  Bank 

477;  Townsend  v.  Coxe,  151  111.  62,  v.  First  Nat.  Bank,   34   N.  J.  Eq. 

37  N.  E.  689;   Linville  v.  Hadden,  450. 

88  Md.  594,  43  L.  R.  A.  222,  41  Atl.  9  State  Nat.   Bank  v.   Syndicate 

1097;    Long  v.  Girdwood,  150  Pa.  Co.,    178     Fed.    359;     Lanning    v. 

413,  23    L.   R.  A.   33,   24  Atl.  711;  Twining,  71  N.  J.  Eq.  573,  64  Atl. 

Cook  v.  Van  Horn,  81  Wis.  291,  50  466. 
N.  W.  893. 


PRIVATE    CORPORATIONS.  987 

creditor,  on  the  judgment  in  a  foreign  jurisdiction,  just 
as  a  private  person  might. ^^ 

§372.     Effect  of  Conveyance  of  Property  to  Receiver  by  In- 
solvent Corporation. 

In  some  instances  the  corporation  voluntarily  or  pur- 
suant to  an  order  of  court  executes  an  assignment  or 
conveyance  of  all  of  its  property  to  the  receiver.  Under 
such  circumstances  the  receiver  naturally  occupies  a  dif- 
ferent position  than  that  arising  from  being- a  mere  chan- 
cery receiver.  If  the  corporation  is  solvent  the  transac- 
tion would  be  considered  in  the  same  light  as  any  ordi- 
nary transaction. 

While  the  laws  of  a  foreign  state  have  no  force  as  such 
in  the  state,  still  the  courts  will  uphold  the  title  of  a  for- 
eign receiver  or  assignee  upon  the  principle  of  comity. 
If  the  title  is  by  virtue  of  a  voluntary  conveyance  or 
transfer,  it  is  sustained  as  against  all,  including  even 
domestic  creditors,  but  if  it  depends  on  a  foreign  statute 
or  judgment,  it  is  sustained  against  all  except  domestic 
creditors.  Subject  to  their  superior  rights,  the  plaintiff 
can  reduce  to  possession  all  the  property  of  the  defendant 
in  the  state  and  can  bring  replevin  for  that  purpose,  or 
trover  to  recover  damages  for  conversion.  Notes  and 
accounts  may  be  collected  by  the  usual  proceedings  in  the 
courts,  which  regards  a  foreign  receiver  as  representing 
the  original  owner,  and  open  their  doors  to  him  as  they 
do  to  a  domestic  receiver. ^  In  one  case  where  a  corpora- 
tion, pursuant  to  the  direction  of  the  court,  after  the  ap- 
pointment of  a  receiver  over  it  made  a  general  assign- 
ment to  him  of  its  property,  it  was  held  that  the  deed 
operated  as  a  general  voluntary  assignment.^     And  in 

loV^ilkinson  v.  Culver,  25  Fed.  71  Conn.  345,  71  Am.  St.  Rep.  207 

639,  23  Blatchf.  416.  42  L.  R.  A.  706,  41  Atl.  1057.  ' 

1  Mabon  v.  Ongley  Electric  Co.,  Where,  after  the  appointment  of 
156  N.  Y.  196,  50  N.  E.  805.  a    receiver,    the    corporation    exe- 

2  Ward  V.  Connecticut,  etc.,  Co.  cutes   a  conveyance  of  all  of  its 


988  LAW    OF    RECEIVERS. 

Kentucky,  undor  a  similar  assigninont  in  anotlicr  juris- 
diction by  a  corporation  which  was  insolvent,  it  was  held 
that  it  would  be  considered  operative  only  to  the  extent 
which  the  Kentucky  courts  chose  to  respect  it.^ 

§373.     Creditor  of  Foreign   State   Suing  Corporation  Under 
Receivership  in  Another  Foreign  State. 

A  non-resident  of  a  foreign  state  in  which  a  corpora- 
tion has  property  ma}^  sue  it  in  such  state  notwithstand- 
ing a  receiver  has  been  appointed  over  it  in  the  state  of 
its  domicile.  Thus  it  has  been  held  that  a  creditor  of  a 
Connecticut  corporation  residing  in  New  York  may  attach 
property  of  the  corporation  located  in  Maryland,  although 
a  receiver  has  been  appointed  for  the  corporation  in  Con- 
necticut and  notwithstanding  that  he  has  filed  his  claim 
in  the  receivership  proceeding.^ 

§  374.    Whether  Residents  of  Jurisdiction  of  Receivership  Are 
Precluded  from  Suing  Elsewhere. 

Where  a  court  appointing  a  receiver  for  a  corporation 
of  its  own  state  enjoins  creditors  from  prosecuting  suits 
against  the  corporation,  a  resident  of  that  state  can  not 
by  a  suit  and  attachment  in  another  state  obtain  a  prefer- 
ence. But  in  several  instances  suits  by  such  creditors 
who  are  residents  of  the  receivership  jurisdiction  have 
been  brought  and  allowed.^ 

property  to  him  in  his  official  extent  which  they  choose  to  re- 
capacity,  such  a  conveyance  is  in  spect  it.  Zacher  v.  Fidelity  Trust, 
effect  an  assignment  for  the  bene-  etc.,  Co.,  106  Fed.  593,  45  C.  C.  A. 
fit  of  creditors,  and  as  such  oper-  480,  followed  the  decisions  on 
ates  only  upon  property  within  the  principles  of  comity. 
state.  Huntington  v.  Chesapeake,  i  Linville  v.  Hadden,  88  Md.  594, 
etc.,  Ry.  Co.,  98  Fed.  459.  43  L.  R.  A.  222,  41  Atl.  1097;  Gil- 
3  In  Zacher  v.  Fidelity  Trust,  man  v.  Ketcham,  84  Wis.  60,  36 
etc.,  Co.,  109  Ky.  441,  59  S.  W.  493,  Am.  St.  Rep.  899,  23  L.  R.  A.  52, 
It  was  held  that  a  general  convey-  54  N.  W.  395;  Chicago,  etc.,  Ry. 
ance  by  an  insolvent  corporation  Co.  v.  Keokuk,  etc.,  Co.,  108  111. 
to  its  receiver  would,  as  .  far  as  317,  48  Am.  Rep.  557. 
the  Kentucky  courts  are  con-  i  Although  the  courts  of  Ohio 
cerned,  be  operative  only  to   the  have    appointed    a    receiver    of    a 


PRIVATE    CORPORATIONS.  989 

§  375.  Whether  Foreign  Creditor  Can  Attach  Receivership 
Property  Temporarily  Brought  in  His  Jurisdiction 
by  Receiver. 

Where  a  receiver  lias  once  obtained  rig-litful  possession 
of  personal  property  situated  within  the  jurisdiction  of 
his  appointment  and  which  he  was  directed  by  the  court 
to  take  charge  of,  he  will  not  be  deprived  of  its  posses- 
sion, even  though  in  the  performance  of  his  duty  he  takes 
it  into  a  foreign  jurisdiction.  Creditors  of  the  corpora- 
tion over  which  he  has  appointed  receiver  residing  in 
such  foreign  jurisdiction  can  not  take  it  by  attachment 
or  otherwise. 

Thus  where  a  receiver  appointed  in  New  Jersey  took 
possession  of  the  assets  of  the  corporation  and  for  the 
purpose  of  completing  a  bridge  which  it  had  contracted 
to  build  in  Connecticut,  purchased  iron  with  funds  of  the 
receivership  estate  and  sent  it  to  that  state,  creditors  re- 
siding there  can  not  attach  it.^ 

§  376.    Independent  Foreign  Receiver  of  a  Foreign  Corporation. 

As  has  been  shown  in  a  previous  part  of  this  chapter,^ 
statutes  frequently  exist  under  which  a  receiver  may  be 
appointed  over  the  property  of  a  foreign  corporation 
doing  business  in  the  state  under  various  circumstances 

corporation  organized   in   its   own  ceiver  has  been  appointed  over  its 

jurisdiction,  it  will  not  prevent  a  property  there,  a  citizen  of  Mexico 

resident    of    Ohio   from    attaching  is    not    thereby    prevented    from 

property    of    the    corporation     in  suing  the  corporation  in  Texas  for 

Tennessee.    Commercial  Nat.  Bank  breach     of     contract.       American 

V.    Motherwell   Iron,   etc.,    Co.,    95  Well  Works  v.  De   Agnayo    (Tex. 

Tenn.  172,  29  L.  R.  A.  164,  31  S.  W.  Civ.),  53  S.  W.  350. 

1002.     The  same  rule  was  applied  i  See  sections  328  et  seq.,  supra, 

in  Cole  v.  Oil  Well  Supply  Co.,  57  But  in  this  connection  see  Blake 

Fed.  534,  where  the  receiver  was  v.  McClung,  172  U.  S.  239,  43  L.  Ed. 

appointed  by  a  federal  court.  432,  19  Sup.  Ct.  165,  as  to  how  far 

1  Pond   V.   Cooke,  45   Conn.   126,  statutes  of  this  character  may  go. 

29  Am.  Rep.  668.  They  can  not  deprive  non-resident 

W^here    an    Illinois    corporation  creditors     from     participation     on 

1  as  property  in  Mexico  and  a  re-  equal  terms  with  its  own  citizens. 


990  LAW   OF   RECEIVERS. 

tending  to  the  hurt  of  creditors  of  the  state  in  wliich  tlio 
corporation  is  doing  business  Where  such  a  receiver  is 
appointed  over  a  foreign  corporation,  the  receivership 
is  for  purposes  within  the  state  considered  as  a  primary 
one  with  all  the  rights  which  flow  from  such  a  receiver- 
ship.2  And  where  such  a  receiver  is  appointed  at  the 
instance  of  the  board  of  directors  of  the  corporation  and 
the  court  has  thereby  acquired  jurisdiction  over  the  cor- 
poration and  its  directors,  it  may  compel  the  transfer  to 
the  corporation  of  real  property  situated  in  another  state 
and  thereby  prevent  the  corporation  from  thereafter 
encumbering  it.^ 

An  interesting  question  was  determined  in  the  case  of 
McCague  v.  Dodge,*  by  the  Supreme  Court  of  Colorado 
respecting  the  rights  of  a  foreign  receiver  in  the  domi- 
ciliary jurisdiction  of  the  corporation.  In  that  case 
the  domicile  of  the  corporation  was  in  Colorado,  while 
the  receiver  was  appointed  by  a  court  of  the  State 
of  Nebraska.  The  court  of  the  latter  state  directed  its 
r<^ceiver  to  collect  assessments  for  unpaid  stock  in  the 

2  The  receiver  of  a  forei^  cor-  was  in  the  federal  court  for  the 

poration     appointed     within     the  district    of    Pennsylvania.      "The 

state  is  custodian  of  the  property  property  of  a  foreign  corporation 

within  the  state,  and  as  such  cus-  within  this  state  is  subject  to  the 

todian  has  authority  to  defend  an  Jurisdiction  of  the   courts   of  the 

action  to  foreclose  a  mortgage  on  ^^^te."      The    court    appointed    a 

receiver  of  a  foreign  corporation 
having  property  within  the  state, 
although  no  charge  of  fraud  or 
gage.  Jenkins  v.  John  Good  Cord-  mismanagement  was  made.  The 
age  &  Machine  Co.,  56  App.  Div.  pj-der  of  appointment  was  collater- 
573,  68  N.  Y.  Supp.  239.  Motion  ally  attacked  as  void,  but  the 
to  dismiss  appeal  denied,  167  N.  Y.  court  held  that  it  had  jurisdiction 
616,  60  N.  E.  1113;  and  judgment  to  make  the  appointment.  Hills- 
affirmed,  168  N.  Y.  679,  61  N.  E.  borough  Grocery  Co.  v.  Ingalls,  60 
1130.  Fla.  105,  53  So.  930. 

In   Scattergood  v.  Am.   Pipe   &  s  Roberts  v.  W.  H.  Hughes  Co., 

Const.  Co.,  249  Fed.  23,  161  C.  C.  86  Vt.  76,  83  Atl.  807. 

A.  83,  the  corporation  was  a  New  4  McCague   v.    Dodge,    50    Colo. 

Jersey   one   and   the   receivership  205,  114  Pac.  648. 


the  corporation  property  based  on 
an  assumed  lien  under  the  mort- 


PRIVATE    CORPORATIONS.  991 

corporation  by  a  suit  and  rendered  a  judgment  purport- 
ing to  levy  an  assessment  upon  such  stock.     The  defen- 
dant stockholders  residing  in  Colorado  who  were  sued 
were  not  parties  to  the  Nebraska  suit.      The  defendant 
stockholders  demurred  to  the  complaint,  which  demurrer 
was  sustained.      The  Supreme  Court,  speaking  through 
Mr.  Justice  Gabbert,  in  holding  that  the  suit  was  not 
maintainable  in  the  Colorado  courts  by  the  foreign  re 
ceiver,  said:      *'The  relation  between  the  stockholders 
and  the  fence  company  in  this  respect  can  only  be  deter- 
mined and  established  by  a  court  having  jurisdiction  in 
Colorado,  where  it  was  created,  for  it  is  only  by  the  laws 
ot  this  state  that  the  liability  of  the  stockholders  upon 
their   unpaid    stock    subscriptions    can    be    ascertained, 
loung  V.  Farwell,  139  111.  326,  28  N.  E.  845;  Stockley  v 
Thomas,  89  Md.  663,  43  Atl.  766.     So  that,  under  the  facts 
ot  this  case,  the  judgment  of  the  Nebraska  tribunal  could 
extend  no  further  than  to  affect  the  tangible  property  of 
«ie  fence  company  in  the  State  of  Nebraska.     Acken  v 
Coughlm,  103  App.  Div.  1,  92  N.  Y.  Supp.  700.     Conse- 
quently the  case  falls  within  the  rule  to  the  effect  that  a 
receiver  of  a  corporation  having  no  other  rights  or  titlft 
to  the  corporation's  assets  than  that  derived  from  the 
order  of  the  court  appointing  him,  has  no  power  to  sue 
m  the  courts  of  a  foreign  jurisdiction  to  recover  such 
property  or  assets  of  the  corporation.     Booth  v   Clark 
17  How.  322,  15  L.  Ed.  164;  Great  Western  M.  &  M  Co' 
V.  Harris,  198  U.  S.  561,  25  Sup.  Ct.  770,  49  L.  Ed  1163- 

fn'n^^noT!''  ^^-  ^•^'  ^^^  ^^^-  ^35;  Wigton  v.  Bosler' 
(C.  C),  102  Fed.  70;  Hazard  v.  Durant  (C.  C  )    19  Fed 
471;  Hale  v.  Hardon  (C.  C),  89  Fed.  283. 

''The  principal  contention  on  the  part  of  counsel  for 
plaintiff  is  that  under  the  doctrine  of  comity  between 
states,  the  receiver  appointed  by  a  court  of  one 
state  may  go  into  another  jurisdiction  and  pursue  resi- 
dents of  the  latter  upon  their  stock  liability,  unless  the 


992  LAW    OF    RECEIVERS. 

liability  sought  to  Ijc  onforcocl  is  against  tlio  public  policy 
of  the  state  wliei'e  the  enforcement  is  sought,  or  unless 
local  creditors  will  suffer.  This  contention  is  wliolly 
inapplicable  to  the  case  at  bar,  for  the  reason  that  tho 
Nebraska  court  was  without  authority  by  its  judgment  or 
order  only  to  vest  the  receiver  in  the  first  instance  with 
any  control  over  the  assets  of  a  Colorado  corporation  in 
the  shape  of  unpaid  stock  subscriptions,  or  to  levy  an 
assessment  thereon.  In  other  words,  the  doctrine  of 
comity  does  not  apply  where  the  plaintiff'  fails  to  state 
a  cause  of  action. 

''The  controlling  feature  of  the  case  under  considera- 
tion is  well  illustrated  by  the  last  case  cited  by  counsel 
for  plaintiffs— Goss  v.  Carter,  156  Fed.  746,  84  C.  C.  A. 
402.  In  that  case  the  receiver  of  an  insolvent  Nebraska 
corporation  appointed  by  the  district  court  of  the  Fourth 
District  of  that  state  was  permitted  to  maintain  an  action 
against  a  stockholder  of  the  corporation  in  Texas,  but 
upon  the  ground  that  the  title  to  the  trust  fund  to  which 
the  stockholder  w^as  required  to  contribute  was  vested 
in  the  receiver  by  operation  of  law.  For  this  reason  the 
court  distinguishes  the  case  from  Booth  v.  Clark,  supra, 
to  which  reference  was  made.  Having  reached  the  con- 
clusion that  the  receiver  is  without  authority  to  maintain 
his  action,  it  is  unnecessary  to  discuss  the  other  questions 
argued  by  respective  counsel.'* 

§  377.    Marshaling  of  Assets  in  a  Foreign  Jurisdiction  and 
Creditor's  Right  of  General  Participation. 

The  foregoing  considerations  have  to  do  with  the  mar- 
shaling in  the  first  instance  of  the  foreign  assets  of  a 
receivership  corporation  under  the  control  of  some  au- 
thority having  power  to  administer  the  estate.  Where 
this  preliminary  marshaling  is  not  done  directly  under 
the  authority  of  the  domiciliary  receiver  or  court,  the 
process,  as  we  have  seen,  is  fundamentally  controlled  by 
the  principle  that  each  jurisdiction  has  the  right  to  pro- 


PRIVATE    CORPORATIONS.  993 

tect  its  domestic  creditors  in  such  way  and  to  sncli  extent 
as  It  may  deem  proper.     In  the  United  States,  however 
as  affecting  the  respective  rights  of  creditors  residino-  in' 
or  citizens  of,  different  states,  another  principle  opemtes 
alter  tlie  prehmmary  marshaling  has  been  done      This 
principle  is  based  upon  and  held  to  be  the  result  of  a  cer- 
tain provision  of  the  United  States  constitution,  section  2 
of  Ai^icle  ly.    That  the  principle,  as  applied  to  the  ad- 
mmistration  of  the  estate  of  a  receivership  corporation, 
IS  a  logical  corollary  of  the  constitutional  provision  has 
been  declared  by  the  federal  Supreme  Court '     In  the 
case  before  the  court  the  question  involved  was  the  con- 
stitutionality of  a  statute  of  Tennessee  relating  to  the 
right  of  certain  classes  of  foreign  corporations  to  do 
business  within  the  state  and  providing  that  resident 
creditors  should  have  priority  over  all  non-resident  gen- 
eral creditors  and  mortgage  or  judgment  creditors  whose 
mortgages  were  recorded  or  judgments  rendered  after 
credit  had  been  extended  by  residents  of  the  state     The 
conflict  was  between  general  creditors  resident  of  Ohio 
and  domestic  general  creditors,  the  former  claiming  that 
by  the  statutory  provision  they  were  denied  equal  im- 
munities and  privileges  with  the  latter.    The  court  upheld 
this  contention  and  ruled  that  the  complainants  were  en- 
tit  ed  to  share  in  the  assets  of  the  estate  on  an  equal  basis 
^^ith^  the  domestic  creditors.     There  was   a  dissenting 
opinion  by  two  members  of  the  court,  including  the  Chief 
Justice.    Both  factions  of  the  court,  however,  recognized 
extensive  rights  in  the  states  to  declare  the  conditions 

1  When  the  general  property  and  can  not  be  denied  equality  of  ri<^ht 

assets    o      a    private    corporation  simply  because  they  do  not  r     Me 

lawfully  doing  business  in  a  state  in  that  state  but  are  citizens  re 

are  m  course  of  administration  by  siding  in  another  state.     Blake  v 

the  courts  of  said  state,  creditors  McClung,  172  U    S    239    43  i     Ed' 

who  are   citizens   of  other   states  432.    19    Sup.    Ct.    165-  'idem  '  17fi 

are  entitled,  under  the  federal  con-  U.  S.  59,  44  L.  Ed    371*  20  Sun    ct 

stitution.  to  stand  upon  the  same  307                            '        ' 

plane  with  creditors  of  a  like  class  People   v.    Granite    State   Provi- 

ZnecZeT""""  "'  '"''  ''"'"'  '"'  '""'  ^^^"-  '''  N-  Y.  492.  55  N.  E. 


994  LAW   OF   RECEIVERS. 

under  which  foreign  corporations  might  do  business 
within  their  respective  boundaries.  Both  declared  that  a 
state  might  exclude  foreign  corporations  entirely;  and 
also  that  it  was  valid  state  legislation  to  provide,  as  a 
condition  precedent  to  a  foreign  corporation's  doing 
business  in  the  state,  that  there  should  be  deposited, 
under  the  state  control,  some  definite  sum  to  be  available 
exclusively  for  domestic  creditors  in  case  of  a  receiver- 
ship, and  to  be  distributed  by  a  local  court  rather  than 
the  domiciliary  court.^  The  difference  betw^een  the  two 
divisions  was  in  respect  to  the  reasonableness  of  the  par- 
ticular statute  under  consideration.  The  majority  held 
it  to  be  unreasonable  because  of  the  extreme  inconven- 
ience that  it  put  non-residents  to  in  knowing  the  condi- 
tions under  which  they  were  dealing  with  the  corpora- 
tion; the  minority  held  that,  at  least  as  far  as  persons 
dealing  with  the  corporation  while  the  statute  was  in 
force  were  concerned,  it  was  not  unreasonable  and  was 
simply  in  the  nature  of  a  statutory  blanket  mortgage, 
covering  all  the  local  assets  of  the  company.^     Taking 

1053,    1054;    Wilson   v.    Keels,    54  2  Such  legislation  has  elsewhere 

S.  C.  545,  71  Am.  St.  Rep.  816,  32      been  held  valid.    People  v.  Granite 

g  j3  'JQ2  State,  etc.,  Assn.,  41  App.  Div.  257, 

''.,*,  ,         ...  .  „      58  N.  Y.  Supp.  510;  affirmed  in  161 

Resident  general  creditors  of  a  ^      r  « 


defunct    foreign    corporation    not 


N.  Y.  492,  55  N.  E.  1053;  Lewis  v 
American   S.  &  L.  Assn.,  98  Wis. 

having   previously   obtained    liens  203    73  N   W    793 

upon  its  property  are  not  entitled  3',^^^^  majority  of  the  court  laid 
to  any  priority  or  preference  over  gj-^at  stress  upon  the  word  "citi- 
non-resident  creditors  in  the  dis-  zens"  as  used  in  the  constitutional 
tribution  of  the  funds  derived  from  section  under  consideration.  It 
such  assets  by  the  local  or  ancil-  held  that,  since  a  corporation  is 
lary  receiver.  All  creditors  of  not  a  citizen  in  the  sense  in  which 
such  a  corporation  of  the  same  the  word  is  there  used,  the  state 
class  are  on  principles  of  equity  statute  was  valid  as  far  as  non- 
entitled  to  share  ratably  in  the  resident  corporation  creditors  were 
distribution  of  the  whole  estate  of  concerned;  and  further  that,  as  far 
such  corporation  regardless  of  as  such  creditors  were  concerned, 
their  places  of  residence.  Brunner  the  statute  was  not  obnoxious  to 
V.  York  Bridge  Co.,  78  W.  Va.  702,  the  Fourteenth  Amendment  of  the 
90  S.  E.  233.  United  States  constitution. 


PRIVATE   CORPORATIONS.  995 

into  account  the  two  opinions  in  the  case,  and  remember- 
ing that  whenever  a  decision  turns  on  the  question  of  the 
reasonableness  or  unreasonableness  of  a  particular  stat- 
utory provision  there  is  likely  to  occur  a  difference  of 
opinion  among  authorities,  it  may  be  stated  to  be  the  rule 
that,  except  when  there  is  in  existence  at  the  time  credit 
is  extended  to  a  corporation  valid  statutory  provisions 
establishing  a  preferential  right  to  local  assets  in  favor 
of  local  creditors,  all  resident  citizens  of  the  United 
States  are  entitled  to  share  equally  in  the  assets  of  a 
corporation  domiciled  therein. 

Since  the  domiciliary  court  is  the  only  court  qualified 
and  equipped  to  distribute  the  estate  in  accordance  with 
this  principle,  it  is  necessary  that  assets  marshaled  in  a 
foreign  jurisdiction  by  an  ancillary  or  a  foreign  indepen- 
dent receiver  shall  be  placed  under  the  jurisdiction  of  the 
domiciliary  court.  Accordingly,  it  is  the  general  rule  for 
such  receivers  to  turn  such  assets  as  come  into  their  pos- 
session over  to  the  possession  of  the  domiciliary  receiver 
with  or  without  a  bond  from  the  latter  for  the  protection 
of  local  creditors,  although  possession  may  be  retained 
by  the  marshaling  receiver  until  local  creditors  have  re- 
ceived their  share  under  a  decree  of  distribution  made 
by  the  domiciliary  court.'* 

On  this  same  principle  it  was  held  that  where  the  assets 
of  a  New  Jersey  corporation  consisted  of  the  controlling 
ownership  of  stock  in  a  New  York  corporation,  the  stock 
should  be  voted  by  the  domiciliary  receiver  rather  than 
the  receiver  appointed  in  New  York,  though  the  latter 

4  People  V.  Granite  State,  etc.,  expenses  of  administration,  has 
Assn.,  41  App.  Div.  257,  58  N.  Y.  distributed  the  proceeds  collected 
Supp.  510,  affirmed  161  N.  Y.  492,  among  all  intervening  creditors, 
55  N.  E.  1053;  American  &  B.  both  resident  and  non-resident, 
Mfg.  Co.  V.  International  P.  Co.,  and  a  balance  remains,  it  should 
173  App.  Div.  319,  159  N.  Y.  Supp.  be  directed  to  be  delivered  to  an 
582.  intervening  foreign  receiver.  Bar- 
Where  a  receiver  of  a  foreign  ley  v.  Gittings,  15  App.  Cas.  (D.  C.) 
corporation,    after    deducting    the  427. 


996  LAW   OF   RECEIVERS. 

was  held  to  have  the  title  and  allowed  to  retain  possession 
of  the  certificates.^  The  matter  was  stated  as  follows: 
"In  the  view  that  I  take  of  this  case  it  is  unnecessary 
to  decide  whether  the  domiciliary  receiver,  with  title  to 
this  stock,  is  entitled  as  a  matter  of  law  to  vote  the  same 
under  section  23  of  the  General  Corporation  Law  (Consol. 
Laws,  c.  23).  The  New  York  receiver  can  not  hold  this 
property  for  the  exclusive  benefit  of  the  New  York  cred- 
itors. It  will  be  an  unseemly  administration  of  the  law 
in  different  states  if  the  receivers  appointed  in  those  dif- 
ferent states  were  to  contend  for  the  possession  of  the 
assets  for  distribution  among  the  creditors  existing  in 
their  respective  states,  and,  furthermore,  the  constitution 
of  the  United  States  requires  equality  in  the  distribution 
of  the  assets.  Blake  v.  McClung,  172  U.  S.  239,  19  Sup. 
Ct.  165,  43  L.  Ed.  432;  People  v.  Granite  State  Provident 
Association,  161  N.  Y.  492,  55  N.  E.  1053.  Moreover,  as 
these  questions  have  arisen  presenting  apparent  conflict 
between  receivers  of  the  different  states,  a  comity  has 
arisen  recognized  by  the  courts,  whereby  the  receiver  of 
the  home  state,  with  title  to  the  assets,  is  given  a  primary 
right,  and  the  receivers  in  states  foreign  to  the  home  of 
the  corporation  are  given  only  such  power  as  may  be 
necessary  to  secure  to  the  creditors  in  their  respective 
states  a  just  distribution  of  the  assets  of  the  corporation. 
See  People  v.  Granite  State  Provident  Association,-  41 
App.  Div.  266,  267,  58  N.  Y.  Supp.  510,  wdiere  the  respec- 
tive rights  of  the  domiciliary  receiver  and  the  receiver  in 
other  states  is  considered.  See,  also,  Sands  v.  E.  S. 
Greeley  &  Co.,  88  Fed.  130,  31  C.  C.  A.  424.  Under  this 
rule  of  comity  our  courts  might  well  have  compelled  the 
New  York  receiver  to  transfer  to  the  appellant  this  stock 
upon  the  giving  by  the  appellant  of  a  bond  to  pay  to  the 
New  York  creditors  their  just  share  in  the  distribution  of 
the  assets.    On  the  other  hand^  as  the  plaintiff  is  a  domes- 

5  American  &  B.  M.  Co.  v.  International  F>   t^^  supra  377. 


PRIVATE    CORPORATIONS.  997 

tic  corporation,  the  court  has  deemed  it  wiser  that  the 
possession  of  the  stock  should  remain  in  the  New  York 
receiver.  It  was  not  decided,  however,  upon  the  motion 
to  transfer  the  stock  to  the  appellant,  that  the  New  York 
receiver  should  have  full  power  to  control  the  corpora- 
tion, and  thus  practically  to  take  out  of  the  hands  of  the 
domiciliary  receiver  the  closing  up  of  the  insolvent  cor- 
poration. By  the  rule  of  comity  adopted  every  power 
should  be  given  to  the  domiciliary  receiver,  subject  to 
instruction  from  the  Chancery  Court  of  that  state,  except 
such  power  as  is  necessary  for  the  protection  of  the  New 
York  creditors.  Within  this  rule  of  law  the  control  of  the 
insolvent  corporation  and  of  its  assets,  including  its  con- 
trolling interest  in  the  plaintiff  corporation,  should  vest 
in  the  home  receiver.  ...  If  necessary  to  the  protec- 
tion of  New  York  creditors,  a  bond  could  be  required,  as 
suggested  by  Justice  CuUen  in  People  v.  Granite  State 
Provident  Association,  41  App.  Div.  257,  58  N.  Y.  Supp. 
510.  No  facts  are  here  presented,  however,  which  sug- 
gest the  necessity  of  such  a  bond." 

Discussing  this  same  principle,  the  Supreme  Court  of 
South  Carolina  said:  ''There  is  no  doubt  that  it  is  the 
duty  of  the  courts  of  this  state  to  protect  the  interests 
and  rights  of  domestic  creditors  concerning  assets  of  a 
foreign  corporation  in  this  state,  but  there  is  a  vast  dif- 
ference between  protecting  domestic  creditors  and  seques- 
trating to  them  exclusively  assets  which  ought  in  justice 
and  right  be  administered  for  the  benefit  of  all  creditors. 
If  so  construed  as  to  exclude  non-resident  citizens,  who 
are  creditors,  from  participating  in  the  assets  in  this 
state  of  a  foreign  corporation,  a  grave  question  as  to  the 
constitutionality  of  the  act  might  be  raised.  Blake  v. 
McClung,  172  U.  S.  239,  wherein  the  Supreme  Court  of 
the  United  States  recently  decided  that  while  a  state  may, 
through  judicial  proceedings,  take  possession  of  the 
assets  of  an  insolvent  foreign  corporation  within  its  lim- 
its, and  distribute  them  and  their  proceeds  among  cred- 


998  LAW   OF   RECEIVERS. 

itors  according  to  their  respective  rights,  yet  it  can  not, 
•under  Article  IV,  section  2,  of  the  constitution  of  the 
United  States,  deny  the  right  of  citizens  of  other  states 
to  participate  in  such  distribution  on  equal  terms  with  its 
own  citizens.  Moreover,  the  act  in  question  was  passed 
after  the  foreign  corporation  involved  here  had  ceased  to 
do  business,  and  whose  property  had  already  been  placed 
in  the  hands  of  a  receiver ;  hence  such  act  is  not  applicable 
to  this  case.  It  thus  appears  that  plaintiff  and  the  cred- 
itors of  the  said  bank  in  this  state  have,  by  their  appear- 
ance in  the  jurisdiction  of  the  court  of  the  domicile 
receiver,  already  secured  the  right  to  participate  in  the 
equal  distribution  of  the  assets  of  the  foreign  corpora- 
tion, all  that  they  have  a  right  to  do.  Thus,  no  interest 
of  domestic  creditors  intervenes  to  prevent  the  exercise 
of  that  comity  which  should  induce  the  courts  of  this  state 
to  recognize  the  claim  of  the  foreign  receiver  to  collect 
for  equal  distribution  the  particular  assets  in  question. 
Nor  do  we  know  of  any  established  policy  or  statute  in 
this  state  which  prevents  the  exercise  of  such  comity. "« 

Since  the  liability  of  stockholders  on  unpaid  stock  sub- 
scriptions is  usually  enforced  in  favor  of  and  only  to  the 
extent  necessary  to  protect  creditors,  it  is  a  liability  that 
may  not  be  enforced  by  a  foreign  receiver,  even  in  his 
own  jurisdiction,  but  is  enforcible  only  under  the  control 
of  the  domiciliary  court  through  the  domiciliary  or  an 
ancillary  receiver.'' 

Where  a  corporation  did  business  in  a  foreign  juris- 
diction under  a  name  different  from  that  used  in  its 

6  Wilson  V.  Keels,  54  S.  C.  545,  Cague  v.  Dodge,  50  Colo.  205,  114 
71  Am.  St.  Rep.  816,  32  S.  E.  702.        Pac   648. 


A  receiver  of  a  Colorado  corpo- 


A  receiver  appointed  to  take 
charge  of  the  assets  of  a  foreign 
ration  appointed  in  a  Nebraska  ^^^.j^^ration  situated  within  the 
court  in  a  creditor's  suit  against  ^^^^^  ^^^  ^^^^  compel  the  stock- 
the  corporation  is  not  entitled  as  holders  residing  in  that  state  to 
a  matter  of  right  to  sue  in  Colo-  pay  their  unpaid  stock  subscrip- 
rado  for  unpaid  stock  subscrip-  tions.  Pacific  Coast  Coal  Co.  v. 
tions   levied  by   sucn  court.     Mc-      Esary,  85  Wash.  448,  148  Pac.  579. 


PRIVATE   CORPORATIONS. 


999 


domicile  and  in  receivership  proceedings  had  in  the  for- 
eign jurisdiction,  only  creditors  doing  business  with  it 
under  the  foreign  name  were  allowed  to  participate  in 
the  proceedings,  such  creditors  could  not  be  barred  from 
proceedings  in  the  domicile  of  the  corporation,  but  they 
could  be  barred  from  such  participation  unless  they  first 
paid  into  the  domiciliary  estate  the  amounts  they  had 
received  in  the  foreign  jurisdiction.* 


8  Lake  Charles  Nat,  Bank  v. 
J.  I.  Campbell  Co.,  57  Tex.  Civ. 
App.  362,  122  S.  W.  601. 

In  Ward  v.  Connecticut,  etc.,  Co., 
71  Conn.  345,  71  Am,  St.  Rep.  207, 
42  L.  R.  A.  706,  41  Atl.  1057,  a  New 
York  creditor  of  a  Connecticut 
corporation  was  permitted  to  re- 
ceive a  dividend  from  the  receiver- 


ship after  deducting  the  value  of 
certain  property  in  New  York 
which  he  had  attached  and  sold 
with  knowledge  of  the  receiver- 
ship, and  after  a  conveyance  had 
been  made  to  the  receiver  by  order 
of  the  court.  See,  also,  Zacher  v. 
Fidelity  Trust,  etc.,  Co.,  106  Fed. 
593,  45  C.  C.  A.  480. 


CHAPTER  XIV. 

EAILEOADS  AND  OTHER  PUBLIC  UTILITY  CORPORATIONS. 

1.    General  Scope  of  the  Subject  and  Principles 
Applicable. 

§  378.     The  Peculiar  and  Distinguishing  Features  Pertaining  to 
Such  Receiverships. 

The  reports  of  the  federal  courts  of  the  United  States 
have  been  full,  in  recent  years,  of  cases  involving  cor- 
poration receiverships  of  railroads  and  other  public  utili- 
ties. As  far  as  the  underlying  equity  principles  upon 
which  these  receiverships  were  created  are  concerned  we 
have  a  very  frank  statement  by  District  Judge  Dickinson 
in  one  of  the  late  cases. ^  The  matter  came  before  the 
court  on  a  motion  made  by  minority  stockholders  to 
vacate  a  decree  appointing  a  receiver.     The  judge  said: 

''The  considerations  which  lead  to  the  disposition  to 
be  made  of  this  motion  are  of  the  very  broadest  and  most 
general  character.  Everj^  legal  controversy  of  sufficient 
importance  to  be  taken  seriously  presents  two  phases. 
It  has  its  practical  side,  invohdng  very  practical  conse- 
quences, and  its  legal  side,  involving  the  formulation  of 
legal  principles  and  their  application,  and  these  may  be 
approached  through  forms  of  procedure,  and  raise  ques- 
tions of  the  appropriateness  of  the  special  remedy  in- 
voked. These  purely  professional  or  legal  considerations 
are  also  of  importance  because  they  directly  affect  or 
indirectly  influence  the  development  of  the  science  of  the 
law  and  enter  into  the  building  up  of  our  system  of 
laws.  In  this  molding  process  the  legal  profession,  as 
well  as  the  courts,  cannot  avoid  having  a  part  and  are 
expected  to  have  a  part.     The  profession  can  make  its 

1  Scattergood  v.  American  Pipe  &  Construction  Co.,  247  Fed.  712. 

(1000) 


RAIJ.ro ADS — PUBLIC    UTILITY    CORPORATIONS.  1001 

influence  felt  only  through  the  courts,  and  the  courts 
must  stop  short  of  any  invasion  of  the  proper  domain 
of  the  Legislature.  Even  when  the  power  of  the  Legis- 
lature is  not  in  question,  wisdom  would  dictate  that  there 
should  be  no  purely  arbitrary  interference  on  its  part 
with  the  natural  growth  and  development  of  the  remedial 
side  of  the  law  along  proper  and  approved  lines.  This 
freedom  to  grow  and  develop  is  one  of  the  many  claims 
to  merit  which  the  so-called  common-law  system  pos- 
sesses. To  it  we  are  indebted  for  many  of  our  most 
effective  and  efficient  legal  and  equitable  remedies.  The 
possession  of  this  judicial  power  has  led,  it  is  true,  to 
the  courts  being  subjected  to  general  criticism  for  being 
overconservative,  and  in  notable  specific  instances  to  the 
charge  of  usurpation  of  power.  On  the  whole,  however, 
it  has  worked  to  the  common  good,  and  as  the  Legis- 
lature has  amply  adequate  defensive  power  at  its  com- 
mand there  is  little  practical  danger  of  permanent  harm 
from  judicial  action. 

''All  this  seems  very  academic,  but  these  considera- 
tions are  really  intensely  practical,  and  the  practice  of 
the  courts  in  appointing  receivers  for  corporations,  which 
has  grown  almost  literally  by  leaps  and  bounds,  affords 
a  good  illustration  of  the  thought  intended  to  be  ex- 
pressed. If  bills  under  which  such  receivers  have  been 
appointed  were  listed  and  analyzed,  the  growth  and  de- 
velopment of  this  branch  of  remedial  law  would  be  dis- 
closed. It  would  doubtless  be  found  that  of  all  of  them, 
from  the  beginning,  at  least  80  per  cent  resulted  in  the 
making  of  a  decree  which  has  nothing  more  or  less  than 
the  declaring  of  a  moratorium  against  creditors,  and  of 
the  proceedings  in  late  years,  95  per  cent  of  the  bills  had 
this  more  or  less  veiled  end  in  view.  It  is  difficult  for 
a  solicitor  devoted  to  old-established  principles  of  chan- 
cery practice  to  understand  how  the  courts  can  protect 
a  corporation,  w^hich  is  in  financial  straits,  against  suits 


1002  LAW   OF   RECEIVERS. 

by  its  creditors,  when  it  would  not  protect  an  individual 
under  like  circumstances,  and  yet  so  widespread  and  gen- 
eral a  recognition  and  acceptance  of  the  assertion  of  the 
power  has  been  accorded  its  assertion  that  in  at  least 
two  notable  instances  in  Pennsylvania  it  was  even 
attempted  to  be  extended,  and,  until  halted  by  the  Su- 
preme Court,  actually  was  extended  to  indi\adual  debtors. 
We  do  not  need  to  search  far  for  reasons  for  this  acqui- 
escence. The  end  reached  was  a  good  end  and  the  rem- 
edy applied  justified  itself  in  practical  results.  The  law- 
yer who  advised  his  clients,  who  were  interested  in  such 
a  corporation,  that  no  such  remedy  could  be  had  through 
a  bill  in  equity  would  have  found  himself  supplanted  by 
other  counsel  who  promptly  had  the  needed  remedy 
applied  through  just  such  a  bill.  Such  an  analysis  would 
disclose  two  other  things.  One  is  that  in  the  earlier  cases 
the  solicitor  who  filed  the  bill  resorted  to  the  subterfuge 
of  formally  averring  something  of  no  real  importance 
for  the  sole  purpose  of  presenting  technical  grounds  of 
equitable  jurisdiction ;  in  the  later  cases  such  subterfuges 
are  abandoned.  The  other  is  that  the  early  cases  dis- 
close a  reluctance  on  the  part  of  the  courts  to  appoint 
receivers,  and  a  refusal  in  many  instances  to  appoint 
them;  the  later  cases  disclose  appointments  made  evi- 
dently almost  as  a  matter  of  course.  It  will  further  be 
observed  that  this  change  came  about  by  gradual  ap- 
proaches. It  doubtless  had  its  beginning  in  the  resort 
to  receiverships  by  corporations  having  public  functions 
to  perform,  but  the  practical  need  to  conserve  the  assets 
of  other  corporations  was  so  real  and  so  urgent  that 
the  courts  yielded  to  it  to  the  extent  of  naming  a  tem- 
porary receiver  with  leave  to  move  to  vacate,  and  a  rec- 
ognition of  this  same  practical  need  prevented  any  such 
motion  being  made.  Indeed,  the  history  of  this  very  case 
discloses  precisely  that  condition — not  a  single  creditor 
has  appeared  to  avail  himself  of  this  right,  leave  to  assert 
which  was  invited  by  the  decree.  .  .  . 


RAII-ROADS — PUBLIC   UTILITY   CORPORATIONS.  1003 

"Our  conclusion  is  that  these  precedents  establish  the 
jurisdiction  and  power  of  the  court  to  appoint  receivers 
in  proceedings  such  as  the  instant  one,  and  that  the  chal- 
lenge of  such  jurisdiction  cannot  be  deemed  ground  to 
vacate  the  decree.  Our  view  being  that  the  jurisdiction 
having  been  authoritatively  found  to  exist,  we  are  bound 
to  uphold  it.  There  is  no  occasion  to  vindicate  the  ruling 
by  bringing  it  into  accord  with  accepted  principles  of 
chancery  practice.  The  duty  is  best  left  to  counsel.  If 
we  sought  to  support  it,  we  might  choose  different 
grounds  from  those  selected  by  counsel.  Established 
precedent  is  in  itself  a  sufficient  ground. 

This  disposes  of  the  present  motion  to  dismiss,  so  far 
as  it  is  based  upon  absence  of  jurisdiction." 

In  another  case,^  on  an  application  for  the  appoint- 
ment of  a  permanent  receiver  and  in  reply  to  a  conten- 
tion on  the  part  of  minority  stockholders  that  the  suit 
was  collusive  between  the  plaintiff  creditor  and  the 
directors  of  the  company,  the  court,  having  made  a  find- 
ing of  fact  to  the  effect  that  no  fraud  on  the  part  of  the 
directors  had  been  shown,  the  court  said : 

"In  order  to  be  ready  for  emergencies,  a  bill  of  com- 
plaint, praying  for  the  appointment  of  receivers,  had 

2  Intercontinental  Rubber  Co.  v.  Appointment  of  a  receiver  for  a 

Boston  &  M.  R.  R.,  245  Fed.  122.  railway    may    be    had    at    the    in- 

In  Moore  v.  Donahoo,  217  Fed.  stance    of    the    carrier    com])any 

177,  133  C.  C.  A.  171.  a  receiver  for  ^^^^^  *^^  ^"^^  brought  by  it  is  of 


the  Ocean  Shore  Ry.  Co.  was  ap- 
pointed with  the  consent  of  the 
railroad  company  at  the  instance 


such  a  character  as  to  be  of  an 
equitable  character  and  the  receiv- 
ership is  an  incident  thereto.  Bras- 
sey  v.  N.  Y.  &  N.  E.  Ry.,  19  Fed.  663 ; 
of  an  unsecured  creditor  in  a  rep-  Quincy,  etc.,  Ry.  Co.  v.  Humph- 
resentative  suit.  j-eyg^  145  u.  s.  82,  36  L.  Ed.  632, 

The  Wabash  system  of  railroads  12  Sup.  Ct.  787;  Wabash,  St.  L.  & 
was  placed  under  a  receivership  P.  Ry.  v.  Central  Trust  Co.,  22 
at  the  instance  of  the  railroad  Fed.  138;  But  contra:  See  Kim- 
company  itself.  Central  Trust  Co.  ball  v.  Goodburn,  32  Mich.  10; 
V.  Wabash,  St.  L.  &  P.  Ry,  Co.,  29  State  ex  rel.  Merriam  v.  Ross,  122 
Fed.  618.  Mo.  435,  25  S.  W.  947. 


1004  LAW   OF   RECEIVERS. 

been  prepared  by  counsel  for  the  company  in  conference 
with  Hon.  Marcus  P.  Knowlton,  the  chairman  of  the  fed- 
eral trustees,  and  had  lain  in  the  files  of  the  company. 
In  August,  1916,  this  bill  was  taken  from  the  files,  the 
figures  in  it  were  brought  up  to  date,  and  it  was  in  other 
ways  perfected  and  made  ready  for  filing  in  court.  The 
Intercontinental  Rubber  Company  was  requested  to  be- 
come complainant  in  the  bill  and  to  file  it.  It  did  so, 
upon  the  understanding  that  it  would  not  be  put  to  sub- 
stantial expense  by  reason  thereof.  The  request  to  the 
complainant  was  made  with  the  knowledge  and  assent 
of  the  respondent's  counsel,  but  no  vote  authorizing  it 
was  ever  passed  by  the  board  of  directors.  The  directors 
believed  that  a  receivership  was  unavoidable,  and  those 
of  them  who  were  familiar  with  legal  matters  supposed 
that  it  would  be  brought  about  by  a  friendly  suit  filed 
in  this  court  by  a  creditor  residing  outside  of  Massa- 
chusetts. The  course  taken  was  similar  to  that  fre- 
quently, if  not  generally,  adopted  in  receivership  pro- 
ceedings. It  accords  with  the  'silent  practice  of  the 
court'  (Illinois  Central  R.  R.  Co.  v.  Turrill,  110  U.  S. 
304,  4  Sup.  Ct.  5,  28  L.  Ed.  154),  and  was  approved  in 
the  Metropolitan  Railway  Receivership  Case,  208  U.  S. 
90,  at  page  110,  28  Sup.  Ct.  219,  52  L.  Ed.  403.  It  is 
objected  to  by  the  parties  represented  by  Mr.  French, 
but  I  see  nothing  to  criticize  in  it.  The  directors  of  the 
respondent  company  unanimously  voted  that  an  answer 
be  filed,  admitting  the  allegations  in  the  bill.  The  Rubber 
Company  is  a  bona  fide  creditor  of  the  respondent,  as 
stated  in  the  bill,  upon  notes  held  by  it  since  1913,  which 
were  not  acquired  with  any  view  to  their  use  in  proceed- 
ings of  this  character.  Upon  this  bill  and  answer  a  tem- 
porary receiver  was  appointed  on  August  29,  1916." 
It  then  appears  from  the  opinion  that  after  the  appoint- 
ment of  the  temporary  receiver  the  conduct  of  the  di- 
rectors in  the  matter  was  reviewed  at  a  meeting  of  the 
stockholders  and  received  the  approval  of  that  body  by 


RAILROADS— PUBLIC    UTILITY    CORPORATIONS.  1005 

the  vote  of  an  overwlielming  majority.     The  court  then 
further  says :    "From  the  foregoing-  statement  it  is  clear 
that  the  receivership  proceedings  were  in  reality  brought 
about  by  the  respondent  itself.     Its  representatives,  in 
doing  so,   acted   after   careful   consideration,   in   entire 
good  faith,  and  in  the  belief  that  a  receivership  was  the 
best,  if  not  the  only,  course  open  to  the  respondent  in 
the  circumstances  in  which  it  was  placed ;  and  their  action 
was  approved  by  the  stockholders.  ...  It  is  still  true 
that,  even  if  the  directors  and  the  majority  of  the  stock- 
holders acted  in  good  faith  and,  as  they  believed,  for  the 
best  interests  of  the  corporation,  the  court  is  not  abso- 
lutely bound  to  appoint  a  receiver  as  prayed  for.     It 
might,  in  the  exercise  of  its  discretionary  power,  refuse 
to  do  so,  if  confident  that  there  was  no  real  necessity 
for  such  action,  and  that  the  application  was  improvi- 
dently  and  unwisely  made.    The  facts  above  stated  suffi- 
ciently indicate  that  this  is  not  such  a  case.    Upon  the 
facts  as  they  appear,  a  receiver  for  the  purposes  of  the 
bill  ought  to  be  appointed." 

While  it  thus  appears  that  the  question  of  the  under- 
lying equitable  grounds  upon  which  the  jurisdiction  to 
create  these  corporation  receiverships  became  a  matter 
of  secondary  consideration  to  the  courts,  it  is  still  true 
that  the  underl>dng  practical  reason  for  appointing  the 
receivers  was  always  kept  prominently  in  view     In  the 
Scattergood   Case,^   the  one  from  which  we  made  our 
first  quotation,  the  court,  in  the  portion  of  the  opinion 
quoted,  was  answering  an  argument  directed  against  the 
jurisdiction  of  the  court  in  equity  to  appoint  a  receiver 
ihe  jurisdiction  of  the  court  was  also  attacked  on  an- 
other ground.    The  action  had  been  instituted  in  a  federal 
district  m  Pennsylvania,  in  which  the  defendant  cor- 
poration had  had  its  principal  business.     It  was    how- 
ever, a  New  Jersey  corporation.     It  was  pointed  out 

3  Scattergood  v.  American  Pipe,  etc.,  Co.,  247  Fed.  712. 


1006  LAW  OF  RECEIVERS. 

that,  because  of  its  insolvency,  the  corporation,  under 
the  law  of  its  home  state,  was  liable  to  an  action,  in  a 
court  having  jurisdiction  in  that  state,  looking  toward 
its  dissolution  and  the  appointment  of  a  receiver  to 
accomplish  that  purpose;  and  it  was  claimed  that  inas- 
much as  the  jurisdiction  of  the  court  of  the  corpora- 
tion's domicile  in  such  an  action  would  be  superior  to 
that  of  the  foreign  court  in  the  action  then  before  it, 
it  was  not  advisable  to  appoint  a  receiver,  who  would 
probably  be  shortly  ousted  from  possession  of  the  prop- 
erty by  an  officer  of  another  court.  To  this  argument 
the  court  replied,  in  part,  as  follows:  ''The  other  basis 
grows  out  of  this  state  of  facts.  The  defendant  is  a 
New  Jersey  corporation.  All  its  acti\dties  are,  however, 
here  displayed,  aiul  here  it  admittedly  can  be  and  was 
served  with  process.  In  addition  to  this,  it  had  appeared 
and  voluntarily  submitted  itself  to  the  jurisdiction  of 
this  court,  and  is  in  no  sense  contesting  such  jurisdic- 
tion. So  far  as  jurisdiction  is  of  the  parties  as  distin- 
guished from  the  subject-matter,  it  is  therefore  not  de- 
nied. The  intervening  stockliolder  has,  however,  moved 
to  dismiss  both  on  the  ground  of  what  may  be  called 
want  of  jurisdiction  of  the  subject-matter  of  the  bill, 
and  on  the  further  ground  that  exclusive  jurisdiction  of 
the  real  subject-matter  of  the  bill  is  vested  in  the  court 
in  and  for  the  district  of  New  Jersey  in  which  a  bill 
for  the  appointment  of  a  receiver  is  now  pending.  The 
substantial  thought  (although  counsel  doubtless  prefer 
their  own  mode  of  expressing  it)  is  that  a  condition  in 
which  the  defendant  corporation,  as  disclosed  by  this 
bill,  is  one  of  insolvency,  and  calls  for  the  winding  up 
of  its  affairs,  its  dissolution,  and  the  distribution  of  its 
assets  equitably  among  its  creditors,  such  dissolution,  to 
seize  one  of  these  elements  of  its  condition,  is  to  be 
decreed  by  a  court  having  power  to  apply  the  laws  of 
the  state  of  its  creation  and  is  to  be  affected  in  con- 
formity with  such  laws  which  point  out  the  mode  and 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1007 

manner  and  by  decree  of  what  tribunals  it  shall  be  done. 
The  corporation,  which  is  the  creature,  is  bound  by  the 
laws  of  its  creation,  and  can  be  dissolved  only  as  its 
creator  has  decreed.  The  laws  of  New  Jersey  prescribe 
what  shall  be  the  effect  of  the  insolvency  of  a  New  Jersey 
corporation,  and  provides  a  remedy  and  a  mode  of  pro- 
cedure in  all  such  cases.  As  this  act  of  Assembly,  at 
least  so  far  as  it  is  a  procedure  act  and  gives  a  remedy, 
has  no  extraterritorial  force,  the  proceeding  to  which 
resort  must  be  had  must  be  sought  where  it  can  be  found. 
It  is  the  same  thought  upon  which  is  based  the  like  prin- 
ciple of  disclaiming  jurisdiction  to  decide  controversies 
over  internal  management.  Abundant  support  for  this 
position  is  found  in  the  following  rulings,  among  many 
others  which  might  be  cited:  Madden  v.  Penn.  Co  181 
Pa.  617,  37  Atl.  817,  38  L.  R.  A.  638;  McCloskey  v.  Snow- 
den,  212  Pa.  249,  61  Atl.  796,  108  Am.  St.  Rep.  867;  Ma- 
guire  v.  Mortgage  Co.,  203  Fed.  858,  122  C.  C.  A.  83. 

''If  the  purpose  of  the  bill  here  pending  were  such  as 
is  predicated  in  this  argument,  the  convincing  power  of 
the  argument  could  not  be  denied.  We  do  not,  however, 
so  view  the  bill.  It  has  not  the  purpose,  nor  does  it 
have  in  view  either  the  dissolution  of  the  corporation 
or  a  winding  up  of  its  affairs.  Its  evident  and  real,  in 
the  sense  of  its  practical,  purpose  is  just  the  opposite 
of  this.  The  purpose  is  to  have  the  business  of  the 
corporation  continue  without  interruption  and  the  aid 
of  the  court  is  invoked  to  prevent  such  interruption  by 
the  act  of  others." 

In  the  latter  part  of  1907  one  of  the  most  noted  of 
these  federal  receiverships  was  instituted.  It  involved 
the  affairs  of  a  corporation  that  had  been  operating 
practically  all  of  the  street  car  system  of  the  city  of 
New  York.  A  statute  of  New  York  provided  that  when 
a  corporation  had  continued  insolvent  for  more  than  a 
year  the  Attorney  General  might  institute  an  action  to 


1008  LAW    OF    RECEIVERS. 

have  tlie  corporation  dissolved  and  to  have  its  affairs 
wound  up  by  a  receiver.  Shortly  after  the  federal  re- 
ceiver was  appointed,  the  Attorney  General  did  com- 
mence an  action  under  this  statute.^  In  this  action  it 
was  claimed  that  the  federal  receivership  had  been 
obtained  by  a  fraudulent  collusion  between  the  plaintiff 
creditor  and  the  defendant  corporation.  A  state  receiver 
was  appointed  and  he  was  instructed  to  apply  to  the 
federal  court  for  an  order  directing  its  receiver  to  relin- 
quish possession  of  the  company's  property  to  the  officer 
of  the  state  court.  In  replying  to  such  an  application, 
subsequently  made,  the  federal  court  clearly  set  forth 
the  fact  that  its  controlling  purpose  was,  not  to  dissolve 
or  wind  up  the  affairs  of  the  railway  corporation,  but 
to  keep  the  street  car  system  of  New  York  in  operation 
for  the  benefit  of  the  public.  As  to  the  application  of 
the  state  receiver  the  ruling  w^as  that  the  proceedings 
in  the  state  court  had  not  developed  sufficiently  to  show 
whether  or  not  it  was  proper  or  necessary  for  the  fed- 
eral court  to  relinquish  jurisdiction  over  the  property 
in  favor  of  the  state  court  and  that  the  decision  of  the 
matter  should  be  postponed  until  events  threw  more  light 
on  the  subject.^ 

This  receivership  met  with  the  approval  of  the  United 
States  Supreme  Court  in  an  opinion  in  which  that  court 
mentioned  the  necessity  for  continuing  the  service  to  the 
public  as  one  of  its  reasons  for  conceding  the  propriety 
of  the  remedy.^    The  administration  of  this  estate  occu- 

■i  People  V.  New  York  City  Ry.  tributed  in  another,  the  business 

Co.,  57  Misc.  Rep.  114,  107  N.  Y.  will  be  regarded  by  the  courts  in 

Supp.  247.  receivership  proceedings  as  an  in- 

5  Pennsylvania  Steel  Co.  v.  New  tegral     indivisible     unit.      Kansas 

York  City  Ry.  Co.,  160  Fed.  224.  City  Pipe  Line  Co.  v.  Fidelity  Title 

Where   a    public   utility    is    per-  &    Trust    Co.,    217    Fed.    187,    133 

forming  a  service  which  requires  C.  C.  A.  181. 

the  holding  of  property  in  several  6  In  re  Reisenberg  (Re  Metro- 
states,  such  as  the  transportation  politan  Ry.  Receivership),  208 
and  distribution  of  natural  gas  IT.  S.  90,  52  L.  Ed.  403,  28  Sup.  Ct. 
produced    in    one    state    and    dis-  219. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1009 

pied  the  attention  of  tlie  court  for  a  period  of  eight  or 
nine  years  and  during  that  time  appeared,  in  one  phase 
or  another,  in  almost  every  volume  of  the  Federal  Re- 
ports. During  this  history  the  court  frequently  reiterated 
the  statement  that  the  underlying  purpose  of  the  receiver- 
ship was  to  serve  the  public.  "The  District  Court's 
primary  purpose  from  the  beginning  was  to  preserve 
the  system  of  transportation  as  a  going  concern  for  the 
benefit  of  the  public.  "^  "  The  paramount  intention,  how- 
ever, to  administer  the  property  of  these  insolvent  com- 
panies primarily  for  the  benefit  of  the  public  by  main- 
taining the  operation  of  the  system,  and  secondarily  for 
preserving  the  interests  of  all  concerned  in  accordance 
with  their  respective  rights  and  priorities  is  unmis- 
takable."» 

It  may  be  remarked  that  there  is  contained  in  such 
statements  as  the  one  just  quoted  an  analogy  between 
these  public  utility  receiverships  and  those  created  to 
preserve  and  protect  the  property  of  other  corporations, 
sometimes  distinguishingly  spoken  of  as  commercial  cor- 
porations. It  was  pointed  out  in  the  preceding  chapter 
that  one  of  the  situations  that  commonly  give  cause 
for  the  appointment  of  a  corporation  receiver  of  an 
ordinary  corporation  is  its  insolvency  or  approaching 
insolvency;  and  it  was  stated  that,  to  warrant  the  ap- 
pointment, the  situation  must  be  so  serious  as  to  threaten 
the  discontinuance  of  the  business  of  the  corporation.^ 
So,  in  the  cases  now  under  consideration,  the  fact  is 
always  presented  to  the  court  that  the  public  utility  com- 
pany is  threatened  with  a  deluge  of  financial  trouble  that 
will  inevitably  seriously  discommode,  if  not  altogether 
stop,  its  service  to  the  public.  Another  analogy  between 
the  two  classes  of  receiverships  is  also  sometimes  spoken 

7  Pennsylvania  Steel  Co.  v.  New      York  City  Ry.   Co.,  225  Fed.   734, 
York  City  Ry.   Co.,   216   Fed.   458,      735,  141  C.  C.  A.  6. 

132  C.  C.  A.  518.  9  See  §§  293,  296. 

8  Pennsylvania  Steel  Co.  v.  New 
II  Rec— 64 


1010  LAW   OF   RECEIVERS. 

of  in  tlie  public  utility  cases.  It  was  pointed  out  in  the 
former  chapter  that  the  distinguishing  feature  of  cor- 
poration receiverships  is  that  they  are  extended  to  cover 
all  of  the  assets  of  the  corporation  and  that  the  estates 
are  administered  for  the  benetit  of  all  persons  inter- 
ested therein,  creditors  and  stockholders  alike. ^*^  So,  in 
the  public  utility  cases,  all  of  the  assets  are  taken  into 
the  receivership  and,  as  far  as  the  distribution  is  con- 
cerned, they  are  administered  for  the  benefit  of  all  inter- 
ested persons.  We  find  it  stated  that :  * '  The  present  ex- 
tension of  equitable  jurisdiction  over  corporations  would 
be  wholly  unjustifiable  if  it  were  for  the  benefit  of  a 
particular  class  of  creditors.  "^^ 

The  problem  of  stating  formally  and  scientifically  a 
recognized  equitable  ground,  or  basis,  to  warrant  the 
court's  assuming  the  management  of  the  affairs  of  public 
utility  corporations  having  disappeared,  other  problems 
liave  arisen  to  engage  the  consideration  of  the  court. 
These  problems  are  connected  with  the  administration 
of  the  estates.  Of  course  the  estates  have  themselves, 
as  a  rule,  been  much  more  extensive  than  those  of  com- 
mercial corporations,  and  this  fact  would  have  thrown 
a  greater  volume  of  work  upon  the  courts ;  but  this  situa- 
tion alone  would  not  necessarily  have  made  the  work 
of  their  administration  any  more  difficult  nor  perplexing 
in  principle  than  the  management  of  the  affairs  of  other 
corporations.  The  presence,  however,  of  the  public 
interest,  of  what  the  courts  have  considered  to  be  the 
public's  necessities,  has  been  the  complicating  and  per- 
plexing element  in  the  public  utility  cases.     The  courts 

10  See  §  293,  supra.  way,   and   perform   its   public   du- 

By    "insolvency"    of    a    railroad  ties. — Intercontinental  Rubber  Co. 

company    is    meant    inability     to  v.  Boston  &  M.  R.  R.,  245  Fed.  122. 

meet  its  obligations   as   they   ma-  ii  Pennsylvania     Steel     Co.     v. 

ture  in  the  ordinary  course  of  busi-  New  York  City  Ry.  Co.,  198  Fed. 

ness,    and    at    the    same    time    to  721,  117  C.  C.  A.  503. 

carry    on   its    business    in   proper 


RAILROADS — PUBLIC   UTILITY   CORPORATIONS.  1011 

have  assumed  the  duty  not  only  of  furnishing,  during 
the  course  of  the  receivership,  an  uninterrupted  con- 
tinuance of  the  service  to  the  public  to  which  it  had 
become  accustomed  and  which  to  it  had  become  a  neces- 
sity; but  also  of  preserving,  as  far  as  possible,  the  unity 
and  integrity  of  the  great  body  of  the  estate,  directly 
connected  with  the  service  to  the  public,   so   that  the 
service  might  continue  uninterruptedly  after  the  receiver- 
ship has  terminated.    The  performance  of  this  duty  has 
necessarily  created  problems  that  were  not  present  when 
the  court  had  simply  the  duty  of  managing  an  ordinary 
estate  of  a  commercial  corporation  so  as  to  create  the 
largest  possible  dividends  for  creditors  and  stockholders 
if  possible.    This  latter  duty  still  devolves  upon  the  court. 
It  is  only  secondary,  however,  and  in  important  particu. 
lars  is  affected  by  rules  and  principles  made  necessary, 
in  equity,  by  the  proper  attention  to  the  court's  primary 
duty  in  the  premises.    It  is  to  these  rules  and  principles, 
connected  directly  with  the  management  of  the  property 
and  the  distribution  of  its  proceeds  to  creditors   and 
stockholders,  but  directly  due,  also,  to  the  need  of  prop- 
erly providing  a  service  to  the  public  that  the  particular 
interest,    or   importance,   of   public   utility   corporation 
receiverships  attaches  as  distinguished  from  receiver- 
ships of  other  corporations.    These  are  the  matters  that 
it  is  the  purpose  of  this  chapter  to  present. 

§  379.    Receiverships  for  Purposes  Common  to  Individuals  and 
Ordinary  Corporations. 

It  is  not  to  be  understood  that  all  of  the  cases  of 
receivers  of  property  owned  by  public  utility  corpora- 
tions are  found  among  the  federal  cases  above  referred 
to.  As  was  stated  to  be  the  case  with  reference  to 
corporations  in  general,  ^  receivers  are  appointed  over 
special  property  of  such  public  utility  corporations  for 
special  purposes  without  regard  to  the  fact  that  they 

1  See  §  293,  supra. 


1012  LAW   OF   RECEIVERS. 

are  public  utility  corporations,  and,  for  that  matter, 
without  regard  to  the  fact  that  ihej  are  corporations 
or  in  any  Avise  of  a  character  different  from  an  indi- 
vidual person.  Thus,  where  a  public  utility,  pending 
an  action  brought  to  contest  the  validity  of  rates  to  be 
collected  from  the  public  in  accordance  wdth  a  resolution 
of  a  rate-fixing  body,  is  collecting  rates  higher  than  those 
ordered  and,  under  the  order  of  the  court,  is  depositing 
the  excess  collections  in  a  bank,  to  be  preserved  awaiting 
the  outcome  of  the  action,  the  bank  is,  technically,  a 
receiver.-  The  principles  that  apply  to  the  appointment 
of  receivers  over  property  held  by  individuals  as  joint 
tenants,  when  disputes  arise  among  them,  will  apply  to 
public  utility  corporations  under  like  circumstances — at 
least  a  possibility  of  a  receivership  may  be  foreseen  if 
necessary  to  protect  the  rights  of  one  w^hose  rights  are 
not  recognized.^  In  England,  w^hen  a  creditor  holding 
debentures  pledging  the  tolls  and  revenues  of  a  public 
utility  as  security  for  a  debt  sues  to  foreclose,  the  action 
will,  if  necessary,  be  aided  by  the  appointment  of  a 
receiver  of  the  tolls  and  revenues.^  As  showing  the 
special  position  occupied  by  such  a  receiver  it  may  be 
remarked  that  even  while  he  is  receiving  the  tolls  and 
revenues  of  a  canal  company,  a  w^rit  of  elegit  may  issue 
in  aid  of  a  judgment  creditor  of  the  company  if  it  can 
be  so  framed  to  be  of  any  service  in  view  of  the  provision 
of  the  special  act  creating  the  company  to  the  effect  that 
the  property  must  be  used  for  no  other  purpose  than 
that  of  a  canal  and  that  the  canal  shall  always  be  open 
to  the  service  of  the  public.^ 

2  Spring  Valley  Water  Co.  v.  Co.,  L.  R.  2  Ch.  Appeal  Cases,  201; 
City  and  County  of  San  Francisco,  Potts  v.  Warwick  «6;  B.  Canal  Co., 
225  Fed.  728,  140  C.  C.  A.  209.  Kay's     Report,    142;     Furness     v. 

3  Delaware,  L.  &  W.  R.  R.  Co.  v.  Caterham  Ry.  Co.,  25  Beavan  614. 
Erie  Ry.  Co.,  21  N.  J.  Eq.  298.  See  5  Potts  v.  Warwick  &  B.  Canal 
Midland  R.  Co.  v.  Ambergate  U.  &  Co.,  Kay's  Rep.  142. 

B.  &  E.  J.  R.  Co.,  10  Hare  359.  See.  also,  Furness  v.  The  Cater- 

4  Gardner  v.  London  C.  &  D.  Ry.      ham  Ry.   Co.,  supra,  where  a  re- 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1013 

Ordinary  foreclosure  receivers  may  be  appointed  for 
public  utility  corporations  just  as  they  are  appointed  for 
other  corporations  or  for  individual  debtors.  Not  all 
of  the  cases  of  corporation  receivers  of  public  utility 
corporations,  even  in  the  federal  courts,  belong  to  the 
class  mentioned  in  the  preceding  section.  Special  cir- 
cumstances, such  as  the  utter  inability  to  re-finance  the 
system,  may  make  it  impossible  or  undesirable  to  man- 
age the  estate  according  to  the  rules  and  principles  that 
control  in  that  class  of  cases.  Public  utility  corpora- 
tions may  be  amenable  to  state  statutes  concerning  the 
appointment  of  receivers  of  corporations  in  general  or 
of  public  utility  corporations  in  particular.  Many  ques- 
tions may  arise  in  public  utility  receivership  cases  that 
will  be  determined  in  accordance  with  the  rules  and 
principles  that  control  in  the  ordinary  case.  It  may 
happen  that  the  appointment  of  a  corporation  receiver 
of  a  public  utility  will  be  refused  because  not  sufficient 
necessity  for  the  appointment  is  shown  or  because  some 
less  drastic  remedy  is  available.® 

ceiver  of  tolls  was  appointed  to  being  considered  siiiBcient  at  least 
relieve  a  holder  of  debentures  and  for  the  time  being, 
judgment  creditor  from  the  bur-  In  Gardner  v.  London  C.  &  D. 
den  of  accounting  while  holding  Ry.  Co.,  L.  R.  2  Ch.  App.  Cases 
under  a  writ  of  elegit  and  it  was  201,  the  lower  court  appointed  a 
also  suggested  that,  if  necessary,  managing  receiver,  but  on  appeal 
the  court  would  find  some  way  the  order  was  modified  and  a  re- 
to  make  the  land  available  to  the  ceiver  of  tolls  directed.  The  ac- 
creditor, tion  was  to  foreclose  debenture 
0  In  England,  in  the  case  of  liens  and  the  ruling  on  appeal  was 
Trip  V.  Chard  R.  W.  Co.,  21  L.  &  based  on  the  fact  that  the  deben- 
Eq.  53,  it  was  held  that  in  a  mort-  tures  were  secured  not  by  the 
gage  foreclosure  suit  a  managing  corpus  of  the  company's  property, 
receiver  of  a  railroad  company  but  by  the  tolls  alone.  It  is  stated 
might  be  appointed,  such  a  re-  in  the  opinion  that  a  managing 
ceiver  being  analogous  to  one  ap-  receiver  of  a  corporation  is  ap- 
pointed to  manage  a  mine  owned  pointed  simply  to  sell  the  prop- 
and  operated  in  common  by  con-  erty  as  a  unit,  and  as  the  property 
tending  factions;  however,  on  a  of  a  going  concern;  and  it  was 
preliminary  hearing  a  receiver  of  held  that,  since  an  order  of  sale 
tolls  was  appointed,  that  remedy  could  not  be  made  in  the  case,  the 


1014 


LAW   OF   RECEIVERS. 


appointment  of  a  managing  re- 
ceiver was  improper.  There  is 
dictum  in  the  opinion  to  the  effect 
that  a  managing  receiver  of  a  rail- 
road corporation  could  never  be 
appointed.  In  considering  corpo- 
ration receivership  cases  in  Eng- 
land there  must  be  borne  in  mind 
the  fact  that  there  corporations 
have  for  the  most  part  been  cre- 
ated by  special  acts  of  Parliament 
and  that  many  of  these  acts,  es- 
pecially those  creating  public  util- 
ity corporations,  have  specified  in 
quite  minute  details  rules  and  reg- 
ulations for  controlling  the  cor- 
porate business.  Since  1867  the 
matter  of  railroad  receiverships 
has  been  largely  governed  by 
statute. 

In  a  suit  to  foreclose  a  vendor's 
lien  on  railroad  property  the  ap- 
pointment of  a  receiver  is  not 
proper  until  after  judgment.  Lat- 
imer V.  Aylesbury  &  B.  R.  Co.. 
L.  R.  9  Ch.  Div.  385 

The  receivership  on  the  fore- 
closure of  a  railroad  mortgage 
should  be  confined  to  the  property 
covered  by  the  mortgage,  and  the 
receiver  has  no  authority  to  con- 
tract for  municipal  aid  in  the  con- 
struction by  him,  as  receiver,  of 
an  unfinished  portion  of  a  branch 
road.  Smith  v.  McCuUough,  104 
U.  S.  25,  26  L.  Ed.  637. 

Where  in  a  suit  to  foreclose  a 
railroad  mortgage  an  order  Is 
made  with  the  consent  of  the 
mortgagor  appointing  a  receiver 
of  all  the  property  whatsoever 
kind  and  description  belonging  to 
the  mortgagor  and  authorizing 
him  to  take  possession  of  the 
same  and  institute  suits  for  its 
protection,  the  order  will  not  be 
subject  to  collateral  attack  on  the 
ground    that    the    order    was    not 


limited  to  the  property  covered 
by  the  mortgage.  Vallery  v.  Den- 
ver &  R.  G.  R.  Co.,  236  Fed.  176. 
The  rule  that  a  mortgagee  is 
not  entitled  to  the  income  of  the 
mortgaged  property,  even  when 
the  mortgage  pledges  the  income, 
until  he  takes  proper  steps  in  re- 
ceivership proceedings  to  have  the 
income  empounded  for  his  benefit 
applies  to  utility  mortgages;  un- 
der an  Idaho  statute  to  the  effect 
that  there  is  but  one  action, 
namely,  foreclosure,  available  to 
a  mortgagee,  entitle  a  mortgagee 
in  a  foreclosure  action  to  share, 
on  behalf  of  a  deficiency  judg- 
ment, with  general  creditors  in 
such  part  of  the  income  as  has 
not  been  empounded  for  his  bene- 
fit. Westinghouse  Electric  &  M. 
Co.  V.  Idaho  Ry.  L.  &  P.  Co.,  228 
Fed.  972. 

After  long  negotiations  a  rail- 
road company  agreed  to  settle  a 
claim  for  death  for  a  certain  sum. 
On  the  very  eve  of  payment  a 
general  receiver  of  its  affairs  was 
appointed.  It  was  held  that,  since 
the  court  had  the  right  to  grant 
the  receivership  on  terms  and  since 
it  would,  in  such  a  case,  have  been 
only  equitable  to  make  the  con- 
dition that  the  receiver  should 
pay  this  claim,  an  order  directing 
the  receiver  to  pay  it  was  proper. 
It  was  pointed  out  that  the  order 
was  made  by  the  same  judge  who 
appointed  the  receiver;  the  com- 
plaint and  the  answer  were  filed 
and  the  receiver  appointed  be- 
tween the  hours  of  9  a.  m.  and 
11.15  a.  m.  on  the  day  on  which 
the  money  was  to  have  been  paid 
by  the  company.  Harmon  v. 
Blackwell,  232  Fed.  440,  146 
C.  C.  A.  434. 
The    order    appointing    the    re- 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1015 


•ieiver  contained  a  clause  to  the 
effect  that  "any  party  in  interest 
may  apply  to  this  court  for  fur- 
ther directions  with  reference  to 
the  property  and  business  afore- 
said." This  clause  in  itself  was 
sufficient  warrant  for  ordering  the 
payment  of  the  claim;  but  inde- 
pendent of  this  clause  "the  court 
was  not  foreclosed  by  the  order  of 
appointment  from  considering  and 
determining,  equitably,  whether 
there  were  still  further  claims  or 
liabilities  that  should  have  been 
provided  for  in  the  original  order." 
Citing:  Louisville,  etc.,  R.  R.  Co. 
V.  Wilson,  138  U.  S.  501,  34  L.  Ed. 
1023,  11  Sup.  Ct.  405;  Union  Trust 
Co.  V.  Illinois  Midland  R.  Co.,  117 
U.  S.  434,  29  L.  Ed.  963,  6  Sup.  Ct. 
809. 

The  holder  of  bonds  secured  by 
a  railroad  mortgage  and  of  over- 
due aind  unpaid  interest  coupons 
may,  when  the  company  is  in 
financial  straits  and  unable  to 
complete  its  road,  for  the  purpose 
of  protecting  his  security,  insti- 
tute an  action  whose  purpose  is 
•'to  secure  the  completion  and  op- 
eration of  a  railroad  line  for  pub- 
lic use  and  benefit  by  means  of 
receiver's  certificates  to  be  issued 
by  consent  of  the  bondholders,  and 
to  enable  it  to  perform  a  contract 
made  by  it  with  another  com- 
pany." Jackson  v.  Parkersburg  & 
O.  V.  Electric  Ry.  Co.,  233  Fed. 
784. 

In  an  action  by  certain  stock- 
holders of  a  railroad  company  to 
recover  possession  for  their  com- 
pany of  its  road  alleged  to  be 
wrongfully  in  possession  of  the  de- 
fendant, another  railroad  com- 
pany, a  claim,  on  the  part  of 
defendant,  that  it  is  in  possession 
as  receiver  of  a  state  court,  raises 


an  issue  that  must  be  tried  just 
as  any  other  issue.  Dwight  v. 
Central  Vt.  R.  R.  Co.,  9  Fed.  785, 
20  Blatchf.  200. 

Where  circumstances  make  it 
necessary  a  receiver  will  be  au- 
thorized to  dismantle  a  road  and 
sell  the  property  independent  of 
the  right  of  way.  Royal  Trust  Co. 
V.  Washburn,  B.  &  I.  R.  Co.,  113 
Fed.  531;  State  v.  Jack,  145  Fed 
281,  76  C.  C.  A.  165. 

A  receiver  will  not  be  appointed 
for  a  telegraph  company  where  it 
has  no  outstanding  debts  except 
that  of  the  plaintiff  with  a  possible 
claim  for  advances  on  the  part  of 
a  railroad  company.  Baltimore  & 
O.  Tel.  Co.  V.  Interstate  Tel.  Co., 
54  Fed.  50,  4  C.  C.  A.  184. 

The  holder  of  a  judgment  of 
$16,000,  the  lien  of  which  is  con- 
tested against  a  railroad  company 
owning  95  miles  of  road  and  re- 
ceiving a  revenue  of  $800,000  a 
year  should  enforce  payment  of 
the  judgment  in  the  usual  way  and 
is  not  entitled  to  a  receiver.  Mil- 
waukee &  Minn.  R.  R.  Co.  v. 
Soutter,  2  Wall.  (U.  S.)  510,  17 
L.  Ed.  9X)0. 

In  a  mortgage  foreclosure  suit 
against  a  public  utility  corporation 
over  whose  property  a  corporation 
receiver  has  been  appointed,  cred- 
itors of  the  company,  who  have 
had  their  claims  established  in  the 
receivership  proceedings  are  en- 
titled to  intervene  and  contest  the 
validity  of  the  mortgage.  Equi- 
table Trust  Co.  of  N.  Y.  v.  Great 
Shoshone  &  Twin  Falls  Water 
Power  Co.,  245  Fed.  697,  158 
C.  C.  A.  99. 

In  an  action  to  foreclose  a  rail- 
road mortgage,  the  receiver  oper- 
ated the  road  for  a  time  at  a  loss; 
then  on  a  showing  that  the  road 


1016 


LAW    OF    RECEIVERS. 


had  never  paid  and  that  it  was 
in  a  dangerous  condition  for  laclc 
of  repairs,  operation  was  discon- 
tinued; thereafter  the  state,  on 
relation  of  citizens  petitioned  to 
have  operations  renewed,  showing 
the  need  of  the  locality  for  the 
road,  that  the  necessary  repairs 
could  be  made  at  a  small  cost,  and 
that  former  failures  were  due  to 
an  unskillful  and  unsympathetic 
management;  the  former  receiver 
was  a  banker  and  a  non-resident; 
the  court  appointed  an  additional 
receiver,  a  railroad  man  and  one 
acquainted  with  the  territory 
through  which  the  road  ran,  and 
ordered  operations  to  be  renewed. 
Central  Bank  &  Trust  Co.  v. 
Greenville  &  W.  R.  Co.,  248  Fed. 
350. 

When  a  water  company  has 
been  deprived  of  the  right  to 
maintain  and  operate  its  plant,  a 
mortgagee  is  entitled  to  have  a 
receiver  appointed  to  protect  the 
property  against  waste  and  impair- 
ment of  value,  even  though  there 
has  been  no  default  in  payment 
of  interest  or  principal.  Farmers' 
Loan  &  Trust  Co.  v.  Meridian 
Waterworks  Co.,  139  Fed.  661. 

In  the  foreclosure  of  a  public 
utility  mortgage  a  receiver  will  be 
appointed  over  the  property  even 
though  it  is  in  the  possession  of 
one  claiming  the  legal  title,  un- 
contested by  the  company,  where 
it  appears  that  the  legal  title  is  a 
tax  title  obtained  by  one  who  held 
a  fiduciary  relationship  to  the 
company  and  whose  title  and  pos- 
session is  allowed  to  stand  through 
collusion  on  the  part  of  the  com- 
pany. Appleton  Waterworks  Co. 
V.  Central  Trust  Co.  of  N.  Y.,  93 
Fed.  286,  35  C.  C.  A.  302. 

Heavy    default   in    interest    and 


serious  disputes  in  regard  to  the 
management  of  the  company  be- 
tween contending  factions  furnish 
ground  for  the  appointment  of  a 
receiver  in  the  foreclosure  of  a 
railroad  mortgage.  Mercantile 
Trust  Co.  V.  Missouri  K.  &  T.  R. 
Co.,  36  Fed.  221,  1  L.  R.  A.  397. 

A  receiver  may  be  appointed  to 
prevent  the  lapsing  of  a  land 
grant.  Kennedy  v.  St.  Paul  &  P. 
R.  Co.,  2  Dill  448,  Fed.  Cas.  No. 
7706,  5  Dill  519,  Fed.  Cas.  No. 
7707. 

A  receiver  may  be  appointed  to 
insure  the  supplying  of  a  city  with 
water  after  the  company  has  been 
dissolved  by  judicial  decree  and 
pending  the  winding  up  of  its  af- 
fairs. Weatherly  v.  Capital  City 
Water  Co.,  115  Ala.  156,  22  So.  140. 
An  unreasonable  order  of  a 
railroad  commission  directing  a 
company  to  run  a  certain  number 
of  its  trains  over  its  road  will  be 
enjoined;  if  the  company  is  neg- 
lecting its  statutory  duty  to  run 
trains  the  public  interest  can  be 
protected  in  an  action  brought  by 
the  Attorney  General  to  have  its 
charter  forfeited  and  a  receiver 
appointed.  Railroad  Commission 
of  Arkansas  (Rowland)  v.  Saline 
River  Ry.  Co.,  119  Ark.  239,  177 
S.  W.  896. 

When  a  receiver  has  been  im- 
properly appointed  over  a  public 
utility  corporation  the  expenses  of 
the  receivership  should  be  paid  by 
the  applicant.  West  Riverside, 
etc..  Water  Co.  v.  Rogers,  16  Cal. 
App.  262,  116  Pac.  683. 

A  receiver  of  a  water  company 
will  be  appointed  on  a  showing 
that  the  company  is  insolvent, 
that  the  payment  of  interest  on 
bonds  leaves  no  margin  of  income 
for   repairs   and   betterment,   that 


RAILROADS— PUBLIC    UTILITY    CORPORATIONS. 


1017 


the  property  is  in  need  of  repairs, 
and  that  the  city  is  liable  to  be 
left  without  an  adequate  water 
supply.  Thoroughgood  v.  George- 
town Water  Co.,  9  Del.  Ch.  330,  82 
Atl.  689. 

A    company    was    organized    to 
construct  an  irrigation  plant  for  a 
certain  territory  and  supply  prop- 
erty owners  with  water;  the  com- 
nany  contracted  with  the  owners 
to  construct  the  plant  and  furnish 
water;  the  owners  made  an  initial 
payment    and    contracted    to    pay 
the  balance  in  installments  after 
the  project  was  completed.     The 
company   failed    before    the    work 
was    finished.      Holders    of    these 
contracts  were  entitled  to  have  a 
receiver  appointed   to  collect  the 
installments  called  for  by  the  con- 
tracts and  to  expend  the  money  on 
the     completion     of     the     plant. 
Childs  V.  Neitzel,  26  Ida.  116,  141 
Pac.  77. 

When  an  irrigation  company  is 
insolvent  and  unable  to  comply 
with  its  contracts  for  furnishing 
water  a  receiver  may  be  appointed 
to  operate  the  plant.  Idaho  Fruit 
Land  Co.  v.  Great  Western  Beet 
Sugar  Co.,  17  Idaho  273,  105  Pac 
562. 

To  warrant  the  appointment  of 
a  receiver  the  complaint  must 
state  facts,  not  conclusions.  Wa- 
bash Ry.  Co.  V.  Dykeman,  133  Ind. 
56,  32  N.  E.  823. 

A  showing  of  a  very  serious 
financial  embarrassment  that  had 
continued  for  more  than  three 
years,  coupled  with  the  fact  that 
the  company  had  no  rolling  stock 
and  did  not  own  its  rails,  war- 
ranted the  appointment  of  a  re- 
ceiver. Chicago  &  S.  E.  Ry.  Co. 
V.  Kenney,  159  Ind.  72,  62  N.  E.  26. 
The  fact  that  a  road  is  not  suffi- 


ciently equipped  to  be  operated 
does  not  militate  against  the  ap- 
pointment of  a  receiver.  Ball  v. 
Maysville,  etc.,  R.  R.  Co.,  102  Ky. 
486,  80  Am.  St.  Rep.  362,  43  S  W 
731. 

As  against  a  lessee,  a  receiver 
will  be  appointed  at  the  instance 
of  a  creditor  who  holds  a  lien  su- 
perior to  the  lease.  Ball  v.  Mays- 
ville, etc.,  R.  R.  Co.,  supra. 

A  lessee  holding  property  under 
a  lease  made  prior  to  a  mortgage 
can  not  be  ousted  by  a  foreclosure 
receiver.  Louisville  &  U.  R.  Co. 
v.  Eakins,  100  Ky.  745,  39  S  w' 
416. 

In  an  emergency  created  by  the 
inability  of  the  lessor  and  the  re- 
fusal of  the  lessee  to  operate  a 
road,  a  creditor  may  have  a  re- 
ceiver appointed  on  an  ex  parte 
application.  Louisville  &  N.  R. 
Co.  V.  Schmidt,  21  Ky.  Law  Rep. 
556,  52  S.  W.  835. 

When,    pending    an    action    for 
personal    injuries,    the    defendant 
company  sells  its  property  to  an- 
other    company,     the     purchaser 
agreeing  to  pay  the  judgment,  and 
thereafter     the     buyer     abandons 
most  of  the  road  and  allows  it  to 
deteriorate,    and    both    companies 
are   insolvent,   a  receiver   will   be 
appointed,  under  a  statute  provid- 
ing  that   a    receiver   may    be   ap- 
pointed when  property  is  in  dan- 
ger   of    being    lost   or   materially 
injured.  Ingram  v.  Cincinnati  F.  & 
S.  E.  R.  Co.,  32  Ky.  Law  Rep.  849, 
107  S.  W.  239. 

Under  a  statute  relating  to  trus- 
teeship, mortgages,  foreclosure  of 
mortgages  and  giving  the  court 
jurisdiction,  in  equity,  of  disputes 
concerning  them,  the  court  has 
jurisdiction  to  appoint  a  fore- 
closure    receiver.       Chalmers     v. 


1018 


LAW   OF    RECEIVERS. 


Littlefield,  103  Me.  271,  69  Atl.  100. 
In  order  to  save  the  forfeiture 
of  a  company's  franchise  through 
failure  to  pay  a  tax,  a  mortgagee, 
who  is  ready  to  pay  the  tax,  al- 
though not  entitled  to  foreclosure, 
may  have  a  receiver  appointed  to 
preserve  the  property  for  the  ben- 
efit of  all  interested.  Union  St. 
Ry.  Co.,  etc.,  v.  City  of  Saginaw, 
115  Mich.  300,  73  N.  W.  243. 

In  order  to  administer  the  en- 
tire estate,  a  receiver  of  all  of  the 
property  of  a  company  may  be  ap- 
pointed in  an  action  to  foreclose 
a  mortgage  that  does  not  cover  all 
of  the  property,  when  the  com- 
pany has  a  large  floating  indebt- 
edness. Rumsey  v.  People's  Ry. 
Co.,  91  Mo.  App.  202. 

With  the  consent  of  the  receiv- 
ership court  an  independent  ac- 
tion to  foreclose  a  mortgage  may 
be  instituted.  Massey  v.  Camden 
&  T.  Ry.  Co.,  75  N.  J.  Eq.  1,  71 
Atl.  241. 

A  railroad  company  is  amenable 
to  a  statute  providing  for  an  ac- 
tion to  dissolve  a  corporation  and 
to  appoint  a  receiver  therein. 
Knickerbocker  T.  Co.  v.  Tarry- 
town  W.  P.  &  M.  Ry.  Co.,  133 
App.  Div,  285,  117  N.  Y.  Supp.  871. 
That  part  of  an  order  appointing 
a  foreclosure  receiver  that  author- 
izes the  receiver  to  take  posses- 
sion of  property  not  covered  by 
the  mortgage  is  void.  Joseph  v. 
Nelson  (Man  v.  New  York  &  S.  B. 
Ry.  Co.),  63  App.  Div.  401,  71  N.  Y. 
Supp.  913. 

Where  a  mortgage  covered  the 
property  of  a  company  that  was 
subsequently  taken  into  a  merger 
company,  the  properties  of  all  the 
companies  being  united  and  oper- 
ated as  a  single  system,  and  the 


mortgage  contract  provided  spe- 
cific methods  for  its  enforcement, 
an  order  directing  the  receiver  to 
sell  the  entire  merger  system  as  a 
whole  and  thereby  depriving  the 
mortgagee  of  the  specific  remedies 
of  his  contract,  impairs  the  obliga- 
tions of  a  contract  and  is  void. 
Philadelphia  Trust  Co.  v.  North- 
umberland County  Traction  Co., 
258  Pa.  St.  152,  101  Atl.  970. 

In  an  action  brought  by  the 
state  to  forfeit  the  charter  of  a 
railroad  company  for  violation  of 
state  statutes  regulating  the  con- 
duct of  railroad  business,  the 
state  is  not  interested  in  the 
financial  condition  of  the  company 
and  can  not  on  the  basis  of  show- 
ing a  seriously  embarrassed  finan- 
cial condition  claim  the  existence 
of  an  emergency  warranting  an 
ex  parte  appointment  of  a  re- 
ceiver. Texas  Mexican  Ry.  Co.  v. 
State  (Tex.  Civ.  App.),  174  S.  W. 
298. 

Bondholders,  on  a  default  in 
payment  of  interest,  and  on  a 
showing  of  insolvency  and  a 
wrongful  diversion  of  earnings, 
may  have  a  foreclosure  receiver 
appointed.  United  States  &  Mex- 
ican Trust  Co.  V.  Delaware  W 
Const.  Co.  (Tex.  Civ.),  112  S.  W. 
447. 

While  a  railroad's  property  is  in 
the  hands  of  a  foreclosure  re- 
ceiver, the  company  may  execute 
encumbrances  junior  to  those  for 
which  the  property  is  being  admin- 
istered. United  States  &  Mex.  T. 
Co.  V.  Delaware  W.  C.  Co,  (Tex.), 
supra. 

Though  a  railroad's  property  is 
being  administered  by  a  foreclos- 
ure receiver,  the  railroad  commis- 
sion may  authorize  the  company  to 
issue  additional  bonds  and  stock. 


RAILROADS — PUBLIC    UTILITY   CORPORATIONS. 


1019 


United  States  &  Mex.  T.  Co.  v. 
Delaware  W.  C.  Co.  (Tex.),  supra. 
A  railroad  company  may  take 
advantage  of  a  statute  authorizing 
the  voluntary  dissolution  of  a  cor- 
poration. Moore  v.  Lewisburg, 
etc.,  Ry.  Co.,  80  W,  Va.  653,  93 
S.  E.  762. 

See,  also.  Jack  v.  Williams,  113 
Fed.  823;  Fellows  v.  City  of  Los 
Angeles,  151  Cal.  52,  90  Pac.  137; 
State  V.  Dodge  City,  etc.,  Ry.  Co., 
53  Kan.  329,  24  L.  R.  A.  564,  36  Pac. 
755;  Commonwealth  v.  Fitchburg 
Ry.  Co.,  12  Gray  (Mass.)  ISO; 
Sherwood  v.  Atlantic,  etc.,  Ry.  Co., 
94  Va.  291,  26  S.  E.  943. 

A  sugar  central  in  Porto  Rico 
may  be  viewed  as  a  public  utility 
from  many  points  of  view  con- 
nected with  receivership  proceed- 
ings. Berwind  White,  etc.,  Co.  v. 
Barinquen  Sugar  Co.,  6  Porto  Rico 
Fed.  567. 

The  case  just  cited  may  be 
noted  as  one  extending  the  line  of 
what  are  commonly  known  as  pub- 
lic utilities. 

Non-resident  directors  of  a  pub- 
lic utility  may  manage  the  busi- 
ness efficiently  through  local 
agents;  the  fact  that  the  directors 
are  non-residents  and  keep  the 
books  out  of  the  state  does  not 
warrant  a  receivership.  Thorough- 
good  V.  Georgetown  Water  Co.,  9 
Del.  Ch.  84,  77  Atl.  720. 

A  corporation  furnishing  water 
to  the  inhabitants  of  a  town,  and 
to  the  town  itself  for  municipal 
purposes,  and  occupying  the 
streets  of  the  town  with  its  con- 
duits, though  the  corporation  has 
not  been  given  the  right  of  emi- 
nent domain,  or  any  other  right 
usually  accorded  to  quasi  public 
corporations,  is  a  "corporation  for 
public    improvement,"    within   the 


statute  providing  that  the  act  au- 
thorizing the  appointment  of  a  re- 
ceiver of  an  insolvent  corporation 
shall  not  apply  to  a  corporation 
for  public  improvement.  Thor- 
oughgood  V.  Georgetown  Water 
Co.,  9  Del.  Ch,  84,  77  Atl.  720. 

The  use  of  a  large  excess  of  in- 
come over  operating  expenses  for 
the  purpose  of  paying  interest  on 
bonds  instead  of  in  repair  of  the 
plant,  is  not  ground  for  a  receiver- 
ship in  the  absence  of  a  showing 
that  the  plant  is  badly  in  need  of 
repair.  Thoroughgood  v.  George- 
town Water  Co.  (Del,  Ch.),  supra. 
The  appointment  of  a  public 
utility  corporation  receiver  on  an 
ex  parte  application  is  erroneous 
in  the  absence  of  a  showing  of  an 
emergency  requiring  such  action. 
Butts  V.  Davis  (Tex.  Civ.),  146 
S.  W.  1015, 

A  receiver  of  an  irrigation  com- 
pany will  not  be  appointed  in  the 
absence  of  a  showing  that  a  re- 
ceiver would  have  greater  facili- 
ties for  acquiring  funds  to  operate 
the  plant  than  the  company  has. 
Grandfalls  Mut,  Irr.  Co.  v.  White, 
62  Tex.  Civ.  App.  182,  131  S  W. 
233. 

The  expenses  of  a  receivership 
improvidently  created  should  be 
taxed  against  the  applicant; 
claims  given  a  statutory  prefer- 
ence out  of  earnings  can  not  be 
paid  out  of  the  corpus  when  there 
are  no  earnings;  expenses  of  run- 
ning the  business  pending  the  re- 
ceivership have  preference  over 
all  liens;  the  mortgagee  referred 
to  in  a  statute  giving  certain 
claimants  preference  over  the 
mortgagee,  is  a  mortgagee  at 
whose  instance  a  receiver  is  ap- 
pointed, not  one  who  opposes  the 
appointment.    Gulf  Pipe  Line  Co. 


1020 


LAW   OF    RECEIVERS. 


§380.     Receivership  in  Case  of  Violation  of  Anti-Trust  Law. 

The  same  general  rules  which  apply  to  corporations  in 
general  apply  to  public  utility  corporations  respecting 
violations  on  its  part  of  anti-trust  laws.  This  subject  was 
considered  in  its  general  aspects  as  applical)le  to  corpo- 
rations in  general  in  a  previous  subdivision.^  The  courts^ 
as  was  shown  in  our  discussion  of  the  subject,  are  reluc- 
tant to  appoint  a  receiver  except  as  a  last  resort.  The 
leading  case  upon  the  subject  as  far  as  public  utility 
receiverships  are  concerned  is  that  of  the  Union  Pacific 
Railroad  Company  Case.-  In  that  case  the  court  stated 
that  in  applying  the  general  rules  as  to  the  relief  to  be 
afforded,  the  court  must  deal  with  each  case  as  it  finds  it. 
The  court  in  rejecting  a  plan  for  the  distribution  of  the 
stock  held  by  the  dominating  company,  said :  *  *  So  far  as 
is  consistent  with  this  purpose  a  court  of  equity  dealing 
with   such  combinations   should  conserve   the   property 


V.  Lasater  (Tex.  Civ.  App.),  193 
S.  W.  773. 

In  an  action  by  a  creditor 
against  a  public  utility  receiver, 
a  company  contract  will  be  held 
valid  if  possible;  and  if  a  certain 
contract,  construed  under  the  laws 
of  one  state  is  valid,  but  under  the 
laws  of  another  state  is  invalid,  it 
will  be  construed  under  the  former 
unless  it  is  clearly  made  to  appear 
that  the  intention  of  the  parties 
was  to  the  contrary.  Crawford  v. 
Seattle  R.  &  S.  Ry.  Co.,  86  Wash. 
G28,  L.  R.  A.  1916D,  732. 

Where  the  receiver  of  a  railroad 
has  been  operating  the  road  at 
practically  no  profit,  the  issuance 
of  certificates  will  not  be  ordered, 
against  the  wish  of  bondholders, 
for  the  purpose  of  raising  money 
to  pay  interest  so  as  to  forestall 
foreclosure  and  permit  the  fur- 
ther operation  of  the  road.    Town- 


send  V.  Oneonta,  C.  &  R.  S.  Ry. 
Co.,  88  App.  Div.  208,  84  N.  Y. 
Supp.  427.   • 

In  United  Electric  Securities  Co. 
V.  Louisiana  Electric  Light  Co.,  68 
Fed.  673,  it  is  held  that  a  court 
will  not  take  the  management  of 
a  corporation  out  of  the  hands  of 
its  directors  on  the  ground  of  mis- 
management if  full  relief  can  be 
obtained  by  injunction. 

1  See  §  320  et  seq.,  supra. 

2  United  States  v.  Union  Pac.  R. 
Co.,  226  U.  S.  61,  57  L.  Ed.  124, 
33  Sup.  Ct.  53. 

The  above  case  discussed  very 
thoroughly  the  plan  of  unmerging 
employed  in  the  Northern  Securi- 
ties Case,  193  U.  S.  197,  48  L.  Ed. 
679,  24  Sup.  Ct.  436,  and  the 
Standard  Oil  Company  Case,  221 
U.  S.  1,  Ann.  Cas.  1912D,  734,  34 
L.  R.  A.  (N.  S.)  834,  55  L,  Ed.  619, 
31  Sup.  Ct.  502. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONSJ.  1021 

intorcsts  involved  but  never  in  such  wise  as  to  sacrifice 
the  object  and  purpose  of  the  statute.  The  decree  of  the 
courts  must  be  faithfully  executed  and  no  form  of  dis- 
solution be  permitted  that  in  substance  or  effect  amounts 
to  restoring  the  combination  which  it  was  the  purpose  of 
this  decree  to  terminate."  The  court,  however,  in  finally 
dealing  with  the  case,  enjoined  a  right  to  vote  the  stock 
in  the  ownership  of  the  dominating  corporation  while 
held  by  it  and  enjoined  the  payment  of  dividends  upon 
such  stock  while  thus  held,  except  to  a  receiver  to  be 
appointed  by  the  lower  court  to  collect  and  hold  such 
dividends  until  disposed  of  by  the  decree  of  that  court. 

And  the  court  directed  that  plans  be  presented  to  the 
lower  court  within  a  certain  time  to  accomplish  the  pur- 
pose of  the  court  and  that  if  plans  were  not  submitted, 
or  if  the  plans  submitted  were  rejected  by  the  court,  the 
lower  court  should  proceed  by  receivership  and  sale,  if 
necessary,  to  dispose  of  the  stock  in  such  a  way  as  to 
dissolve  the  unlawful  combination. 

The  court  in  discussing  the  effect  of  consolidations  of 
railroad  systems  in  violation  of  the  anti-trust  law,^  said : 

''The  consolidation  of  two  great  competing  systems  of 
railroads  engaged  in  interstate  commerce  by  a  transfer 
to  one  of  a  dominating  stock  interest  in  the  other  creates 
a  combination  which  restrains  interstate  commerce  within 
the  meaning  of  the  statute,  because,  in  destroying  or 
greatly  abridging  the  free  operation  of  competition  there- 
tofore existing,  it  tends  to  higher  rates." 

It  might,  however,  be  noted  that  the  present  govern^ 
mental  control  of  the  transportation  systems  of  the 
country  is  somewhat  difl'erent  in  policy  as  to  the  desir- 
ability of  retaining  competition  between  the  different  sys- 
tems as  stated  by  the  court  in  the  above  quotation.  It  is 
not,  however,  to  be  expected  that  the  policy  of  the  courts 
will  be   different  than   heretofore   shown   by  the   state- 

3  United  States  v.  Union  Pac.  R.  Co.,  supra. 


1022  LAW    OP    RECEIVERS. 

ments  in  tlieir  decisions  on  this  subject  in  the  absence  of 
any  changes  in  the  terms  of  the  anti-trust  law. 

§381.    Effect  of  War  Time  Government  Control  of  Public 
Utilities. 

We  have  not  observed  any  recorded  conflict  of  authority 
between  receivers  and  those  in  control  of  the  operation 
of  the  public  utilities  under  what  is  commonly  known  as 
the  Federal  Control  Act.  In  Dooley  v.  Pennsylvania 
Railroad  Company,^  in  describing  the  nature  of  the  con- 
trol of  the  public  utilities  assumed  by  the  government 
under  the  act,  Judge  Booth,  said :  '  *  It  needs  no  argument 
to  show  that  it  was  necessary,  in  order  that  these  powers 
be  made  effective,  that  the  possession,  the  control,  and 
the  utilization  of  the  property  should  be  exclusive,  and 
not  subject  to  interference  by  private  parties.'* 

The  status  of  the  governmental  operation  was  also  dis- 
cussed by  Judge  Ray,  as  follows:^  ''Neither  the  United 
States,  nor  the  President,  nor  the  Director  General,  is 
doing  this  as  agent  for  the  railroads  or  the  transportation 
companies.  The  United  States,  through  its  officers  and 
agents,  is  doing  all  this  on  its  own  account,  and  to  accom- 
plish its  own  purposes,  including  service  to  and  for  the 
general  public.  The  United  States  is  not  in  partnership 
with  these  transportation  or  railroad  systems.  The  earn- 
ings for  the  time  being,  and  until  such  time  as  these  prop- 
erties are  turned  back  to  the  possession  and  control  of 
the  corporations  owning  them,  belong  to  the  United 
States.  He  who  steals  such  earnings  steals  the  money  of 
the  United  States.     The  property  received  by  those  in 

1  Dooley  v.  Pennsylvania  Rail-  possession  and  control  of  the 
road  Co.,  250  Fed.  142.  railroads,    the    right    to    fix    both 

2  United  States  v.  Kambeitz,  256  inter  and  intrastate  rates  was  im- 
Fed.  247.  The  above  case  related  pliedly  included.  Northern  Pac. 
to  an  express  company.  Ry,  Co.  v.  State  of  North  Dakota 

Under  the  Federal  Control  Act,  (U.  S.),  63  L.  Ed.,  39  Sup.  Ct.  502. 
giving    the    government    complete 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1023 

charge  of  these  transportation  systems  for  transporta- 
tion is  received  by  the  United  States,  to  be  transported 
by  the  United  States,  and  is  in  the  custody  and  under  the 
protection  of  the  United  States  as  bailee  and  carrier,  and 
the  United  States  has  a  property  therein." 

The  courts,  as  a  matter  of  public  information,  know 
that  the  railroad  companies  have,  under  the  administra- 
tion of  the  Federal  Control  Act,  been  entirely  excluded 
from  participation  in  the  operation  of  their  properties, 
and  that  they  have  no  voice  in  the  employment  and  dis- 
charge  of  men  employed  in  the  upkeep  and  repair  of 
their  roads  and  rolling  stock  and  the  operation  of  trains, 
and  that  the  exclusive  control  of  all  such  matters  is 
placed  under  the  Director  General.^ 

The  United  States  Supreme  Court,  in  the  very  recent 
case  of  Northern  Pacific  v.  North  Dakota,^  in  holding  that 
complete  possession  and  control  was  given  to  the  United 
States  of  such  public  utilities  under  the  Federal  Control 
Act,  said: 

''No  elaboration  could  make  clearer  than  does  the  act 
of  Congress  of  1916,  the  proclamation  of  the  President 
exerting  the  powers  given,  and  the  act  of  1918  dealing 
with  the  situation  created  by  the  exercise  of  such  author- 
ity, that  no  divided  but  a  complete  possession  and  control 
were  given  the  United  States  for  all  purposes  as  to  the 
railroads  in  question.  But  if  it  be  conceded  that  despite 
the  absolute  clarity  of  the  provisions  concerning  the  con- 
trol given  the  United  States,  and  the  all-embracing  scope 
of  that  control,  there  is  room  for  some  doubt,  the  consid- 
eration of  the  general  context  completely  dispels  hesi- 
tancy. How  can  any  other  conclusion  be  reached  if 
consideration  be  given  the  comprehensive  provisions  con- 
cerning the  administration  by  the  United  States  of  the 

3  Hatcher  &  Snyder  v.  Atchison,  T.  &  S.  F.  Ry,  Co.,  258  Fed.  952. 

4  Northern  Pacific  Ry,  Co.  v.  State  of  North  Dakota  (U.  S.),  39  Sup 
Ct.  502. 


1024  LAW    OF    RECEIVERS. 

X^roperty  wliicli  it  was  aiitliorized  to  take,  tlie  financial 
obligations  under  which  it  came  and  all  the  other  duties 
and  exactions  which  the  act  imposed,  contemplating  one 
control,  one  administration,  one  power  for  the  accom- 
plishment of  the  one  purpose,  the  complete  possession  by 
governmental  authority  to  replace  for  the  period  pro- 
vided the  private  ownership  theretofor  existing." 

But  the  Federal  Control  Act  did  not  give  the  Director 
General  of  Railroads  the  power  to  take  possession  of  land 
or  other  property  belonging  to  a  railroad  but  not  used  by 
it  in  its  business  as  a  carrier.  Such  non-operative  prop- 
erty still  remains  under  the  control  of  the  public  utility 
corporation  and  is  subject  to  its  debts. ^ 

The  carriers  do  not  lose  their  rights  as  legal  entities, 
capable  of  suing  or  being  sued  in  the  courts,  because  of 
the  Federal  Control  Act.*^  But  judgments  may  be  ren- 
dered against  the  company,  while  under  federal  control, 
although  no  process  may  be  levied  on  any  property  under 
such  federal  control/ 

5  United   States  R.  R.  Adminis- '  Co.,  106  Misc.  Rep.  58,  174  N.  Y. 

tration  v.  Burch,  254  Fed.  140.  Sup.  60. 

The  railroad  corporations  own-  Under  the  Federal  Control  Act 

Ing    the    carrier    properties    were  the  carriers  are  subject  to  all  the 

not    taken    over    by    the    govern-  existing  obligations  of  a  common 

ment   under   the   Federal    Control  carrier      and      actions      may      be 

Act.     They  were   allowed  to  con-  brought  against  them,  the  substi- 

tinue   their   functions   as   corpora-  tution  of  the  Director  General  by 

tions  in  all  respects  other  than  in  way  of  amendment  is  permissive 

the  operation  of  their  carrier  sys-  only.      Johnson    v.    McAdoo,    257 

terns.    Nash  v.  Southern  Pac.  Co..  Fed.   757;    Jensen  v.   Lehigh  Val- 

260  Fed.  280.  ley  R.  Co.,  255  Fed.  795;   El  Paso 

c  McGregor    v.    Great    Northern  &    S.  W.   R.   Co.   v.   Lovick    (Tex. 

Ry.  Co.  (N.  D.),  172  N.  W.  841.  Civ.),   210   S.  W.   283;    Vaughn   v. 

.The  Acts  of  Aug.  29,  1916,  and  State   (Ala.  App.),  81  So.  417;   Le 

March   21,   1918,   do   not   give    the  Clair   v.    Montpelier    &   W.    R.    R. 

President   the    right   to    make    an  Co.  (Vt.),  106  Atl.  587. 
order  extinguishing  a  right  of  ac-  "  Postal  Telegraph  Cable  Co.  v. 

tion  already  existing  or  affecting  Call,   255   Fed.   850;    Dahn   v.   Mc- 

the  jurisdiction  of  the  state  courts  Adoo,  256  Fed.  549. 
of  such  actions.     Benjamin  Moore  In  Dickens  v.  Bransford  Realty 

&  Co.  V.  Atchison,  T.  &  S.  F.  Ry.  Co.    (Tenn.),    210   S.   W.    644,    the 


RAILROADS — PUBLIC    UTILITY    CORPORATIOXS. 


1025 


Any  suit  wMcli  involves  the  right  of  the  Director  Gen- 
eral of  Railroads  to  direct  and  control  the  operation  of 
the  road  is  not  permitted  under  the  Federal  Control  Act.« 

Under  the  Federal  Control  Act  (40  Stat.  451  c  25 
Comp.  St.  1918,  §  31153/4a  to  31153/4p)  it  is  provided  that 
the  President  may,  through  contract  with  the  owners, 
provide  for  their  just  compensation  for  the  use  of  their 
operative  railroad  properties  and  that  any  income  de- 
rived from  their  operation  in  excess  of  such  just  com- 
pensation ''shall  remain  tlie  property  of  the  United 
States."  It  also  appropriated  $500,000,000  as  ''a  re- 
volving fund  for  the  purpose  of  paying  the  expenses  of 
the  federal  control. ' '" 


court  said:  "While  it  is  true 
Public  Act  No.  107  of  the  Sixty- 
fifth  Congress  above  referred  to, 
very  broadly  authorized  suits 
against  such  common  carriers, 
still  their  liability  to  suit  is  not 
greater  than  that  of  the  various 
municipal  corporations  of  this 
state.  Such  liability,  however, 
should  be  confined  to  their  own 
creditors.  Since  it  is  the  settled 
policy  of  this  state  to  hold  im- 
mune from  garnishments  all  mu- 
nicipalities and  other  govern- 
mental agencies,  we  think  such 
protection  must  be  accorded  to  de- 
fendant Nashville  Terminals,  as  it 
is  now  operated. 

"Moreover,  section  10  of  the  Act 
of  Congress  above  referred  to 
(U.  S.  Comp.  St.  1918,  §  3115%j), 
expressly  provides  that  "no  pro- 
cess, mesne  or  final,  shall  be 
levied  against  any  property  under 
such  federal  control,"  and  this 
would  doubtless  preclude  proceed- 
ings by  attachment  and  garnish- 
ment. 

"We  have  not  had  occasion  to 
consider  in  this  opinion  the  effect 
II  Rec— 65 


of  General  Order  No.  43,  promul- 
gated by  the  Director  General  of 
Railroads  September  5,  19ir, 
which  undertook  to  exempt  car- 
riers under  federal  control  from 
proceedings  by  garnishment;  how- 
ever, as  stated  heretofore  under 
our  previous  decisions,  we  think 
such  carriers  so  operated  are 
freed  from  such  process." 

s  Nueces  Valley  Townsite  Co.  v. 
McAdoo,  257  Fed.  143. 

The  federal  control  acts  do  not 
prohibit  state  courts  from  assum- 
ing jurisdiction  where  it  otherwise 
existed.  L.  N.  Dantzler  Lumber 
Co.  v.  Texas  &  Pac.  Ry.  Co. 
(Miss.),  80  So.  770. 

Under  the  acts  authorizing  the 
federal  governmental  control  of 
the  railroads  during  war,  suits 
against  the  carriers,  during  the 
period  of  such  control,  not  arising 
out  of  the  operation  as  a  carrier, 
may  be  commenced  under  the 
state  laws.  Friesen  v.  Chicago, 
R.  I.  &  P.  R3^  Co.,  254  Fed.  875. 

9  Nash  V.  Southern  Pac.  Co ,  260 
Fed.  280. 


1026  LAW   OF   RECEIVERS. 

The  rights  and  liabilities  arising  out  of  the  situation 
of  federal  control  of  public  utilities  under  the  war-time 
act  are  not  at  this  time  fully  ascertained  and  necessarily 
will  give  rise  to  various  interpretations  based  to  some 
extent  upon  the  theory  held  by  the  courts  as  to  the 
analogy  of  the  position  of  the  Director  General  of  Rail- 
roads to  the  public  utility  operative  properties  and  of  the 
carrier  corporation  as  compared  to  other  managing  con- 
trols under  legislative  or  judicial  sanction. 

In  one  case  the  position  of  the  Director  General  was  re- 
garded by  the  court  as  analagous  to  that  of  a  receiver  of 
a  railway  company  conducting  its  carrier  operations  on 
the  theory  that  such  a  receiver  has  been  regarded  as  a 
carrier.^"  Undoubtedly  there  are  many  points  of  simi- 
larity between  the  duties  of  the  Director  General  and  that 
of  a  receiver  but  the  origin  and  extent  of  his  powers  in 
respect  to  the  operative  property  is  quite  different  from 
that  of  a  receivership.  In  another  case^^  the  Director 
General  was  regarded  as  a  general  in  command  of  the 

10  Rutherford  v.  Union  Pac.  R.  they  are  mere  agents  of  the  gov- 
Co.,  254  Fed.  880,  citing  United  ernment,  and,  if  liability  for  their 
States  V.  Nixon,  235  U.  S.  231,  234.  torts  and  the  torts  of  their  em- 
59  L.  Ed.  207,  35  Sup.  Ct.  49;  ployees  exists,  it  is  against  the 
United  States  v.  Ramsey,  197  Fed.  government  and  not  the  carrier, 
144,  146,  42  L.  R.  A.  (N.  S.)  1031,  and  therefore  actions  for  such 
116  C.  C.  A.  568,  to  the  effect  that  torts  should  be  against  the  Direc- 
such  a  receiver  is  a  common  car-  tor  General  of  Railroads  and  not 
rier.  against  the  carrier.     It  is  only  on 

Under  the   federal   control   acts  this  theory  that  the  Director  Gen- 

the     railroads     are     regarded     as  eral   was   to  have   even   colorable 

agencies    or    instrumentalities    of  authority  to  interfere  with  a  suit 

the  federal  government.     Dickens  against  a  transportation  company, 

V.  Bransford  Realty   Co.    (Tenn.),  and  this  theory  undoubtedly  con- 

210  S.  W.  644.  flicts    with    the    principles    above 

11  Vaughn  v.  State  (Ala.  App.),  stated.  The  only  authority  for 
81  So.  417.  suing  a   carrier   while   under   fed- 

In    the    above    case.    Presiding  eral  control  must  be  rested  upon 

Judge  Brown  said:      "The   appar-  the    act   of    Congress    which    sub- 

ent  theory  of  General   Order  No.  jects  them  'to  all  laws  and  liabil- 

50  is  that,  while  the  carriers  are  ities  as  common  carriers,  whether 

operating    under    federal    control,  arising    under    state    or    federal 


RAILROADS — PUBLIC   UTILITY    CORPORATIONS. 


1027 


army  of  transportation  on  the  theory  that  the  comman- 
deering of  the  railroads  is  based  upon  the  same  inherent 
authority  as  that  of  the  Selective  Draft  Act.  The  clearest 
statement  of  the  nature  and  character  of  the  control  exer- 
cised by  the  government  over  the  railroads  under  the 
Federal  Control  Act,  which  we  have  observed,  has  been 
by  Judge  Van  Fleet  in  a  recent  case^^  j^  which  he  said ; 
*'In  the  first  place,  the  act,  as  expressly  declared,  is  an 
emergency  measure  to  meet  extraordinary  conditions 
growing  out  of  an  actual  state  of  war,  and  calling  for 
an  exertion  of  the  most  extreme  and  drastic  powers  of 


laws  or  at  common  law,'  with 
certain  exceptions,  and  provides 
that — 

"  'Actions  at  law  or  suits  in 
equity  may  be  brought  by  and 
against  such  carriers  and  judg- 
ments rendered  as  now  provided 
by  law,'  etc.  U.  S.  Comp.  Stat. 
1918,  pp.  456-458. 

"And  the  validity  of  this  statute 
is  sustainable  on  no  other  theory 
than  that  the  transportation  com- 
panies are  operating  their  respec- 
tive systems  under  federal  control. 
If  such  companies  are  in  no  way 
connected  with  the  operation  of 
their  respective  transportation 
systems,  we  submit  that  it  would 
not  be  within  the  power  of  Con- 
gress to  subject  them  to  liability 
and  suits  thereon  for  the  torts, 
miscarriages,  and  defaults  of  the 
employees  of  the  federal  govern- 
ment. Such  an  act  would  be  an 
arbitrary  exercise  of  legislative 
power  contrary  to  the  established 
principles  of  private  rights  and 
distributive  justice  and  tanta- 
mount to  a  denial  of  due  process 
of  law.  Zeigler  v.  South  &  N.  A. 
R.  R.  Co.,  58  Ala.  594;  Mobile 
Light  &  R.  R.  Co.  V.  Copeland  & 
Sons,  15  Ala.  App.  235,  73  South. 


131;  Bank  of  Columbia  v.  Okley, 
4  Wheat.  235,  4  L.  Ed.  559;  Hur- 
tado  V.  California,  110  U.  S.  516, 
28  L.  Ed.  232,  4  Sup.  Ct.  Ill,  292; 
Dent  V.  West  Virginia,  129  U.  S. 
114,  32  L.  Ed.  623,  9  Sup.  Ct.  231; 
Leeper  v.  Texas,  139  U,  S.  462, 
35  L.  Ed.  225,  11  Sup.  Ct.  577; 
Giozza  V.  Tiernan,  148  U.  S.  657. 
37  L.  Ed.  599,  13  Sup.  Ct.  721; 
Jones  V.  Brim,  165  U.  S.  180,  41 
L.  Ed.  677,  17  Sup.  Ct.  282;  Max- 
well V.  Dow,  176  U.  S.  581,  44  L. 
Ed.  597,  20  Sup.  Ct.  448,  494;  6 
Rul.  Cas.  Law,  pp.  433-446,  em- 
bracing paragraphs  430  to  442,  on 
Constitutional  Law. 

"On  the  other  hand,  if  the  car- 
riers are  operating  under  federal 
control  and  are  agencies  of  the 
government,  the  authority  of  Con- 
gress to  impose  liability  on  the 
carriers  for  the  torts  of  their  em- 
ployees is  clearly  sustainable  on 
the  theory  that  such  responsibil- 
ity encourages  caution  on  the  part 
of  the  carriers  and  their  em- 
ployees promotes  efficiency,  and 
safeguards  the  interests  of  the 
government  and  the  general  pub- 
lic." 

12  Nash  V.  Southern  Pac.  Co., 
260  Fed.  280. 


1028  LAW    OF    RECEIVERS. 

government  to  meet  those  conditions.  It  is  accordingly  to 
be  construed,  not  with  that  meticulous  nicety  which  might 
be  dictated  by  other  circumstances,  but  in  a  broad  spirit 
of  liberality,  in  keeping  with  the  purpose  intended  to  be 
accomplished  and  having  in  view  its  emergency  character. 
''As  the  terms  of  the  act  at  once  disclose,  it  w^as  the 
purpose  and  intent  of  Congress  that  the  possession  and 
control  of  the  systems  of  transportation  taken  over  in 
whole  or  in  part  by  the  President  was  to  be  an  exclusive 
one,  to  no  extent  shared  in  by  the  ow^ners.  If  the  latter  or 
their  officers  were  retained  as  operators,  they  were  to  act 
merely  as  servants  and  under  pay  of  the  government;  and 
while  the  owners  were  to  be  compensated  for  the  use  of 
their  properties,  everything  earned  or  accruing  from 
their  operation  in  excess  of  such  compensation  was  to 
be  the  property  of  the  government.  Such  a  taking  in- 
volved in  the  sense  the  element  of  agency  by  the  govern- 
ment for  the  owners.  Agency  implies  a  consentual  or 
contractual  relation,  but  this  was  not  such.  It  was  more 
nearly  analagous  or  akin  to  a  taking  by  the  sovereign  in 
the  right  of  eminent  domain ;  and  the  result  of  such  taking 

The  Act  of  March  21,  1918,  pro-  complained  of,  a  consideration  has 
viding  for  the  federal  control  of  arisen  of  which  the  court  is  jus- 
railroads  during  the  war  and  tified  in  taking  judicial  notice, 
authorizing  the  President  to  make  The  country  is  now  in  a  state  of 

...         .,        f       .     „,;i.r,-     (.!,„      war,   and   the   government  of   the 
regulations  therefor,  is  within  the 

^   ^  „.  .  United    States    has   assumed    con- 

war  powers    of   Congress.     Warn-      ^     ,  ^,  ^.         ^  ^, 

trol  over  the  operation  of  the  rail- 
Wright  V.  Pennsylvania  R.  Co.,  253      ^^^^^      ^^^^^    .^   ^   deficiency    in 

b  ed.  459.  motive    power    and    cars,    and    a 

In  the  case  of  Marshall  v.  Bush,  shortage    of    men.      To    take    the 

102  Neb.  279,  L.  R.  A.  1918E,  385,  necessary     engines     and     rolling 

167  N.  W.  59,  the  Supreme  Court  stock  to  operate  this  train  may  de- 

of  Nebraska,  in  annulling  an  order  crease  to  that  extent  the  facilities 

of  the  Railroad  Commission  of  that  of  defendant  for  the  patriotic  duty 

state  requiring  Bush,  as  receiver  which    is    imposed    upon    him    of 

of   the    Missouri   Pacific   Railroad  doing  everything  possible  to  meet 

Company,   to  place  in   service   an  the  demands  in  the  transportation 

extra  train,  said:  ^gld   imposed  by   the  new   condi- 

"Since  the  rendition  of  the  order  tions." 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1029 

was  necessarily  to  relieve  the  owners  of  systems  so  taken 
from  any  legal  responsibility  to  the  public  arising  out 
of  their  operation,  and  quite  as  necessarily  an  assumption 
of  such  responsibility  by  the  government.  And  this,  as  is 
clearly  shown  by  the  whole  framework  of  the  act,  was 
what  Congress  desired  to  accomplish.  The  conditions  to 
be  met  in  the  emergency  presented  were  deemed  such  that 
the  administration  of  this  vital  instrumentality  for  suc- 
cessfully carrying  on  the  war  was  to  be  freed  for  the 
time  from  any  hazard  arising  through  a  bonded  control 
or  responsibility.  And  as  Congress  could  not  in  the 
nature  of  things  foresee  the  many  exigencies  and  necessi- 
ties that  might  arise  for  prompt,  free  and  unrestrained 
action  by  the  executive,  in  the  practical  administration  of 
this  great  trust,  the  President  was  clothed  with  the  broad- 
est and  most  plenary  powers  and  authority  to  deal  with 
the  problems  as  they  might  arise  and  in  such  manner  as 
his  judgment  should  dictate ;  and  this  not  only  as  between 
the  government  and  the  owners,  but  as  between  the  gov- 
ernment and  the  general  public,  with  express  power  to 
make  all  orders  and  regulations  essential  to  carrying  out 
the  purpose  of  Congress." 

The  powers  conferred  by  the  Federal  Control  Act  were 
held  not  to  have  been  affected  by  the  signing  of  the  Armis- 
tice since  an  armistice  merely  suspends  military  opera- 
tions and  does  not  terminate  a  war.^^ 

Aside  from  the  Federal  Control  Act  it  has  been  held 
that  when  the  government  purchases  or  owns  all  of  the 
capital  stock  of  a  railway  company  and  operates  it  as  a 
public  utility,  it  is  deemed  to  have  abandoned  its  sover- 
eignty and  is  to  be  treated  in  the  same  manner  as  any 
other  public  utility.^^ 

13  Commercial  Coal  Co.  V.  Burle-  14  Ballaine  v.   Alaska   Northern 

son,  255  Fed.  99;    State  v.  North-  Ry  Co.,  5  Alaska  694;   Panama  R. 

ern  Pac.  Ry.  Co.  (N.  D.),  172  N.  W.  Co.  v.  Curran,  256  Fed.  768. 
324. 


1030  LAW   OF    RECEIVERS. 

§  382.    Who  Will  Be  Selected  As  Receiver. 

The  same  general  rules  applicable  to  the  question  of 
selecting  a  receiver  for  a  private  corporation  are  also 
applicable  to  public  utility  receiverships.^  In  applying 
the  rules  in  respect  to  selecting  a  person  particularly 
qualified  for  the  position,  the  range  of  selection  in  respect 
to  a  public  utility  receivership  may  be  somewhat  limited 
on  account  of  the  small  body  of  men  with  the  practical 
experience  for  such  management. 

A  court  in  appointing  a  receiver  experienced  in  rail- 
road management  to  operate  a  railroad  and  preserve  the 
property  pending  a  sale  does  so  to  relieve  itself  from  the 
details  of  administration  and  management.  His  instruc- 
tions are  always  general  in  character  and  he  is  expected 
to  apply  to  the  court  from  time  to  time  whenever  special 
instructions  are  deemed  necessary.  The  very  nature  of 
his  relations  not  only  to  the  court  but  to  the  creditors  and 
others  entitle  him  to  the  largest  degree  of  discretion  pos- 
sible in  the  discharge  of  his  duties.  This  discretion  in 
the  management  will  not  be  interfered  with  except  in  the 
case  of  abuse  or  manifest  wrong.^ 

A  person  who  is  interested  in  another  railroad  with 
which  the  receivership  railway  is  in  litigation  should  not 
be  selected  as  receiver.^  The  fact  that  the  person  selected 
as  receiver  is  an  officer  of  the  receivership  railway  will 
not  be  deemed  an  objection  if  he  is  otherwise  satisfac- 
tory,^ nor  will  the  fact  that  he  is  related  to  certain  large 

1  See    §  343,    supra,    for    discus-  cient  cause  for  appointing  an  ad- 

sion  of  the  general  qualifications  ditional    receiver.— Central    Trust 

of  the  person  selected  as  receiver  Co.  of  New  York  v.  Missouri,  K. 

of  a  corporation.  ^  T.  Ry.  Co.,  246  Fed.  154. 


2  Continental      Trust      Co.      v. 
Toledo,  etc.,  R.  Co.,  59  Fed.  514. 


3  Commonwealth  v.  North  Shore 
R.  Co.,  259  Pa.  St.  155,  102  Atl. 
568. 


The  fact  that  a  railroad  receiver  4  Ti^e  president  of  the  corpora- 
had  expressed  his  views  in  regard  tion  was  appointed  in  one  case  at 
to  those  engaged  in  formulating  a  the  instance  of  the  mortgagee, 
plan  of  reorganization  is  not  suffi-  who  was  foreclosing  the  mortgage. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1031 

stockliolders  and  bondholders  be  an  objection  wliere  lie  is 
specially  fitted  for  the  position  by  reason  of  his  familiar- 
ity with  the  property  and  its  affairs  and  his  selection  is 
favored  by  substantially  all  of  the  parties  interested  and 
no  charges  are  made  against  his  integrity.^  It  is  not 
necessary  that  the  receiver  be  familiar  with  the  mechani- 
cal details  of  operation.^  In  the  absence  of  any  statutory 
objection,  a  non-resident  may  be  selected.'^  In  several  of 
the  earlier  cases,  one  railroad  company  was  appointed  as 
receiver  of  another  one  but  the  receivership  was  the  re- 
sult of  close  business  relationship  between  them  which 
did  not  appear  to  be  hostile  in  character.^ 

Where  the  duties  to  be  performed  in  the  receivership 
are  of  a  large  operative  property,  the  court  frequently 
appoints  two  receivers  but  not  where  it  is  quite  clear  that 
one  alone  will  be  able  to  perform  properly  the  functions. 
The  practice  in  this  respect  was  well  set  forth  by  Judge 
Lacombe  in  an  oral  opinion  in  a  receivership  case''  aris- 
ing in  a  mortgage  foreclosure  proceeding,  in  which  he 
said :    ' '  That  there  should  be  two  receivers  appointed  at 

Ralston  v.  Washington,  etc.,   Ry.  Commonwealth  v.  North  Shore  R. 

Co.,  65  Fed.  557.  Co.,  259  Pa.  St.  155,  102  Atl.  568. 

"Unless  in  cases  of  imperative  I"  Westinghouse,  etc.,  Mfg.  Co. 

.„    .       „  V.  Binghamton  Ry.   Co.,  255  Fed. 

necessity,   no  person  will  be   ap-  .                         ' 

378,  a  business  man  not  connected 

pointed  receiver  of  a  railroad  com-  ^.^^  ^^^  ^^^^^^  ^^.^^^^   ^^^   ^p^ 

pany  who  is  a  party  to  or  of  coun-  pointed  receiver. 

sel  in  the  cause,  or  who  has  been  ^  Farmers'    Loan    &    T.    Co.    v. 

an  officer  in,  or  an  official  of,  the  ^^^^  p^^^.^   ^^^^  j^    ^^^   g2   Fed. 

insolvent    corporation."      Finance  g^g 

Co.  V.  Charleston,  etc.,  R.  Co.,  45  g  Langdon  v.  Vermont,  etc.,R.R. 

^^<i-  4^^-  Co.,    54    Vt.    593,    613;     Town    of 

5  Bowling  Green  Trust  Co.  v.  Roxbury  v.  Central  Vt.  R.  Co.,  60 
Virginia  Passenger  &  Power  Co.,  vt.  121,  14  Atl.  92. 
133  Fed.  186;  John  A.  Roebling's  See  Dwight  v.  Central  Vermont 
Sons  Co.  V.  Virginia  Passenger  &  r.  Co.,  9  Fed.  785,  20  Blatchf.  200, 
Power  Co.,  133  Fed.  186;  Central  for  an  instance  where  one  rail- 
Trust  Co.  v.  Virginia  Passenger  &  road  was  in  possession  of  another 
Power  Co.,  133  Fed.  186.  as  receiver. 

c  Farmers' Loan,  etc.,  Co.  V.  Cape  o  Central    Trust    Co.    v.    Third 

Fear,   etc.,   R.   Co.,   62    Fed.    675;  Ave.  Ry.  Co.,  159  Fed.  959. 


1032  LAW    OF    RECEIVERS. 

this  stage  of  tlie  case  seems  wholly  unreasonable  and  un- 
warranted, and  unnecessarily  expensive.  One  receiver 
can  discharge  the  functions  perfectly  w^ell.  If,  in  the 
future,  it  should  become  necessary  to  unite  to  the  re- 
ceiver, who  is  a  lawyer,  some  other  receiver  who  may  be 
a  business  man  or  an  operating  or  financial  man,  or  for 
some  other  reason  such  as  the  circumstances  that  con- 
flicting camps  of  bondholders,  represented  by  their  re- 
spective committees,  reach  such  a  stage  of  entanglement 
that  it  seems  necessary  that  both  should  be  represented 
in  the  management,  the  occasion  can  then  be  availed  of, 
but  to  undertake  now  to  appoint  two  receivers  to  dis- 
charge the  functions  about  to  be  intrusted  to  a  receiver 
of  the  Third  Avenue  Railway  Company  seems  to  me  most 
unwise,  and  not  to  be  considered. 

''There  remains  then  only  the  question  as  to  who  the 
receiver  shall  be.  Mr.  Whitridge  has  been  nominated  by 
the  trustee  under  the  mortgage  and  by  the  committee  of 
bondholders  who  represent  substantially  a  majority  of 
the  bonds,  even  if  through  some  technicality  a  number  of 
bonds  are  not  yet  actually  filed.  From  the  stockholders, 
so  far  as  we  hear  anything  from  them,  there  comes  no 
objection  to  his  selection,  only  from  certain  bondholders 
vague  criticisms  upon  the  propriety  of  the  court  making 
such  an  appointment  upon  the  request  of  a  majority,  of 
the  bondholders.  The  court,  on  the  contrary,  has  reason 
to  feel  thankful  that  a  gentleman  of  such  professional  and 
personal  standing  in  this  community  is  willing  to  accept 
the  position.  It  is  a  thankless  office,  the  receivership  of 
a  public  service  corporation ;  it  is  laborious  and  engross- 
ing of  time ;  it  is  fretting,  irksome,  and  exasperating.  The 
work  is  so  large,  and  the  details  so  manifold  and  com- 
plicated. There  are  so  many  diverse  interests  and  such 
a  multitudinous  number  of  persons  to  be  considered  and 
planned  for.  And  it  grows  still  more  wearisome,  because 
it  seems  as  if  it  must  always  be  done  in  a  constant  atmos- 


RAILROADS — PUBLIC    UTILITY   CORPORATIONS.  1033 

pliere  of  sn.^picion  and  misrepresentation,  and  under  an 
intermittent  downpour  of  unfounded  criticism,  not  mali- 
cious at  all,  save  possibly  in  a  few  instances,  but  merely 
uninformed  and  thoughtless.     For  it  seems  to  run  with 
the  popular  humor  to  assume  that  no  one  who  is  dis- 
charging functions  which  affect  the  public,  or  large  in- 
terests even,  ever  acts  with  a  simple  desire  to  do  his  duty; 
that  there  must  be  some  mysterious,  some  devious  and 
hidden  ulterior  object  to  be  unearthed,  that  he  is  striving 
to  find  what  there  is  in  for  himself  or  for  his  friends.    It 
is  a  mistaken  notion.    There  are  in  this  community  today 
as  many  men  as  there  ever  were  who,  whatever  the  work 
that  may  be  allotted  to  them  to  do,  public  or  private,  are 
content  to  do  it  faithfully,  Avith  a  scrupulous  regard  for 
the  rights  of  all  affected.    It  is  a  source  of  gratification 
and  comfort  to  any  court  to  know  that  when  the  occasion 
arises  for  the  services  of  trustees  in  such  matters  it  can 
always  find  men  who  for  upwards  of  a  generation  have, 
withm   this    community,   practiced   their   profession   or 
transacted  their  business  not  in  a  small  way,  but  active, 
energetic,  achieving  success,  broadening  in  experience,' 
dealing  with  large  affairs;  and  who  yet  throughout  their 
whole  career  have  so  conducted  themselves  that  no  one 
can  point  a  finger  to  any  transaction  of  theirs  in  which 
they  have  not  acted  as  upright  and  honorable  men,  and  in 
accordance  with  the  best  ideals  of   their  business  or  pro- 
fession.    This  court  has  always  been  able  to  find  such 
men,  as  undoubtedly  it  always  will  be,  who  often  at  some 
personal  sacrifice,  are  willing  to  accept  such  burdensome 
office,  and,  when  appointed,  the  court  can  rest  assured 
that  all  interests  committed  to  their  charge  are  in  safe 
hands." 

§  383.     Appointment  of  Ancillary  Receivers, 

Inasmuch  as  most  railway  systems  are  interstate  in 
character  and  the  jurisdiction  of  a  state  court  does  not 


1034  LAW   OF   RECEIVERS. 

extend  beyond  the  confines  of  the  state,  it  naturally  fol- 
lows that  ancillary  receivers  must  be  appointed  in  such 
circumstances.^  The  orders  of  the  court  of  primary 
jurisdiction  are  generally  followed  as  a  matter  of  comity 
by  the  courts  of  ancillary  jurisdiction,  although  such  a 
court  is  not  deprived  of  an  independent  power  to  deal  in 
respect  to  the  property  within  its  own  jurisdiction.  A 
very  strong  case  for  such  independent  action  must,  how- 
ever, be  shown  before  a  court  of  ancillary  jurisdiction 
will  make  any  orders  in  conflict  with  that  of  the  one  of 
primary  jurisdiction,  since  it  is  the  desire  of  all  courts 
dealing  mth  a  property  of  large  magnitude  requiring 
maintenance  as  a  unit  in  order  to  function  properly  and 
be  preserved  to  the  best  advantage,  to  so  act  in  respect 
to  it  that  its  welfare  as  a  whole  will  best  be  subserved. 
Of  course  the  ancillary  courts  act  independently  in  re- 
spect to  those  matters  which  particularly  concern  the 
claims  of  its  o^vn  citizens  insofar  as  they  have  jurisdic- 
tion and  their  orders  in  matters  of  that  sort  are  likewise 
respected  by  the  court  of  primary  jurisdiction.^ 

1  Central  Trust  Co.  v.  Wabash,  Deposit  Co.  v,  Philadelphia,  R.  & 

St.  L.  and  P.  Ry.  Co.,  29  Fed.  618;  N.    E.   R.    Co.,    69    Conn.    709,    38 

Dillon  V.  Oregon,  etc.,  R.  Co.,   66  L.  R.  A.  804,  38  Atl.  792. 
Fed.  622,  628;  New  York,  P.  &  O.  Where  a  primary  receiver  is  ap- 

R.  Co.  V,  New  York,  L.  E.  &  W.  pointed  also  as  an  ancillary  one  he 

R.  Co.,  58  Fed.  268;  Horn  v.  Pere  is    required    to    obey    the    orders 

Marquette  R.  Co.,  151  Fed.  626.  of  the   ancillary  court  in   respect 

See  §  370,  supra,  relating  to  an-      *«  ^^^  ^o^^l  ^^sets.     Hammond  v. 

.,,  .  c  ..  National  Life  Assn.,  31  Misc.  Rep. 

ciliary   receivers   of   corporations,  ^ 

182,  65  N.  Y.  Supp.  407. 


and  §  327  relating  to  such  ap- 
pointments in  cases  of  foreign  cor- 
porations. 


And  where  a  federal  court  has 
appointed  an  ancillary  receiver  to 
one  appointed  primarily  in  a  state 
2  New  York,  P.  &  O.  R.  Co.  v.      ^ourt  it  will  frequently  refer  mat- 
New  York,  L.  E.  &  W.  R.  Co.,  58      ters     to     it     for     determination. 
Fed.  268;  Ames  v.  Union  Pac.  Ry.      United   States   Trust   Co.   v.    New 
Co.,  60  Fed,  966;  Guarantee,  etc.,      York,  etc.,  Ry.  Co.,  25  Fed,  797. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1035 

2.    Disposition  of  tlie  Operative  Property  Through 
a  Receivership. 

§  384.     Usual  Method  of  Disposing  of  the  Property. 

There  is,  as  might  be  expected,  a  very  general  simi- 
larity of  outline,  or  plan,  of  administration  of  the  estate 
among  the  federal  cases  that  form,  as  we  have  above 
pointed  out,  a  distinct  type,  or  class,  of  receiverships  of 
public  utility  corporations.  This  similarity  is  not  more 
marked,  perhaps,  with  reference  to  any  other  detail,  than 
it  is  with  reference  to  the  usual  method  of  disposing  of 
the  operative  property  of  the  corporation  involved. 

In  these  cases  there  is  primarily  present  in  the  mind 
of  the  court  the  need  of  preserving  and  continuing  for 
the  public  the  service  to  which  it  had  grown  accustomed. 
It  is  constantly  stated  that  the  business  of  the  corpora- 
tion must  be  kept  going.  As  a  practical  proposition  this 
does  not  necessarily  mean  that  the  old  corporation  must 
be  kept  going.  Usually  it  is  not  ultimately  kept  going. 
The  result  generally  is  to  leave  it  a  mere  shell, ^  without 
power  to  function — a  result  which,  in  the  minds  of  some 
courts,  has  formed  an  insuperable  objection  to  the 
assumption,  by  a  court  of  equity,  of  the  jurisdiction,  or 
power,  to  appoint  receivers.-  The  purpose  to  continue 
the  service  is  present  at  the  time  of  the  disposal  of  the 
operative  property  as  well  as  at  any  other  stage  of  the 
proceedings.     The  property  must  be  sold  as  a  unit  to  a 

1  Speaking  of  the  effect  of  the  In  appointing  a  receiver  for   a 

appointment  of  a  receiver  as  con-  public  utility  corporation  the  court 
stituting  a  breach  of  an  executory  '^'^^^  assume,  unless  shown  to  the 
contract,  the  court  said:     "In  such      ^^^^trary,  that  it  can  be  operated 

successfully  from  its  income  with- 
out  impairing  the  value  of  the 
property  of  the  receivership,  even 
of  the  shell  of  the  lessee  corpora-  ^^^^^^^  temporarily  embarrassed, 
tion."  Pennsylvania  Steel  Co.  v.  Central  Bank  &  Trust  Corporation 
New  York  City  Ry.  Co.,  198  Fed.  y.  Cleveland,  252  Fed.  530. 
721,  117  C.  C.  A.  503,  540.  2  See  §  304.  note  9. 


a  case  there  is  actually  total  in- 
ability of  performance  on  the  part 


1036  LAW   OF    RECEIVERS. 

purchaser  prepared  to  operate  it  in  tlie  interest  of  tlie 
public. 

In  tlie  ordinary  case  this  desideratum  would  require 
too   severe  financing  to  be  capable  of  accomplishment 
through  an  ordinary,   or,   as  it  is  commonly  called,  a 
strict   foreclosure    sale.      The   proceedings    are   usually 
instituted  by  an  action  on  the  part  of  a  creditor,  who 
can  secure  the  appointment  of  a  corporation  receiver. 
This  brings  all  of  the  assets  of  the  company  before  the 
court  and  prevents  the  breaking  up  of  the  system  pend- 
ing the  administration  of  the  estate.     In  the  course  of 
time  a  mortgagee,  whose  security  embraces  practically 
all  of  the  operative  property  of  the  company,  commences 
an  action  to  foreclose  and  breaks  the  way  for  a  sale  as 
a  unit.^     All  those  having  claims  upon  the  property- 
stockholders,   bondholders,    and   general   creditors— are 
before  the  court  and  their  claims  bear  the  lion's  share 
of  financing  the  sale.    Some  ready  cash  is  generally  fur- 
nished to  take  care  of  the  expenses  of  the  proceedings, 
such  as  the  immediate  expenses  of  the  future,  including 
perhaps  desirable  additions  or  greatly  needed  improve- 
ments to  the  system,  etc.     A  foreclosure  decree  is  ren- 
dered and  a  sale  ordered.     The  sale  is  made  to  a  pre- 
pared bidder,  who  promptly  transfers  his  purchase  to 
a  new  company.     Securities  or  stock  of  the  new  com- 
pany are  issued  in  favor  of  those  interested  in  or  having 
claims  against  the  old  company  who  were  to  be  provided 
for  according  to  the  pre-arranged  plan.     The  shell  of 
the  old  company  is  left  behind;  its  personnel  is  repre- 
sented somewhere  or  other  in  the  new  company.     The 
public    is    provided    for.      This    process    is    known    as 
reorganization.^ 

3  The  mortgage  foreclosure  ac-  4  This  process  of  reorganiza- 
tion may  be  the  opening  proceed-  tion,  as  well  as  some  of  the  other 
ing.  See  Guaranty  Trust  Co.  of  processes  employed  in  administer- 
N.  Y.  V.  Missouri  Pac.  Ry.  Co.,  238  ing  the  estates  of  utility  corpora- 
Fed.  812.  tions,     such     as     assuming     large 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1037 

**If  the  financial  difficulties  resulting  in  receivership 
are  not  mortal,  but  are  mere  embarrassments,  which 
may  be  relieved  by  time  and  readjustment,  the  custom 
is  a  reorganization,  embodying  a  recognition  of  all  inter- 
ests— bonds  and  other  lien  debts,  general  debts,  and 
stocks — as  far  down  the  scale  of  preference  as  the  value 
of  the  property  and  sound  business  judgment  reasonably 
justify.  As  was  said  in  Louisville  Trust  Co.  v.  Louis- 
ville, etc.,  Ry.,  174  U.  S.  674:  'We  must  therefore  rec- 
ognize the  fact,  for  it  is  a  fact  of  common  knowledge, 
that,  whatever  the  legal  rights  of  the  parties  may  be, 
ordinarily  foreclosures  of  railroad  mortgages  mean,  not 
the  destruction  of  all  interest  of  the  mortgagor  and  a 
transfer  to  the  mortgagee  alone  of  the  full  title,  but  that 
such  proceedings  are  carried  on  in  the  interests  of  all 
parties  who  have  any  rights  in  the  mortgaged  property, 
whether  as  mortgagee,  creditor,  or  mortgagor.'  "^ 

§385.    Whether  Receiver  Should  Continue  Operations  When 
Done  at  a  Financial  Loss. 

In  the  cases  of  the  large  railroad  systems  and  other 
large  public  utilities  the  continuous  operation  of  the 
public  utility  pending  either  a  restoration  of  the  prop- 
erty to  the  corporation  or  to  a  reorganized  company  is 
taken  as  a  matter  of  course.  But  a  serious  condition 
arises  when  the  public  utility  is  a  small  concern  serving 
only  a  limited  number  of  people  and  serving  them  at 
a  continued  loss.  We  are  not  here  concerned  with  the 
question  as  far  as  it  does  not  relate  to  a  receivership 
situation.  Where,  however,  such  a  concern  so  situated, 
or  a  large  concern  hopelessly  overcapitalized  and  insol- 

expense   in  keeping   the  business  Pig  Iron,  etc.,  Co.  v.  German,  126 

going,    are    sometimes    applied    in  Ala.  194,  85  Am.  St.    Rep.   21.,   28 

the  cases  of  private  concerns.   See  So.  603. 

Guaranty    Trust    Co.    v.    Interna-  5  Guaranty  Trust  Co.  of  N.  Y.  v. 

tional  Steam  Pump  Co.,  231  Fed.  Missouri    Pac.    Ry.    Co.,    238    Fed. 

594,   145  C.   C.  A.   480;    American  812. 


1038  LAW   OF   RECEIVERS. 

vent,  is  placed  in  the  hands  of  a  receiver,  can  tlie  public 
who  are  served  by  it  intervene  and  compel  the  receiver 
to  operate  the  public  utility  at  such  a  loss  that  the  cost 
of  operation  will  consume  the  corpus  of  the  receivership  I 
It  really  amounts  to  this,  namely,  do  the  stockholders, 
lienholders,  and  creditors  of  a  public  utility  dedicate  their 
interests  in  the  concern  to  the  public  to  such  an  extent 
that  their  financial  interests  in  it  can  be  taken  without 
compensation  for  that  purpose?  In  view  of  the  interest 
of  lienholders  and  general  and  preferred  creditors  in 
the  corpus  of  the  receivership,  to  so  compel  a  receiver 
to  operate  at  a  loss  would  constitute  a  taking  of  their 
property  for  public  use  without  compensation.  The  ques- 
tion was  presented  to  the  United  States  Circuit  Court 
of  Appeals  of  the  Fourth  Circuit  in  a  comparatively 
recent  case.^  In  the  case  presented  the  railway  covered 
some  23  miles  of  railway.  It  had  never  paid  interest 
on  its  first  mortgage  and  had  for  some  years  been  run- 
ning at  an  annual  net  loss  which  at  the  time  of  the 
receivership  had  aggregated  over  $41,000.  After  the 
appointment  of  the  receiver  and  upon  his  application, 
the  operation  of  the  road  was  ordered  to  be  discontinued 
upon  the  showing  of  its  unsafe  condition  and  operation 
at  a  loss.  Thereupon  a  petition  was  filed  in  the  court 
by  a  number  of  residents  and  property  owners  along 

1  Central  Bank  &  Trust  Corpo-      prospects  of  future  profitable  op- 
ration  V,  Cleveland,  252  Fed.  530.      eration  and  especially  while  there 
A   receiver   should    be   directed      ^as   a   particularly   good    market 

for    scrap    iron    and    machinery. 


to  sell  an  electric  railroad  to  pay 
the    debts    of    the    company,    al- 


Re  Rockland  S.  T.  &  S.  &  G.  R.  Co. 

(Me.)  P.  U.  R.  1918  E.  877. 
though   a  loss   Of   service    to   the  ^    ^.^.^^    ^^^    lumbering   rail- 

community  served  will  result,  ^^^^  operated  as  a  common  ear- 
where  its  operations  have  been  ^ier  should  be  allowed  to  discon- 
suspended  by  the  receivership  tinue  its  service  where  its  busi- 
court  on  account  of  having  been  ness  has  so  decreased  as  not  to 
unsuccessful  during  normal  times,  produce  suflBcient  revenue  to  jus- 
and  unable  to  resume  without  the  tify  its  operation.  Cain  v.  Mono 
expenditure  of  additional  capital  Lake  Lumber  Co.  (Cal.)  P.  U.  R. 
and     with     not     sufficient     future      1918B  292. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1039 

the  line  of  tlie  railroad,  asking  the  leave  of  the  court 
to  intervene  and  asking  that  the  court  should  rescind  its 
order  directing  the  discontinuance  of  operation  of  the 
railroad.     The  court  allowed  the  intervention  and  took 
evidence  in  the  matter.    All  of  the  parties  interested  in 
the  railroad  were  before  the  court,  including  the  trustee 
for    the    bondholders,    the     unsecured    creditors,     the 
railroad    company,    and    its    unfortunate    stockholders. 
It    appeared    that    the    amount    of   bonds    outstanding, 
secured  by  the  mortgage,  was  largely  in  excess  of  any 
possible  value  of  the  railroad  and  its  assets.    The  inter- 
veners were  not  interested  in  the  affairs  of  the  company 
except  as  residents  along  the  road  who  were  discom- 
moded by  its  non-operation  and  who  asserted  their  claim 
as  the  right  of  the  public  to  have  the  railroad  operated. 
District  Judge  Smith,  speaking  for  the  Circuit  Court  of 
Appeals,  in  holding  that  the  court  would  not  compel  the 
receiver  to  operate  the  railroad  under  the  circumstances, 
said: 

''The  contention  of  these  interveners  is  that,  under 
the  law,  the  court  can  compel  (as  the  state  of  South 
Carolina  in  their  view  can  compel)  the  operation  of  the 
railroad,  although  its  operation  is  at  a  continuous  loss, 
and  may  mean  a  continuous  impairment  and  ultimate 
possible  entire  loss  of  all  the  capital  invested  in  the  rail- 
w^ay.  The  logical  consequence  of  their  contention  is  that 
the  effect  of  subscribing  to  the  capital,  or  lending  on 
the  application  of  a  railroad  company,  and  its  construc- 
tion therewith,  is  to  subject  all  the  property  of  the  cor- 
poration to  a  first  lien  to  the  state  for  the  indefinite 
operation  of  the  road,  and,  although  its  operation  may 
prove  to  be  unprofitable  and  at  a  loss,  the  owners  of  the 
property,  or  the  holders  of  securities  secured  by  a  lieu 
upon  the  property,  can  not  cease  operation  and  realize 
on  the  ivecurity,  but  they  are  bound  to  continue  the  opera- 
tion of  it,  even  to  the  entire  exhaustion  of  the  assets  of 
the  railroad. 


104:0  LAW    OF    RECEIVERS. 

''Upon  tliis  point  the  controversy  is  between  all  the 
persons  who  have  any  financial  interest  in  the  property 
on  the  one  side,  and  on  the  other  only  the  interveners, 
who  have  no  financial  interest  in  the  property,  but  claim 
the  right  on  behalf  of  the  public  to  compel  the  operation 
of  the  railroad  upon  the  theory  that  in  the  case  of  a 
railway  the  public  has  a  right  to  compel  its  operation, 
even  if  the  result  be  the  sequestration  of  the  entire 
amount  invested  without  compensation  to  the  owners. 
This  court  has  authoritatively  declared  its  view  to  be 
the  contrary  of  this  contention. 

''A  railroad  was  formerly  constructed  along  the  very 
line  of  the  railroad  now  concerned.  Its  name  was  the 
Carolina,  Knoxville  &  Western  Eailway  Company.  The 
operation  of  the  railroad  having  proved  unsuccessful, 
and  that  it  could  only  be  operated  at  a  loss,  foreclosure 
proceedings  were  instituted,  in  the  Circuit  Court  of  the 
United  States  for  the  District  of  South  Carolina,  for 
foreclosure  and  sale,  and  a  sale  at  auction  was  ordered. 
It  was  twice  exposed  for  sale  at  auction  \dthout  any 
bidders,  and  it  was  finally  bid  in  for  $15,000.  The  pur- 
chaser did  not  attempt  to  operate  it,  but  sought  to  remove 
and  sell  the  rails.  Thereupon  a  number  of  persons, 
relators,  acting  in  the  name  of  the  state,  just  as  in  the 
present  cause,  intervened  and  sought  to  have  the  court 
require  the  rails  taken  up  and  sold  to  be  replaced  by' the 
purchaser  and  the  road  to  be  operated. 

"The  case  came  on  to  be  heard  before  Judge  Simonton, 
Fitting  in  the  Circuit  Court.  The  very  point  was  made 
that  is  made  in  the  present  case,  that  under  the  statute 
of  the  state  of  South  Carolina  referred  to  in  the  order 
of  the  learned  judge  below,  slightly  modified  as  embodied 
in  section  3117  of  the  Code  of  Laws  of  South  Carolina, 
the  purchaser  of  a  railroad  was  required  to  organize  and 
put  it  in  operation  within  60  days  of  the  purchase  and 
acquisition  thereof,  and  that  that  meant  that  the  stock- 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1041 

holders  accepted  an  obligation  to  maintain  and  operate, 
and  keep  on  operating,  although  the  operation  was  at 
a  loss.  After  a  full  hearing,  Judge  Simonton  decided 
to  the  contrary.  Jack  v.  Williams,  113  Fed.  823.  He 
held  that,  while  a  railroad  Avas  in  a  sense  a  public  con- 
cern, for  whose  construction  and  operation  the  action 
of  the  sovereign  was  needed,  yet  that,  whilst  thus  serving 
the  public,  no  corporation  or  person  is  thereby  bound 
to  continue  the  service  without  a  reasonable  remunera- 
tion. No  one  can  be  compelled  to  serve  the  public  for 
nothing.  Private  property  of  no  kind,  including  rail- 
road property,  can  be  used  for  public  purposes  without 
compensation.  He  decided,  further,  that  the  effect  of 
the  act  of  the  Legislature  referred  to  was  not  to  forfeit 
or  sequestrate  the  property  of  a  railroad  company  to 
the  use  of  the  public,  by  requiring  its  operation  even  at 
a  loss,  but  only  that,  if  the  purchasers  did  not  organize 
and  operate  within  the  time  limited,  they  forfeited  the 
franchises  of  the  railroad  corporation.  The  state  could 
not  compel  the  stockholders  to  exhaust  their  assets  in 
the  operation  of  a  losing  concern,  but  it  could  say  that, 
if  you  do  not  choose  to  operate,  you  shall  not  be  entitled 
to  the  public  franchises  given  to  a  common  carrier,  and 
in  that  case  the  only  thing  left  to  the  owners  of  the 
property  would  be  to  sell  the  property,  without  being 
able  at  the  sale  of  the  property  to  sell  the  franchises 
and  the  right  of  operation. 

''That  decision  was  appealed  from,  but  was  affirmed  by 
this  court.  State  of  South  Carolina  v.  Jack,  145  Fed. 
281,  76  C.  C.  A.  165.  This  court  affirmed  the  judgment 
of  Judge  Simonton,  and  the  only  question  would  be 
whether  it  be  so  that  it  be  established  that  the  road 
can  not  be  operated  except  at  a  loss  to  the  owners.  This 
court  further  held  in  that  case  that  the  very  fact  that 
the  road  does  not  pay  the  expenses  of  running  trains 
was  persuasive  evidence  that  the  service  to  the  public 
did  not  require  it  to  be  kept  in  operation.    The  learned 

II  Rec— ca 


1042  LAW    OF   RECEIVERS. 

judge  below  in  tlie  present  cause  in  bis  order  finds  as 
a  conclusion  of  fact  tbat  the  railroad  bas  lost  money 
from  tbe  beginning,  but  voices  bis  belief  that,  notwith- 
standing previous  losses,  the  receivers  should  issue  a 
sufficient  amount  of  receivers '  certificates  to  put  the  rail- 
road in  condition  to  run  trains  over  it,  and  that  the 
interest  of  the  public  made  this  service  imperative,  and 
tbat  he  is  bound  to  believe  that  such  service  would  be 
equally  beneficial  to  bondholders. 

''Were  this  the  case  of  a  private  corporation  there 
would  be  no  difficulty.  The  rule  is  generally  accepted  in  the 
case  of  private  financial  corporations  that,  without  the 
assent  of  the  existing  lienholders,  a  court  of  equity  wall 
not,  by  the  issue  of  receivers'  certificates,  displace  prior 
liens,  save  to  the  extent  actually  required  for  necessary 
expenditures  incident  to  administering  the  assets  and 
preserving  tbe  property  from  deterioration  pending  the 
winding  up  of  the  business  and  the  settlement  of  the 
receivership.  The  whole  rule  is  fully  discussed  in  Inter- 
national Trust  Co.  V.  Decker  Bros.,  152  Fed.  78,  81  C.  C.  A. 
302, 11  L.  R.  A.  (N.  S.)  152,  cited  and  reaffirmed  in  Nowell 
V.  International  Trust  Co.,  169  Fed.  505,  94  C.  C.  A.  589. 
It  seems,  also,  generally  accepted  that  where  a  receiver 
is  directed  to  operate  a  business,  it  is  because  the  income 
of  operation  will,  as  clearly  shown  by  the  facts,  exceed 
the  outgo,  and  the  operation  therefore  be  beneficial  to 
the  holders  of  the  liens;  the  income  being  the  primary 
fund  to  which  the  expenses  of  a  receivership  must  be 
referred. 

"In  the  case,  however,  of  public  utility  corporations, 
especially  in  the  cases  of  railways,  the  rule  has  been 
modified  by  reason  of  the  interest  that  the  public  have  in 
the  operation  of  the  concern.  In  the  case  of  a  great 
railway  corporation,  for  instance,  if  suddenly  its  opera- 
tion were  put  an  end  to,  all  the  avenues  of  transporta- 
tion and  trade  around  which  public  life  and  interests 


RAILROADS — PUBLIC    UTILITY   CORPORATIONS.  1043 

Iiad  grown  up  and  clustered  for  many  years  would  be 
destructively  paralyzed  by  a  sudden  stoppage.  So,  also, 
in  tlie  case  of  a  receivership  of  a  large  public  utility 
corporation  for  the  furnishing  of  gas,  water,  or  other 
public  necessity  to  a  communit}^,  its  sudden  stoppage 
Would  entail  such  untold  injury  to  the  community  that 
the  stoppage  is  not  permitted;  and  the  theory  has  been 
adopted  that,  unless  it  manifestly  appears  otherwise,  the 
very  existence  of  the  utility  corporation  shows  that  it 
can  be  operated  at  sufficient  income  to  pay  its  cost  of 
operation  and  not  to  impair  the  value  of  the  property. 

''This  does  not  mean,  however,  in  these  cases,  that  the 
courts  have  a  right  to  require  an  indefinite  operation, 
to  the  exhaustion  of  the  assets,  but  that,  in  view  of  the 
fact  that  the  public  utility  corporation  has  been  created 
and  exists,  the  court  will  take  it  for  granted  that  it  can 
be  operated  so  as  not  at  least  further  to  impair  the 
value  of  the  assets,  and  will  direct  it  to  be  operated, 
even  by  the  issue  of  receivers'  certificates,  until  arrange- 
ments can  be  made  to  meet  the  exigencies.  If  it  should 
be  found  that  it  cannot  be  operated,  except  at  a  loss, 
it  would  be  open  to  the  public,  if  it  be  authorized  as  a 
public  measure,  to  condemn  the  property  and  take  it  for 
public  purposes  at  its  ascertained  value;  but  it  can  not 
take  it  by  the  method  of  requiring  its  operation  to  the 
absohite  exhaustion  of  the  assets,  and  in  that  way  effect 
the  taking  of  private  property  for  public  purposes  with- 
out compensation. 

''There  has  been  no  case  in  which  such  a  doctrine  has 
been  announced.  For  the  general  rule,  see  Barton  v. 
Barbour,  104  U.  S.  126,  26  L.  Ed.  672;  Union  Trust  Co. 
V.  Illinois  Midland  Co.,  117  U.  S.  434,  6  Sup.  Ct.  809, 
29  L.  Ed.  963 ;  Kneeland  v.  American  Loan  Co.,  136  U.  S. 
89,  97,  10  Sup.  Ct.  950,  34  L.  Ed.  379 ;  Thomas  v.  Western 
Car.  Co.,  149  IT.  S.  95,  13  Sup.  Ct.  824,  37  L.  Ed.  663 ; 
V.  &  A.  Coal  Co.  V.  Central  R.  R.  Co.,  170  U.  S.  355, 


10J:4  LAW   OF    RECEIVERS. 

18  Sup.  Ct.  657,  42  L.  Ed.  1068.  The  principle  decided 
in  these  cases  extends  to  the  effect  that  certain  classes 
of  debts  already  incurred  for  operating  expenses  may, 
by  reason  of  the  public  right  and  necessity  for  opera- 
tion, be  given  priority  in  payment  over  mortgage  liens, 
under  the  view  also  that,  like  supplies  advanced  or  repairs 
made  to  a  vessel,  they  had  been  actually  necessary  to 
preserve  the  existence  of  the  res  itself,  upon  the  existence 
of  which  res  all  other  liens  depended. 

''The  present  case,  however,  does  not  fall  in  any  of 
these  categories.  In  the  first  place,  it  is  a  small  branch 
railroad,  and  it  is  not  the  public,  as  a  general  whole, 
which  is  affected,  but  only  the  limited  number  of  indi- 
viduals who  are  connected  with  the  neighborhood  of  a 
small  branch  railroad.  Next,  the  facts  show  that  it  is 
unreasonable  to  expect  this  railroad  to  be  operated,  so 
as  to  pay  its  costs  of  operation,  except  as  a  speculative 
hope.  The  only  grounds  upon  which  expectations  are 
based  that  it  can  be  operated  so  as  not  to  entail  further 
loss  by  the  operating  expenses  being  greater  than  the 
operating  receipts  is  a  speculative  hope  that  business 
may  be  built  up  so  as  to  have  this  result.  This  is  not 
a  conclusion  based  upon  past  operation,  but  a  hope  voiced 
upon  speculative  contingencies.  The  railroad,  therefore, 
is  in  the  same  position  as  the  line  referred  to  in  the  pre- 
vious case,  when  it  was  ordered  in  the  previous  decree  of 
this  court  to  be  sold. 

"The  insistence  of  the  relators  in  this  intervention  is 
in  eflect  that  private  property  should  be  taken  for  public 
use  without  compensation.  All  the  owners  of  this  prop- 
erty, stockholders,  unsecured  creditors,  and  bondholders, 
ol^ject  to  its  further  operation  and  the  creation  of 
this  prior  lien.  The  only  ground  upon  which  it  can  be 
justified  in  the  face  of  further  objection  is  that  there  is 
some  superior  right  of  the  public  to  have  the  road  oper- 
ated, although  at  the  destruction  of  the  projoerty  of  the 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  lU4o 

security  holders.  This  doctrine  was  openly  announced 
by  the  counsel  for  appellees  at  the  hearing.  If  the  resi- 
dents along  the  railway,  or  the  public  generally,  desire 
that  the  railroad  should  be  operated  for  their  benefit, 
they  can  do  so  by  supplying  the  income  for  that  pur- 
pose, without  making  it  a  prior  charge  upon  the  property. 
The  operation  of  the  property  otherwise  than  by  the 
creation  of  a  prior  lien  in  the  issue  of  receivers'  cer- 
tificates would  not  appear  to  be  practicable  under  the 
circumstances  in  this  case.  It  would  seem  that  the  judge 
below  should  direct  that  the  test  of  whether  or  not  its 
operation  would  be  successful,  in  the  sense  of  procuring 
enough  to  pay  for  the  expense  of  operation,  should  be 
at  the  charge  and  at  the  expense  of  the  persons  to  be 
benefited  and  who  insist  upon  that  operation.  It  should 
be  required  of  the  parties  for  wdiose  benefit  the  railroad 
is  thus  to  be  operated  to  secure  the  receipt  of  a  sufficient 
amount  to  pay  for  its  operation  without  creating  any 
prior  charge  on  or  further  depreciating  the  value  of  the 
assets  of  the  corporation  and  security  holders  by  the 
furnishing  of  such  security  as  the  court  will  require,  so 
that  no  ultimate  loss  shall  be  upon  the  parties  interested 
in  the  property. 

"This  can  be  effected  by  the  requirement  that,  before 
the  operation  of  the  railroad  be  resumed  and  continued, 
and  the  certificates  issued,  sufficient  security  be  given 
on  behalf  of  the  relators  for  the  repayment  of  these  cer- 
tificates, and  of  all  loss  or  impairment  of  value  that  may 
result  from  the  operation,  less  any  increased  value  that 
at  any  sale  may  be  shown  to  have  accrued  to  the  security 
holders  from  any  expenditures  for  permanent  repairs  or 
betterments,  or  from  the  sale  of  the  property  as  a  con- 
tinued operating  railway.  The  cause  must  therefore  be 
remanded  to  the  court  below  for  a  modification  of  its 
order  so  as  to  accord  with  this  opinion." 

The  opinion  of  the  court  from  which  we  have  quoted 


1046 


LAW    OP   RECEIVERS. 


covers  tlie  question  so  fully  and  is  so  sound  in  its  rea- 
soning and  regard  for  the  rights  of  the  public  in  such 
a  situation  that  we  think  the  question  can  be  considered 
as  settled. 

The  policy  of  the  courts  in  dealing  with  public  utility 
corporations  is  to  keep  an  extensive  railway  system^  or 
other  public  utility  property  which  consists  of  units,  in- 
tact as  one  system  if  it  is  possible  to  do  so,^  but  where 
part  of  a  street  railway  system  is  unprofitable  the  re- 
ceiver may  be  permitted  to  surrender  the  franchises  of 
the  unprofitable  portion  of  the  system.^ 


2  Pennsylvania  Steel  Co.  v.  New 
York  City  Ry.  Co.,  176  Fed.  471; 
Lorain  Steel  Co.  v.  Union  Ry.,  165 
Fed.  500;  Pennsylvania  Steel  Co. 
V.  New  York  City  St.  Ry.  Co.,  165 
Fed.  477. 

3  The  court  will  endeavor  to 
keep  a  system  of  electrical  and 
gas  generating  companies  under 
one  company  intact  as  a  system 
where  the  operation  of  each  unit 
is  necessary  to  the  success  of  the 
whole  enterprise.  Gay  v.  Hudson 
River  Electric  Power  Co.,  173 
Fed.  1003  (affirmed  in  177  Fed. 
1003,  100  C.  C.  A.  667). 

A  receiver  will  not  be  directed 
by  the  court  to  discontinue  ser- 
vice over  a  part  of  the  system 
where  to  do  so  might  result  in  a 
forfeiture  of  the  franchise  of  the 
company.  Lorain  Steel  Co.  v. 
Union  Ry.,  165  Fed.  500. 

Where  a  receiver  is  already  in 
charge  of  a  street  railway  system, 
another  receiver  will  not  be  ap- 
pointed over  a  part  of  the  system, 
notwithstanding  that  the  title  to 
the  latter  may  be  in  doubt.  Clap 
V.  Interstate  St.  Ry.,  61  Fed.  537. 

4  Pennsylvania  Steel  Co.  v.  New 
York   City  Ry.   Co.,   187   Fed.   288. 

See  also  Pennsylvania  Steel  Co. 


v.  New  York  City  Ry.  Co.,  165 
Fed.  459. 

The  right  of  a  receiver  to  aban- 
don a  dilapidated  and  unprofitable 
line  of  railway  was  also  declared 
in  State  of  Iowa  v.  Old  Colony 
Trust  Co.,  215  Fed.  307,  131  C.  C.  A. 
581.  In  that  case  the  system  con- 
sisted of  an  electric  line  of  some 
125  miles  in  length  and  a  short 
steam  line  in  the  condition  above 
stated.  The  steam  line  was  not 
only  in  a  dangerous  condition  for 
use  but  would  require  a  large 
amount  of  money  to  rehabilitate 
it,  and  the  company  was  hope- 
lessly insolvent.  The  operation  of 
the  electric  line  was,  however,  of 
public  importance  and  in  good 
condition  and  in  profitable  opera- 
tion. The  steam  line  In  ana  Dy 
itself  did  not  pay  operating  ex- 
penses. The  circuit  court  of  ap- 
peals affirmed  an  order  allowing 
the  receiver  to  discontinue  the 
operation  of  the  steam  line. 

Where  a  railroad  is  being  oper- 
ated by  the  receiver  at  a  loss,  he 
may  be  permitted  to  turn  it  over 
to  a  connecting  road  for  operation 
without  the  payment  of  rent.  The 
operating  company  under  such  cir- 
cumstances is  the  agent  of  the  re- 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  lOiT 

It  is  the  rule  that  by  the  acceptance  by  a  railroad  cor- 
poration of  a  charter  which  confers  upon  it  the  power  of 
eminent  domain  and  other  valuable  privileges,  it  assumes 
those  duties  for  which  it  was  organized,  and  in  considera- 
tion of  which  the  privileges  were  conferred.^  Under  this 
rule  it  is  held  that  it  may  become  necessary  in  order  to 
furnish  a  proper  service,  as  required  by  its  charter,  that 
a  railroad  may  be  required  to  operate  a  branch  line  at 
a  loss  or  to  furnish  other  service  at  a  loss,  but  in  deter- 
mining whether  a  requirement  that  such  facilities  be  in- 
creased is  just  and  reasonable,  the  nature  and  extent  of 
the  existing  facilities  must  be  considered.  And  if  it  is 
shown  that  the  enforcement  of  the  order  would  so  affect 
the  general  scheme  of  the  operation  of  the  entire  system 
that  it  w^ould  inevitably  require  its  operation  at  a  loss,  the 
order  may  be  deemed  so  unreasonable  as  to  violate  the 
Fourteenth  Amendment  of  the  Federal  Constitution. 
This  situation  would  arise  where  the  w^hole  interstate 
system  is  in  the  hands  of  a  receiver  on  account  of  inability 
to  pay  fixed  charges  against  the  system.  In  other  words 
there  is  a  distinction  between  requiring  service  to  be  per- 
formed upon  a  portion  of  a  railroad  system  at  a  loss,  and 
the  fixing  of  a  schedule  of  rates  for  transportation  so 
unreasonably  low  as  to  require  the  whole  system  to  be 

ceiver.  South  Carolina,  etc.,  R.  L.  Ed.  472,  30  Sup.  Ct.  330;  Atlan- 
Co.  V.  Car,  etc.,  Ry.,  93  Fed.  543,  35  tic  C.  L.  R.  Co.  v.  North  Carolina 
C.  C.  A.  423.  Corporation  Commission,  206  U.  S. 

And  a  receiver  will  under  proper      ^'  ^^  ■-  ^^-  ^^^'  ''■'  ^nn.  Cas.  398, 

27  Sup.  Ct.  585;   Wisconsin,  M.  & 
P.  R.   Co.  V.  Jacobson,   179   U.   S, 
287,  45  L.  Ed.  194,  21  Sup.  Ct.  115. 
erty  independent  of  the   right  of  ^i^^  attorney-general  of  a  state 

way.  Royal  Trust  Co.  v.  Wash-  n^ay  file  a  suit  in  a  state  court  to 
burn  B.  &  I.  R.  Co.,  113  Fed.  531.  restrain  the  receiver  of  a  federal 

5  Chesapeake  &  O.  R.  Co.  v.  court  from  tearing  up  a  railroad 
Public  Service  Commission,  242  pusuant  to  orders  of  the  receiver- 
U.  S.  603,  61  L.  Ed.  520,  37  Sup.  ship  court.  Attorney  General  v. 
Ct.  234;  Missouri  Pac.  R.  Co.  v.  Frost,  113  Wis.  623,  88  N.  W.  912, 
State  of  Kansas,  216  U.  S.  262,  54      89  N.  W.  915. 


circumstances  be  permitted  to  dis- 
mantle a  road  and  sell  the  prop- 


10 J  8  I-*^W    OF    RECEIVERS. 

operated  at  a  confiscatory  rate.  In  the  one  case  the  loss 
incidental  to  the  operation  of  a  portion  of  the  system  at 
a  loss  may  be  overcome  by  readjustment  of  train  service 
or  other  economies,  whereas  inadequate  rates  applying 
to  the  whole  system  result  in  a  form  of  confiscation  which 
is  violative  of  constitutional  provisions.*^ 

§  386.     General  Attitude  of  Receivership  Toward  Large  Finan- 
cial Transactions  Made  in  Course  of  Business. 

The  court  in  viewing  large  borrowing  transactions 
made  by  a  public  utility  corporation  in  which  it  has 
pledged  collateral  securities  with  banking  institutions  in 
order  to  obtain  funds  necessary  to  maintain  itself  as  an 
operating  corporation  during  times  of  financial  stress, 
such  as  during  war  or  the  like,  will  so  act  as  not  to  make 
loans  of  such  character  difficult  to  obtain  by  taking  a  nar- 
row or  very  technical  point  of  view  of  the  matter  but  will 
look  at  the  situation  from  a  broad  point  of  view  where 
there  is  no  suggestion  of  bad  faith  or  disguises  to  cover 
the  real  transaction  and  where  the  transactions  were,  as 
was  said  by  Judge  Mayer,i  ''honestly  conceived  and  hon- 
estly carried  out  in  the  ordinary  course  of  business  of 
this  character  which  has  to  do  with  the  financing  of  a 
large  public  utility  company. "  • 

G  Marshall    v.    Bush,    102    Neb.  L.    Ed.   933,   11   Ann.   Cas.   398,   27 

279,  167  N.  W.  59    (in  a  well-con-  Sup.   Ct.   585   and   Missouri   P.   R. 

sidered    opinion    by    Mr.    Justice  Co.  v.  State  of  Kansas,  216  U.  S. 

Letton).     (See  also  CliesapeaKe  &  262,  54  L.  Ed.  472,  30  Sup.  Ct.  330, 

O.  R.  Co.  V.  Public  Service  Com-  regarding  confiscatory  regulations 

mission,  242  U.  S.  603,  61   L.   Ed.  in  this  respect. 
520,  37  Sup.  Ct.  234;  Atlantic  C.  L.  i  Westinghouse  Electric  &  Mfg. 

R.  Co.  V.  North  Carolina  Corpora-  Co.  v.  Brooklyn  Rapid  Transit  Co., 

tion  Commission,  206  U.  S.  1,  51  256  Fed.  465. 


RAILROADS-  -PUBLIC    LTILITY    CORPORATIONS.  1049 

3.    Powers  and  Duties  of  the  Receiver. 

§387.     General   Statement   as   to   Extent   of   Powers   of   the 
Receiver. 

Certain  general  principles  concerning  the  relation  of 
a  receiver  to  the  estate  over  which  he  has  control  and  to 
the  parties  interested  in  the  estate  apply  to  a  federal 
pnhlic  ntility  receiver  as  well  as  to  a  receiver  in  any  other 
kind  of  a  case.    In  the  public  ntility  cases,  as  elsewhere, 
one     of    the    fundamental    equitable   justifications    for 
the  receivership  is  the  necessity  of  preserving  the  prop- 
erty involved  until  the  court  can  determine  the  various 
rights  of  those  claiming  to  be  interested  in  it.    This  prin- 
ciple ties  this  special  class  of  cases  to  receivership  cases 
in  general  and  makes  applicable  to  them  the  great  body 
of  general  rules  regarding  receivers.     It  is  true,  for  in- 
stance, that  a  federal  utility  receiver  is  simply  an  officer 
of  the  court,  not  the  agent  of  the  defendant  company, 
nor  of  the  party  at  whose  instance  he  may  have  been 
appointed,    nor   of   any   other    party   interested    in    the 
estate;  he  is  an  impartial  person,  and,  as  far  as  the 
parties  before  the  court  are  concerned,  is  not  interested 
on  behalf  of  one  rather  than  another ;  he  is  a  trustee  for 
all  of  them.i     The  receiver  obtains  his  entire  authority 
from  the  court  and  is  at  all  times  under  its  direction  and 
control ;  independent  engagements  made  by  the  receiver 
are  not  binding  on  the  court,  unless  within  the  scope  of 

1  In    Memphis    &    C.    R.    Co.    v.  tions  of  the  court  as  its  custodian 

Hoechner,  67  Fed.  456,  14  C.  C.  A.  and  not  for  or  under  the  control 

469,  it  is  held  that  a  receiver  ap-  of  the  directors  or  shareholders  of 

pointed    by   a   court   of   equity    to  the  corporation.    His  management 

hold,  manage,  and  operate  an  in-  is    for    the    benefit    of    those    ulti- 

solvent    railroad    company    is    not  mately  entitled  under  the  decree 

the  agent  of  the  insolvent  railroad  of  court.    His  acts  are  not  the  acts 

corporation,  but  the  hand  of  the  of    the    corporation,    and    his    ser 

court  appointing  him,   and   holds,  vants  are  not  the   agents  or  ser. 

manages,  and   operates   the   prop-  vants  of  the  corporation, 
erty  urder   the  orders   and   direc- 


1050 


LAW   OF   RECEIVERS. 


the  orders  of  the  court.-  The  jurisdiction  of  the  court 
and,  therefore,  the  right  of  possession  of  the  receiver  is 
limited  to  the  property  involved  in  the  case.  In  a  mort- 
gage foreclosure  case  the  jurisdiction  is  limited  to  the 
property  covered  by  the  mortgage.^    It  is  to  be  remem- 


2  An  order  of  the  receiver  dis- 
charging an  employee  without  a 
hearing  may  be  called  to  the  at- 
tention of  the  court  and  the  court 
may  reinstate  the  employee.  Farm- 
ers' Loan  &  T.  Co.  v.  Central  R.  & 
B.  Co.,  etc.,  166  Fed.  333. 

A  promise  made  by  the  receiver 
of  a  gas  company  before  appli- 
cation to  the  court,  to  a  con- 
sumer concerning  a  change  In  an 
existing  contract,  is  not  binding  on 
the  court.  St.  Joseph  Gas  Co.  v. 
Barker,  243  Fed.  206. 

A  court  will  not  permit  a  re- 
ceiver of  a  gas  company  to  extend 
a  pipe  line  in  such  a  manner  as  to 
interfere  with  the  possession  of 
another  receiver  appointed  by  an- 
other court.  Fidelity  Title  &  T. 
Co.  V.  Kansas  Natural  Gas  Co.,  219 
Fed.  614. 

A  receiver  may  not  appeal  from 
an  order  of  the  court  giving  him 
certain  directions  to  follow  the 
provisions  of  an  existing  contract 
with  another  road  concerning  the 
maintenance  of  guards  at  a  cross- 
ing, if  the  order  is  simply  inter- 
locutory and  not  finally  determin- 
ative of  the  rights  of  the  respec- 
tive parties  under  the  contract. 
Hunt  V.  Illinois  C.  R.  Co.,  96  Fed. 
644,  37  C.  C.  A.  548. 

When  a  court  has  made  an  order 
authorizing  its  receiver  to  make  a 
contract,  and  the  other  party  has 
incurred  obligations  with  refer- 
ence thereto,  the  court  will  not 
authorize    a    change    without    the 


consent  of  the  other  party  in 
the  absence  of  strong  equitable 
grounds  justifying  such  a  course. 
Morton  Trust  Co.  v.  Metropolitan 
St.  Ry.  Co.,  165  Fed.  493. 

3  Receivers  in  a  foreclosure  suit 
of  a  railroad  are  entitled  to  the 
custody  of  only  the  property  sub- 
ject to  the  mortgage  and  involvei? 
in  the  litigation,  not  including 
trustees'  rights  under  collateral 
agreement  against  third  party,  and 
the  court  can  not  enjoin  the  prose- 
cution of  an  independent  action 
concerning  such  rights.  Ex  parte 
Equitable  Trust  Co.,  231  Fed.  571, 
145  C.  C.  A.  457. 

Although  a  railroad  mortgage 
covers  after-acquired  property,  it 
is  the  property  as  it  existed  at  the 
commencement  of  the  action  that 
is  within  the  jurisdiction  of  the 
court.  Therefore  a  receiver  in  a 
foreclosure  action  on  a  railroad 
mortgage  is  not  receiver  of  any 
property  except  that  covered  by 
the  mortgage,  and  has  no  author- 
ity, at  least  without  the  consent 
of  all  interested  parties,  to  con- 
tract for  municipal  aid  in  the  con- 
struction by  him  as  receiver,  of  an 
unfinished  portion  of  a  branch 
road.  Smith  v.  McCullough,  104 
U.  S.  25,  26  L.  Ed.  637. 

It  is  to  be  remembered  that  the 
desideratum  in  a  federal  utility  re- 
ceivership is  to  have  all  of  the 
property  that  has  been  devoted  to 
a  certain  public  service  kept  in- 
tact pending  receivership  proceed- 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1051 


bered  that  a  federal  utility  receiver  is  an  equity  receiver 
and  the  consequences  that  follow  this  fact  apply.  The 
receiver  is  not  the  assignee  of  nor  the  successor  to  the 
company  as  far  as  title  is  concerned.  The  power  of  the 
corporation  to  function  is  limited  by  the  receiver's 
possession  of  its  property  and  his  control  of  its  business 
under  the  orders  of  the  court.  But  the  corporation  still 
exists ;  actions  against  it  do  not  abate  and  their  prosecu- 
tion may  be  continued,  or  new  actions  against  it  may  be 
instituted  without  joining  the  receiver.^  However,  the 
receiver's  possession  and  control  will  be  protected  by 
the  court  in  every  way.  A  proceeding  that  tends  to 
interfere  with  the  receiver  can  not  be  maintained  with- 
out the  consent  of  the  receivership  court;  any  such 
proceeding  is  ancillary  to  the  receivership  cause  and  must, 
if  the  court  so  directs,  be  prosecuted  in  the  receivership 


ings  so  that,  if  possible,  it  may  be 
sold  under  such  circumstances  as 
will  insure  the  continuance  of  the 
service  to  the  public.  If  this  pur- 
pose can  not  be  accomplished  by 
a  foreclosure  suit  a  creditor's  in- 
solvency action  is  instituted. 

A  receivership  of  a  railroad  cor- 
poration under  the  usual  practice 
covers  all  the  assets,  papers,  rec- 
ords, and  books  of  account  of  the 
corporation.  The  assets  include 
not  only  the  railroad  and  its 
proper  appurtenances,  but  sup- 
plies on  hand,  cash  and  cash  items, 
traffic  balances  and  other  credits, 
and  the  tolls  and  other  income 
accrued,  accruing,  or  to  accrue. 
New  England  R.  Co.  v.  Carnegie 
Steel  Co.,  75  Fed.  54,  21  C.  C.  A. 
219. 

The  receiver  of  a  railroad  may 
dispose,  on  general  equitable  prin- 
ciples, of  all  the  supplies  and  tolls 
or  other  income  as  the  corporation 


could  have  done  if  it  had  remained 
in  possession.  But  the  courts, 
having  in  view  the  fact  that  such 
receiverships  are  to  prevent  dis- 
integration and  maintain  activity 
in  the  operation  of  the  railroad,  do 
not  go  beyond  applying  such 
assets  to  the  liquidation  of  such 
matters  as  the  corporation  would 
presumably  have  first  applied  then 
in  the  event  that  it  had  retained 
possession.  That  is,  it  applies  such 
funds  to  the  payment  of  accruing 
expenses  and  accrued  traffic  bal- 
ances, current  supply  bills  and 
pay  rolls,  and  to  meeting  such 
temporary  emergencies,  threaten- 
ing the  system,  as  could  not  other- 
wise be  met.  New  England  R.  Co. 
V.  Carnegie  Steel  Co.,  75  Fed.  54, 
21  C.  C.  A.  219. 

■t  Fidelity  Insurance,  etc.,  Co.  v. 
Norfolk,  etc.,  R.  Co.,  114  Fed.  389; 
affirmed  in  Hampton  v,  Norfolk, 
etc.,  R.  Co.,  127  Fed.  662,  62  C.  C. 
A.  3S8. 


1052  LAW    OF    RECEIVERS. 

case  itself.^  The  equity  jurisdiction  of  the  court  to  try 
and  determine  every  issue  that  may  be  involved  in  a 
case  over  which  it  has  assumed  charge  will  overrule  pro- 
%dsions  of  statutes  concerning  limitations  to  the  court's 
jurisdiction  based  upon  facts  of  citizenship;  and  any 
matter  connected  with  the  receivership  estate  may  be 
brought  before  the  federal  receivership  court  regardless 
of  the  citizenship  of  the  interested  parties.*'  The  posses- 
sion of  the  receiver  and  his  control  of  the  business  of  the 
insolvent  corporation  may  be  protected  from  invasion 
through  the  injunctive  powers  of  the  court.'^  The  re- 
ceiver may  be,  and  usually,  in  the  appointing  order  is, 
authorized  to  prosecute  or  defend  suits  already  existing 
by  or  against  the  company  and  to  commence,  in  his  own 
name,  or  that  of  the  company,  any  actions  necessary  to 
protect  the  estate.  The  right  to  sue  in  his  own  name 
may  be  exercised  where  no  question  as  to  the  extra-terri- 
torial power  of  the  receiver  to  sue  may  be  raised,  and 
especially  before  the  court  in  which  the  receivership 
matter  itself  is  pending.     It  is  sometimes  said  that  this 

5  Where  railroad  property  is  in  Co.  v.  Newport,  etc.,  Co.,  131  Fed. 

the  control  of  a  court  through  a  534. 

foreclosure  receivership,  and  a  "  Interference  with  the  right  of 
judgment  holder  is  seeking  to  a  receiver  to  use  the  track  of  an- 
satisfy  his  judgment  by  execution  other  company  as  a  part  of  his 
against  the  property,  claiming  it  main  line  will  be  enjoined.  Metro- 
to  be  the  property  of  his  judgment  politan  Trust  Co.  v.  Columbus,  S. 
debtor  and  not  that  of  the  com-  &  H.  Ry.  Co.,  95  Fed.  18. 
rany  involved  in  the  receivership  A  competing  company's  wrong- 
case,  the  receivership  court  may  ful  interference  with  a  receiver's 
enjoin  the  execution  proceedings  use  of  a  city  bridge  may  be  en- 
and  with  the  consent  of  the  par-  joined.  Brady  v.  South  Shore  Trac- 
ties,  may  try  the  issue  of  title;  tion  Co.,  197  Fed.  669. 
that  court  could  have  compelled  Injurious  interference  with  a  re- 
the  trial  of  the  issue  before  it,  ceiver  on  the  part  of  a  competing 
even  without  consent  of  the  par-  street  railway  company  by  main- 
ties.  People's  Bank  v.  Calhoun,  taining  gates  across  a  highway, 
102  U.  S.  256,  26  L.  Ed.  101.  may  be  enjoined.   Hampton  Roads 

eVallery  v.  Denver  &  R.  G.  R.  Ry.    &    Electric    Co.    v.    Newport 

Co.,    236    Fed.    176,    149    C.    C.    A.  News  &  O.  P.  Ry.  &.  Electric  Co., 

C66;    Hampton    Roads    Ry.    &.    E.  131  Fed.  534. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS, 


1053 


riglit  to  litigate  in  his  own  name  is  an  enlargement  of 
the  receiver's  authority  but  such  statements  are  probably 
prompted  by  the  great  increase  in  the  volume  of  work 
that  has  devolved  upon  public  utility  receivers  rather 
than  by  any  change  in  the  underlying  equitable  principle 
involved  in  the  matter.^  Where  considerations  of  saving 
time  or  expense  warrant  it  a  receiver  may  be  authorized 
to  compromise  a  claim.'* 

§  388.     Respecting  the  Operation  of  the  Business  of  the  Public 
Utility. 

In  regard  to  the  management  of  the  estate  with  refer- 
ence to  the  matters  mentioned  above  and  the  host  of  other 


8  In  Davis  v.  Gray,  83  U.  S.  203, 
21  L.  Ed.  447,  an  order  was  made 
that  the  receiver  should  be  author- 
ized and  empowered  to  defend  and 
continue   all   suits   brought   by  or 
against  the  railroad  company  be- 
fore or  after  his  appointment,  and 
a    suit    relating    to    certain    land 
grants    to    the    company    was    in- 
stituted by  the  receiver  in  his  own 
name    to    enjoin    the    defendants 
from  all  illegal  acts  which  the  bill 
alleged,  if  done,  would  render  the 
rights  and  title  of  the  company  to 
its     property     of    greatly     dimin- 
ished value,  if  not  wholly  worth- 
less.    The  court  says:    "We  think 
it  is  competent  for  him  to  perform 
this  function  in  the  mode  he  has 
adopted.     The  decree  in  the  case 
wherein     he     was     appointed     ex- 
pressly authorizes  him  to  sue  for 
that    purpose    in    his    own    name. 
The   order  was   made   by  a  court 
of  adequate  authority  and  in  the 
regular    exercise    of    its    jurisdic- 
tion."    The  proceeding  by  the  re- 
ceiver was  held  to  be  auxiliary  to 
the     original     suit.       The     court 
further    says:      "In    the    progress 
and  growth  of  equity  jurisdiction 


it  has  become  usual  to  clothe  such 
officers  with  much  larger  powers 
than  were  formerly  conferred.  It 
is  not  unusual  for  courts  of  equity 
to  put  them  in  charge  of  railroads 
or  companies  which  have  fallen 
into  financial  embarrassments,  and 
require  them  to  operate  such  road 
until  the  difficulties  are  removed 
or  such  arrangements  are  made 
that  the  roads  can  be  sold  with 
the  least  sacrifice  of  the  interest 
of  those  concerned." 

A  receiver  of  a  water  company 
may  file  a  bill  in  equity  to  fix 
water  rates.  Lanning  v.  Osborne, 
79  Fed.  657. 

While  such  a  suit  is  pending  in 
the  federal  court  a  suit  in  the 
state  courts  for  the  same  purpose 
will  be  enjoined.  Ward  v.  San 
Diego  Land,  etc.,  Co.,  79  Fed.  665. 
An  order  granting  to  a  receiver 
power  to  sue  is  not  a  determina- 
tion in  advance  that  any  particular 
proceeding  begun  by  the  receiver 
is  proper  and  protected  by  the 
order.  Jones  v,  Moore,  198  Fed. 
301. 

'■>  Pennsylvania  Steel  Co.  v.  New 
York  City  Ry.  Co.,  ISO  Fed.  514. 


1054  LAW   OF    RECEIVERS. 

similar  details  involved  therein  there  is  nothing  peculiar 
to  a  federal  utility  receivership.  It  is  only  when  we 
come  to  the  operation  of  the  business  of  the  corporation 
that  we  find  anything  different  from  what  occurs  in  other 
receiverships.  The  difference  is  not  in  the  fact  that 
the  court  conducts  the  business.  Courts  will  conduct  the 
business  of  a  private,  commercial  corporation  or  even  of 
an  individual.  The  diiference  is  in  the  attitude  of  the 
court  toward  the  character  of  the  business  engaged  in  by 
the  corporation.  In  the  case  of  the  commercial  corpo- 
ration or  the  individual  the  court  is  reluctant  to  engage 
in  business  through  its  receiver  and  will  not  do  so  against 
the  will  of  the  interested  parties.  In  the  case  of  a  public 
utility  receivership  the  court  insists  on  keeping  the  busi- 
ness going  if  it  is  possible  to  do  so.  In  the  former  case 
the  court  usually  conducts  the  business  to  liquidate  it 
and  produce  the  largest  possible  dividends  for  those  in- 
terested. In  the  latter  the  court  conducts  the  business  to 
keep  it  going  as  a  public  utility  and  to  turn  it  over  ulti- 
mately in  a  going  condition  to  some  one  who  will  continue 
to  keep  it  going. 

The  difference  above  noted  is  in  the  mind  and  attitude 
of  the  court  at  all  times  and  influences  its  actions  in  resj^ect 
to  the  matter.  It  is  reflected  in  the  powers  assigned  to 
and  the  duties  imposed  upon  the  receiver.  That  official 
must  bear  the  burden  of  giving  force  to  the  purpose  of 
the  court  and  he  is  given  power  and  discretion  accord- 
ingly. While  he  is  under  the  authority  of  the  court  and 
can  not  act  beyond  the  power  given  him  the  orders  im- 
posing powers  and  duties  upon  him  are  for  the  most  part 
very  general  in  their  terms  and  give  room  for  the  exercise 
of  wide  discretion.  This  situation  is  shown  by  the  usual 
grant  of  powers  in  the  order  of  appointment.^    We  have 

1  In  Atlantic  Trust  Co.  v.  Chap-  order   of   court   "to    continue    the 

man,  208  U.  S.  360,  52  L.  Ed.  528,  operation  of  the  main  and  branch 

28  Sup.  Ct.  406,  13  Ann.  Cas.  1155,  canals  of  the  mortgagor  company 

the  receiver  was  authorized  by  the  in  the  usual  and  ordinary  way  as 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1055 


seen,  for  instance,  that,  in  a  general  way,  he  is  authorized 
to  pay  on  his  own  discretion  preferred  claims,  and,  if  he 
errs  in  this  regard,  the  order  of  the  court,  protects  him.^ 
In  general  it  may  be  said  that  he  is  authorized  to  conduct 
the  business  as  the  company  itself  would  or  should  have 
conducted  it,^  and  he  is  expected  to  report  for  further 
orders  only  in  regard  to  matters  of  importance.^  The 
receiver  may  make  contracts  usual  to  the  character  of 
the  business  he  is  conducting.  As  a  common  carrier  he 
may  make,  through  an  agent,  an  agreement  for  trans- 
portation beyond  his  own  line  and  assume  responsibility 
for  the  through  shipment  ;5  be  may  make  contracts  for 


the  same  were  then  operated,  dis- 
charging,   as    far    as    practicable, 
contracts    for   water   supplies    en- 
tered into  by  the  company,  collect- 
ing  rents,    tolls,    moneys    payable 
under  water  contracts,  keeping  the 
property  in  good  condition  and  re- 
pair, employing  needful  agents  and 
servants  at  such  compensation  as 
he  deemed  reasonable,  paying  for 
needful    labor,    supplies,    and    ma- 
terials   as    to    him    might    seem 
necessary  and  proper  in  the  exer- 
cise   of  a   sound   discretion,    with 
leave  to  apply  to  the  court  from 
time   to  time,  as  he  may  be  ad- 
vised, for  instructions  in  the  prem- 
ises.    He  shall  do  whatever  may 
be  needful  to  preserve  and  main- 
tain   the    corporate    franchises    of 
said  defendant  corporation  and  its 
rights  to  the  use  of  the  water  and 
all   its   property,   until  final   judg- 
ment in  this  action,  and  to  defray 
the  necessary  and  proper  expenses 
incident  thereto." 

2  See  §  429,  infra. 

3  Northern  Pac.  R.  Co.  v.  Amer- 
ican T.  Co.,  195  U.  S.  439,  49  L.  Ed. 
269,  25  Sup.  Ct.  84;  South  Caro- 
lina, etc.,  R.  Co.  v.  Carolina,  etc.. 


Ry.  Co.,  93  Fed.   543,  35  C.  C.  A 
423. 

Where  the  corporation  has  no 
power  to  lease  its  property,  no 
power  exists  in  its  receiver  to  do 
so.  See  State  v.  McMinnville  & 
M.  R.  Co.,  6  Lea  (Tenn.)  369; 
Thomas  v.  West  Jersey  R.  Co.,  101 
U.  S.  71,  25  L.  Ed.  950;  York  & 
Md.  L.  R.  Co.  v.  Winans,  58  U.  S. 
(17  How.)  30,  15  L.  Ed.  27;  Mc- 
Minnville &  M.  Railroad  v.  Hug- 
gins,  3  Baxt.  (Tenn.)   177. 

4  In  regard  to  matters  that  come 
within  the  purview  of  general 
orders  granting  power  to  the  re- 
ceiver only  a  showing  of  bad  faith 
or  gross  extravagance  will  justify 
a  review  of  his  acts  by  the  court. 
State  of  South  Carolina  v.  Port 
Royal,  etc.,  R.  Co.,  89  Fed.  565, 

In  the  matter  of  paying  dam- 
ages for  injury  to  freight,  bag- 
gage, express,  etc.,  due  to  colli- 
sion, the  receiver  is  justified  in 
following  common  usage.  Central 
Trust  Co.,  etc.,  v.  Colorado,  etc., 
R.  Co.,  89  Fed.  560. 

5  Decree  (C.  C.  1902),  112  Fed. 
829,  reversed.  (1903)  Farmers' 
Loan  &  Trust  Co.  v.  Northern  Pac. 


1056  LAW    OF   RECEIVERS. 

necessary  labor  and  supplies  f  lie  may  make  contracts  to 
supply  the  service  furnished  by  his  public  utility,  accord- 
ing to  the  custom  and  necessities  of  the  business,  even 
though  the  contracts  may  continue  beyond  the  probable 
term  of  the  receivership;"  he  may  make  changes  in  the 
conduct  of  the  business  intended  to  give  increased  service 
to  the  public  f  and  in  that  respect  he  is  aided  by  the  power 
of  the  court  to  issue  receiver's  certificates  in  often  giving 
a  better  service  than  the  financially  burdened  company 
could  have  done.  As  a  carrier  he  may  make  a  traffic  ar- 
rangement with  another  company  whereby  each  obtains 
the  privilege  of  running  its  cars  over  the  lines  of  the 
other.^ 

The  court  will,  of  course,  have  in  mind  that  it  is  desir- 
able to  have  the  business  result  in  benefit,  if  possible, 
financially,  to  the  creditors  and  the  stockholders  ',^^  and  it 
may,  therefore,  decide  not  to  continue  the  operation  of  a 
losing  part  of  the  business. ^^    However,  where  a  public 

R.   Co.,  120  Fed.  873,  57   C.  C.  A.  While  the  curtaUment  of  trans- 

533;  affirmed  in  Northern  Pac.  R.  fer   privileges   of  passengers   will 

Co.     V.     American     Trading     Co.  increase  the  earnings  of  the  street 

(1904),  195  U.  S.  439,  49  L.  Ed.  269,  railway  system,  the  receiver  may 

25  Sup.  Ct.  84.  be  permitted  to   discontinue  such 

c  State  of  South  Carolina  v.  Port  transfers.     In  re  Receiverships  of 

Royal,  etc.,  R.  Co.,  89  Fed.  565.  Street  Rys.,  161  Fed.  879. 

7  Gay  V.  Hudson  River  Electric  And  where  the  transfer  system 
Power  Co.,  173  Fed.  1003  (order  is  not  required  by  any  law  or  con- 
affirmed  in  177  Fed.  1003,  100  tract,  it  may  be  discontinued  by 
C.  C.  A.  665).  the  receiver  even  though  it  may 

s  In   re   Forty-second   Street,  M.  result  in  the  forfeiture  of  the  fran- 

&  St.  N.  Ave.  R.  Co.   (In  re  New  chise  of  a  disconnected  company. 

York  City  Ry.  Co.),  160  Fed.  226.  Central  Trust  Co.  v.  Third  Ave.  R. 

0  Lorain  Steel  Co.  v.  Vnion  Ry.  Co.,  165  Fed.  494,  495. 

Co.,  174  Fed.  262.  ii  The     receiver     may     be     in- 

10  Where  some  portions   of  the  structed  to  remove  disused  tracks 

system  of  a  street  railway  system  and    surrender    the    franchises    of 

are  leased  and  the  rental  is  exces-  an  unprofitable  portion  of  the  sys- 

sive,   their  operation  may  be  dis-  tem.     Pennsylvania    Steel    Co.    v. 

continued.   Pennsylvania  Steel  Co.  New  York  City  Ry.  Co.,  187  Fed. 

v.  New  York  City  Ry.  Co.,  165  Fed.  288. 

459,   462.  A  federal  court  has  jurisdiction 


RAILROADS PUBLIC    UTILITY    CORPORATIONS.  1057 

utility,  such  as  a  railroad  or  a  street-railroad,  lias  been 
conducted  as  a  system,  composed  of  various  units,  one 
dependent  upon  the  other  and  each  contributing  to  the 
service  as  a  whole,  the  court  will  strongly  endeavor  to 
preserve  the  unity  of  the  system  as  far  as  possible.^- 
This  consideration  may  justify  the  appointment  of  a 
single  receiver  over  the  entire  system  rather  than 
separate  receivers  for  each  of  several  parts  against 
which  separate  suits  have  been  instituted.^^  Of  course 
in  details  such  as  have  just  been  mentioned  the  court  must 
largely  be  guided  by  the  special  conditions  before  it.^^ 

In  carrying  on  the  business  of  the  public  utility  under 
its  charge  the  court  will  have  in  mind,  in  the  interest  of 
the  public,  the  rights  and  interests  of  other  utilities  and 
public  or  political  institutions.  As  a  common  carrier,  for 
instance,  the  court,  in  such  matters  as  track-crossinj 
privileges,  using  public  streets,  and  granting  service  to 
other  carriers,  will  see  that  the  public  utility  operated 
by  its  receiver  not  only  performs  its  duty  but,  as  far  as 
possible,  shows  a  spirit  of  accommodation.^^    A  receiver 

in  a  suit  to  foreclose  a  railroad  to  be  spent  for  such  repairs  money 
mortgage  to  order  its  receivers  to  raised  for  improvements  and  bet- 
abandon  and  dismantle  a  portion  ferments  and  the  repayment  of 
of  the  road  owned  by  defendant  which  has  been  made  a  lien  upon 
and  to  sell  the  salvage  for  the  the  property  prior  to  a  mortgage 
benefit  of  the  creditors.  State  of  being  foreclosed.  Pennsylvania 
Iowa  V.  Old  Colony  Trust  Co.,  215  Steel  Co.  v.  New  York  City  Ry. 
Fed.  307,  131  C.  C.  A.  581,  L.  R.  A.  Co.,  165  Fed.  477. 
1915A,  549.  13  Pennsylvania     Steel     Co.     v. 

1-'  Pennsylvania  Steel  Co.  v.  New  New  York  City  Ry.  Co.,  160  Fed. 

York  City  Ry.  Co.,  176  Fed.  471;  221;  Gay  v.  Hudson  River  Electric 

Lorain  Steel  Co.  v.  Union  Ry.,  165  Power   Co.,   173   Fed.   1003;    order 

Fed.  500.  affirmed   177  Fed.   1003,  100  C.  C. 

Repairs  upon  a  leased  line,  oper-  A.  665. 

ated  in  one  system  with  its  own  i4  See   Gay   v.   Hudson  R.,   etc., 

line  by  a  lessee,  where  the  lease  Co.,  173  Fed.  1003. 

requires   repairs   to  be  made   and  i5  Stewart  v.  Wisconsin  C.  Co., 

the  repairs  will  preserve  the  unity  89  Fed.  617;   Louisville  Trust  Co. 

of  the  system,  inure  to  the  benefit  v.  Cincinnati,  etc.,  R.  Co.,  78  Fed. 

of  the  lessor  in  such  a  way  that  307. 

the  court  is  justified  in  ordering  In  Beers  v.  Wabash,  St.  L.  & 
JI  Rec— 67 


1058  LAW   OF   RECEIVERS. 

of  a  public  utility  in  so  far  as  he  transports  passengers 
and  property  is  a  common  carrier  with  rights  and  civil 
responsibility  as  such  a  carrier.^® 

§  389.     Indebtedness  for  Operation  Incurred  by  Receiver. 

The  matters  above  set  forth  amply  evidence  the  fact 
that  the  attitude  of  the  court  toward  the  matter  of 
operating  the  business  of  a  public  utility  is  entirely  dif- 
ferent from  its  attitude  toward  the  business  of  a  private 
concern,  whether  it  operates  the  latter  only  for  liquidat- 
ing purposes  or  to  keep  it  in  condition  to  produce  the 
largest  possible  dividends  for  the  creditors.  It  is  evident, 
too,  that  what  the  court  does  in  the  maintenance  of  a 
public  utility  as  a  going  concern  involves  expense.  It  is 
in  connection  with  the  matter  of  raising  funds  to  meet 
these  expenses  that  the  court  has  most  plainly  stated  the 
reason  for  its  peculiar  attitude  in  these  cases.  We  find 
this  reason  stated  in  several  instances  by  the  United 
States  Supreme  Court  itself. 

In  a  comparatively  early  case,^  the  receivers  were 
authorized  by  the  order  appointing  them  to  put  the  road 
in  repair  and  operate  the  same  and  to  procure  such  roll- 
ing stock  as  might  be  necessary ;  and  for  these  purposes 
to  raise  money  by  loan  to  an  amount  named  in  the  order, 

p.  R.  Co.,  34  Fed.  244,  35  Am.  &  whose  lines  connect  with  his, 
Eng.  R.  Gas.  646,  it  was  held  to  equal  facilities  for  the  exchange 
be  the  duty  of  a  receiver  of  a  of  traffic.  It  is  his  duty  to  receive 
railroad,  who  controls  its  opera-  f^om  and  deliver  to  other  connect- 
tion  and  who  is  no  less  a  common  .^^  ^^^^^  ^^^^  j^^^^^  ^^^  ^^p^y 
carrier  because  the  property  is  in  ^^^.^  ^^  ^^^  ^^^  discriminate 
the  custody  of  the  court,  to  re- 
ceive and  transport  cars  and 
freight,  and  to  furnish  accommo- 
dations to  connecting  lines  to  the  ^^  United  States  v.  Nixon,  235 
same  extent  and  in  the  same  man-  U.  S.  231,  59  L.  Ed.  207,  35  Sup.  Ct. 
ner  as  are  the  proper  officers  of  49;  Eddy  v.  Lafayette,  163  U.  S. 
railroad  companies.  The  court  456,  464,  41  L.  Ed.  225,  228,  16  Sup, 
says:     "His  rights  and  duties  are  Ct.  1082. 

those  of  a  carrier.     He  is  bound  i  Wallace   v.   Loomis,   97   U.   S. 

to  afford  to  all  railroad  companies  146,  24  L.  Ed.  895. 


against  one  road  by  maintaining  a 
policy  of  nonintercourse  with  it." 


RAILROADS — ^PUBLIC   UTILITY  CORPORATIONS.  1059 

and  issue  their  certificates  of  indebtedness  therefor,  and 
the  order  declared  that  such  loan  should  be  a  first  lien 
on  the  property,  payable  before  the  first  mortgage  bonds. 
The  court  said:    ''The  power  to  authorize  such  receivers 
to  raise  money  necessary  for  the  preservation  and  man- 
agement of  the  property,  and  make  the  same  chargeable 
as  a  hen  thereon  for  the  repayment,  can  not  at  this  day  be 
seriously  questioned.    It  is  a  part  of  that  jurisdiction 
always  exercised  by  the  court,  by  which  it  is  its  duty  to 
protect  and  preserve  the  trust  funds  in  its  hands.    It  is 
undoubtedly  a  power  to  be  exercised  with  great  caution; 
and,  if  possible,  with  the  consent  or  acquiescence  of  the 
parties  interested  in  the  fund." 

Later  the  matter  was  stated  as  follows :2    ''Property 
subject  to  liens  and  claims  and  debts  of  various  characters 
and  ranks  which  is  brought  within  the  cognizance  of  a 
court  of  eqmty  for  administration  and  conversion  into 
money  and  distribution,  is  a  trust  fund.    It  is  to  be  pre- 
served for  those  entitled  to  it.     This  must  be  done  by 
the  hands  of  the  court  through  officers.    The  character  of 
the  property  gives  character  to  the  particular  species  of 
preservation  which  it  requires.    Unimproved  land  may  lie 
Idle  with  only  pajanent  of  taxes.     Improved  property 
should  be  rented.    Movable  property  that  is  not  perish- 
able may  be  locked  up  and  kept;  but  if  perishable  it  must 
be  sold  by  way  of  preservation.    A  railroad  and  its  ap- 
purtenances IS  a  peculiar  species  of  property.    Not  onlv 
will  Its  structures  deteriorate,  decay,  and  perish  if  not 
cared  for  and  kept  up  but  its  business  and  goodwill  will 
pass  away  if  it  is  not  run  and  kept  in  good  order.    More- 
over, a  railroad  is  a  matter  of  public  concern.    The  fran- 
chises and  rights  of  the  corporation  which  constructed  it 
were  given  not  merely  for  private  gain  to  the  corporators 
but  to  furnish  a  public  highway;  and  all  persons  who  deal 

c  SuT  ct.  m!'  """'  ""'  '"''''''  ""•  ""•  '^°-'  '''  ""'  ^'  ''''  29  '-•  ^^-  963. 


1060  LAW   OF    RECEIVERS. 

Avitli  tlie  corporation  as  creditors  or  lioklers  of  its  obliga- 
tions must  necessarily  be  held  to  do  so  in  the  view  that 
if  it  falls  into  insolvency  and  its  atfairs  come  into  a  court 
of  equity  for  adjustment,  involving  the  transfer  of  its 
franchises  and  property,  by  a  sale,  into  other  hands  to 
have  the  purposes  of  its  creation  still  carried  out,  the 
court  while  in  charge  of  the  property  has  the  power,  and 
under  some  circumstances  it  may  be  its  duty  to  make  such 
repairs  as  are  necessary  to  keep  the  road  and  its  struc- 
tures in  a  safe  and  proper  condition  to  serve  the  public. 
Its  power  to  do  this  does  not  depend  on  consent  nor  on 
prior  notice.  Consent  is  desirable  but  is  seldom  prac- 
ticable, where  the  debts  exceed  the  value  of  the  prop- 
erty.'^ 

In  this  case,  in  which  the  original  receiver  was  not  a 
foreclosure  receiver,  it  w^as  suggested  that,  as  far  as  any 
right  of  the  mortgagee  to  object  to  the  expenditures  was 
concerned,  it  was  sufficient  that  after  the  mortgagee  had 
been  brought  into  the  case,  and  had  learned  of  the  order, 
he  had  not  made  any  objection  to  it.  In  a  still  later  case 
it  is  said:^  ''A  court  which  appoints  a  receiver  acquires, 
by  virtue  of  that  appointment,  certain  rights  and  assumes 
certain  obligations,  and  the  expenses  which  the  court 
creates  in  discharge  of  those  obligations  are  burdens 
necessarily  on  the  property  taken  possession  of,  and  this, 
irrespective  of  the  question  who  may  be  the  ultimate 
owner,  or  who  may  have  the  preferred  lien  or  who  may 
invoke  the  receivership.  So  if,  at  the  instance  of  anv 
party  rightfully  entitled  thereto,  a  court  should  appoint 
a  receiver  of  property,  the  same  being  railroad  property, 
and  therefore  under  an  obligation  to  the  public  of  con- 
tinued operation,  in  the  administration  of  such  receiver- 
ship, might  rightfully  contract  debts  necessary  for  the 
operation   of  the   road,    either   for   labor,    supplies,   or 

3  Kneeland  v.  American  L.,  etc.,  Co.,  136  U.  S,  89,  34  L.  Ed.  379,  10 
Sup.  Ct.  950. 


RAILROADS PUBLIC    UTILITY    CORPORATIONS. 


1061 


rentals,  and  make  such  expenses  a  prior  lien  on  tlie  prop- 
erty itself." 

It  may  be  noticed  that  this  is  the  case  in  which  the 
Supreme  Court  took  occasion  to  warn  the  lower  federal 
courts  that  the  doctrine  of  preferred  claims  should  be 
confined  to  narrow  limits.^ 

The  court,  as  all  courts  of  equity  do  in  receivership 
cases,  is,  through  an  official  custodian,  preserving  the 
property  pe)}dente  lite.  But  it  is  preserving  it  primarily 
in  behalf  of  a  factor  that  is  not  usually  considered  as 
having  any  interest  before  the  court,  namely  the  public 
that  has  been  served  by  the  public  utility.^  The  preserv- 
ing of  the  franchise,  which  is  usually  covered  by  the 


4  See  Kneeland  v.  American  L., 
etc.,  Co.,  supra. 

5  Of  a  court  operating  through 
its  receiver  an  extensive  street 
railway  system,  the  first  consid- 
eration is  in  the  maintenance  of 
an  adequate  service  to  the  public. 
Hence  the  current  accounts  of  its 
receiver  for  expenditures  for  that 
purpose,  should  be  passed  with- 
out being  complicated  by  contro- 
versies between  the  parties  inter- 
ested in  various  parts  of  the  sys- 
tem, as  to  which  interest  or  prop- 
erty should  be  charged  with  any 
liarticular  expenses.  Application 
to  appeal  to  United  States  Su- 
preme Court,  168  Fed.  937,  denied. 
Guaranty  Trust  Co.  of  New  York 
V.  Metropolitan  St.  Ry.  Co.,  171 
Fed.  1014. 

See,  also,  Miltenberger  v. 
Logansport,  etc.,  R.  Co.,  106  U.  S. 
286,  27  L.  Ed.  117,  1  Sup.  Ct.  140; 
Barton  v.  Barbour,  104  U.  S.  126, 
26  L.  Ed.  672. 

This  point  has  been  called  to  at- 
tention in  private  corporation 
cases    where   the   court  has    been 


desirous  of  pointing  out  the  limi- 
tations of  its  jurisdiction,  or  power 
therein.  We  find  it  said:  "Private 
corporations  owe  no  duty  to  the 
publ'c,  and  their  continued  opera- 
tion is  not  a  matter  of  public  con- 
cern. It  is  only  against  railroad 
mortgages  that  the  Supreme  Court 
of  the  United  States  has  sustained 
orders  giving  priority  to  receiver's 
certificates  representing  particular 
indebtedness,  and,  as  already 
stated,  then  only  on  principles 
having  no  application  to  a  mort- 
gage executed  by  a  private  cor- 
poration owing  no  duty  to  the  pub- 
lic." Farmers'  Loan,  etc.,  Co.  v. 
Grape,  etc.,  Coal  Co.,  50  Fed.  481, 
16  L.  R.  A.  603.  See  Wood  v.  Guar- 
antee T.  &  S.  Deposit  Co.,  128 
U.  S.  416,  417,  32  L.  Ed.  472,  9 
Sup.  Ct.  131. 

Of  course  the  limitation  to  rail- 
road cases  in  the  above  quotation 
is  not  strictly  correct.  See  Gay  v. 
Hudson  R.,  etc.,  Co.,  173  Fed.  1003; 
cases  cited  in  Crane  Co.  v.  Fidelity 
Trust  Co.,  et  al.,  238  Fed.  693,  151 
C.  C.  A.  543,  majority  and  minority 
opinions. 


1062  LAW   OF   RECEIVERS. 

mortgage  and  wliich  may  be  the  most  valuable  asset  of 
the  estate,  is  of  advantage  to  the  mortgagee,  but  the  court 
goes  far  beyond  what  is  technically  necessary  to  prevent 
any  forfeiture  of  the  franchise  through  non-user.  It  is 
sometimes  said,  and  with  good  reason,  that  every  public 
utility  mortgagee  takes  his  security  with  the  know^ledge 
that  a  court  of  equity  may  be  called  upon  to  interpose  in 
the  management  of  the  business  and  to  use  part  of  his 
security  to  pay  the  expenses  of  the  court's  management.^ 
However  that  may  be,  many  of  these  receiverships  have 
been  created  with  the  consent  of  the  interested  parties 
on  the  theory  that  many  things  necessary  for  the  rehabili- 
tation of  the  property  and  the  remedying  of  their  methods 
of  financing  and  management  can  best  be  done  through 
the  process  of  a  receivership.  It  must  be  remembered 
that  all  of  these  cases  are  insolvency  cases  and  com- 
menced at  a  time  when  the  whole  enterprise  is  about  to 
collapse  under  its  financial  burdens.  The  security  holders 
are  at  cuch  time  generally  willing  to  let  the  court  serve 
the  public,  even  though  at  their  expense,  for  the  time 
being;  that  situation  has  its  counterpart  in  the  fact  that 
the  court  will  hold  the  property  until  arrangements  can 
be  made  to  give  the  creditors  another  opportunity  to 
save  their  interests  through  a  reorganization  process."^ 

But  all  that  the  public  is  entitled  to  is  a  continuance  of 
the  service  that  it  was  receiving  at  the  time  the  receiver 
was  appointed.  Extensions  of  the  service  that  might 
have  been  provided  by  the  company  itself  if  it  had 
continued  prosperous  are,  as  a  rule,  not  to  be  ex- 
pected at  the  hands  of  the  court  during  the  receivership 
although  generally  the  reorganization  process  w^hich  re- 
sults at  the  end  of  the  receivership  will  give  promise  at 
least  of  larger  plans  for  service  to  the  public.  The  ex- 
penditures that  the  court  may  assume  are  only  those 

6  Pennsylvania  Steel  Co.  v.  New  7  See   §  384,  infra. 

York  City  Ry.  Co.,  190  Fed.  609. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1063 


that  are  directly  related  to  the  mere  operation  of  the 
property  as  the  court  finds  it.  Expenditures  for  better- 
ments, improvements,  or  extensions  are  not  to  be  incurred 
without  the  consent  of  the  creditors  who  may  be  affected 
thereby.^  Sometimes  the  line  between  operating  expense 
in  the  nature  of  repairs  and  new  construction  or  recon- 
struction may  be  very  close ;  and  expenditures  under  such 
circumstances  may  be  justified  by  a  slight  extension  of 
the  concept  denoted  by  repairs  or  by  a  slightly  exag- 
gerated force  given  to  circumstances  taken  to  denote  con- 
sent or  to  amount  to  an  estoppel,  or  by  the  fortunate 
appearance  of  an  exception  to  the  rule  under  special 
circumstances.  In  the  nature  of  things  very  wide  dis- 
cretion must  be  allowed  a  court  in  passing  upon  matters 
of  this  sort  and  much  will  depend  upon  the  actual  out- 
come of  any  expenditure.  At  least  courts  of  appeal  have 
the  advantage  of  being  able  to  look  at  the  matter  from 
these  various  angles.'^     Even  with  the  consent  of  lien- 


8  Bear  Lake,  etc.,  Irr.  Co.  v.  Gar- 
land, 164  U.  S.  1,  41  L.  Ed.  327,  17 
Sup.  Ct.  7;  Atlantic  Trust  Co.  v. 
Chapman,  208  U.  S.  360,  52  L.  Ed. 
528,  28  ^up.  Ct.  406,  13  Ann.  Cas. 
1155;  Savings  &  Trust  Co.  v.  Bear 
Valley  Irr.  Co.,  93  Fed.  339;  Bibber 
White  Co.  V.  White  River,  etc.,  R. 
Co.,  115  Fed.  786,  53  C.  C.  A.  282; 
Kelly  V.  Receiver  of  Green  Bay, 
etc.,  Co.,  5  Fed.  846,  10  Biss.  151. 
s>  Kuseland  v.  Luce,  141  U.  S. 
491,  35  L,  Ed.  830,  12  Sup.  Ct.  32; 
Mercantile  Trust  Co.  v.  Kanawha, 
etc.,  R.  Co.,  50  Fed.  874. 

Where  the  receiver  comes  into 
possession  of  an  improvement 
fund  that  had  been  created  pursu- 
ant to  provisions  of  the  mortgage, 
he  may  use  that  fund  in  his  man- 
agement of  the  utility.  Union 
Trust  Co.  V.  St.  Louis,  etc.,  R.  Co., 
234  Fed  809. 
An  item  for  betterment  may  be 


allowed  with  the  consent  of  some 
of  the  bondholders  though  others 
may  object.  Investment  Co.  of 
Philadelphia  v.  Ohio,  etc.,  R.  Co., 
36  Fed.  48. 

Where  the  company  had  left  un- 
finished certain  repairs  and  en- 
largements of  car  barns  the 
receiver  may  finish  the  w^ork; 
where  the  utility  consists  of 
numerous  parts  united  into  one 
system  such  an  expenditure  may 
be  ordered  and  the  apportionment 
of  the  burden  among  the  various 
branches  of  the  system  deter- 
mined at  a  later  time.  Pennsyl- 
vannia  Steel  Co.  v.  New  York  C. 
Ry.  Co.,  180  Fed.  704,  104  C.  C.  A. 
135. 

Miltenberger  v.  Logansport,  etc., 
Co.,  supra.  In  this  case  expendi- 
tures for  completing  a  road  of 
something  over  ninety  miles  by 
building  six  miles  of  road  and  a 


1064  LAW    OF    RECEIVERS. 

holders  the  court  may  refuse  an  order  permitting  an  im- 
provement if  there  is  doubt  that  it  will  benefit  them.^'^ 

We  have  seen  that  this  doctrine  of  giving  preference  to 
indebtedness  incurred  by  the  receiver  has  to  a  certain 
extent  been  extended  to  indebtedness  incurred  by  the  com- 
pany prior  to  the  receivership  by  the  doctrine  of  pre- 
ferred claims. ^^  However,  the  fact  that  it  is  the  court 
that  primarily  incurs  the  receiver's  indebtedness  operates 
to  cause  several  important  differences  between  the  pay- 
ment of  the  receiver's  debts  and  those  of  the  company. 
If  the  receiver  properly  assumes  expense  for  improve- 
ments or  betterments,  such  expense  is  preferred,  although 
no  such  expense  incurred  by  the  companj^  is  so  treated. 
With  reference  to  the  receiver's  debts  there  is  no  time 
limit,  no  ''six  months"  doctrine;  the  receiver's  debts  are 
paid  no  matter  wdiat  length  of  time  may  elapse  between 
their  accrual  and.  the  possession  of  means  to  pay  them. 
There  is  no  expectation  nor  understanding  that  receiver's 
debts  will  be  paid  from  current  income ;  the  court  will  in 
every  instance  pay  the  debt  even  if  resort  to  the  corpus 
fund  is  necessary.  Certain  claims  arising  under  the  re- 
ceiver's management  are  paid  as  expenses  of  operation, 
though  if  they  arose  under  the  company's  management 
they  would  not  be  so  classed ;  tort  claims  under  the  com- 
pany are  considered  as  hindering  rather  than  aiding  oper- 
ation and  are  not  preferred ;  under  the  receiver  they  are 
preferred  and  if  necessary  paid  out  of  the  corpus  fund.^^ 

bridge   were  justified  on   grounds  614;    Investment   Co.   of  Philadel- 

of   special    circumstance;    part   of  phia  v.  Ohio,  etc.,  R.  Co.,  36  Fed. 

the   expense  being  borne   by   out-  48. 

side  interests  and  the  evidence  n  See  §§  413  et  seq.,  infra, 
showing  that  the  security  of  the  i-'  Tort  claims  arising  under  the 
mortgage  would  be  enhanced  by  receiver  are  expenses  of  opera- 
much  more  than  the  cost.  See  tion.  St.  Louis  S.  W.  R.  Co.  v. 
Bibber  White  Co.  v.  White  R.,  etc.,  Holbrook,  73  Fed.  112,  19  C.  C.  A. 
Co.,  supra,  and  Jerome  v.  McCar-  385;  Bound  v.  South  Carolina  Ry. 
ter,  94  U.  S.  734,  24  L.  Ed.  136.  Co.,  174  Fed.   729. 

10  Fidelity  Title  &  Trust  Co.  v.  An  employee  of  the  receiver  in- 

Kansas  Natural  Gas  Co.,  219  Fed.  jured   in  the   course   of  his   work 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1065 


may  be  allowed  his  salary  for  the 
time  he  was  disabled.  Missouri 
Pac.  R.  Co.  V.  Texas,  etc.,  Co.,  41 
Fed.  319. 

A  fraudulent  attempt  to  place 
the  burden  of  satisfying  a  judg- 
ment against  the  receiver  and 
another  company  as  joint  tort 
feasors  upon  the  receivership 
fund  will  not  be  permitted.  In- 
vestment Registry  v.  Chicago,  etc., 
R.  Co.,  204  Fed.  500. 

As  a  general  rule  expenses  in- 
curred in  the  administration  of  a 
receivership  are  chargeable  only 
on  the  income,  unless  there  has 
been  a  diversion  of  current  income 
to  the  purchase  of  additional 
equipment  and  the  making  of  per- 
manent improvements  on  the  fixed 
property,  in  which  event,  if  the 
current  income  is  insufficient,  ob- 
ligations incurred  in  preserving 
and  managing  the  property  may 
be  charged  on  property  pledged. 
Finance  Co.  v.  Trenton  &  N.  B. 
Ry.  Co.,  189  Fed.  282. 

The   trustee   in   a   mortgage   of 
the  property  of  a  canal  and   irri- 
gation company,  who  brings  a  suit 
for  foreclosure   and   sale,  and  ob- 
tains   the    appointment    of    a    re- 
ceiver to  take  charge  of  and  man- 
age   the    property    pendente    lite, 
does  not  thereby  become  person- 
ally   liable    for    money    borrowed, 
exp.jnses  incurred,  and  certificates 
issued  by  the  receiver  under  orders 
of  the  court,  in   keeping  the  cor- 
poration  in  operation   as   a  going 
concern,    where    the    proceeds    of 
the  sale  proved  insufficient  to  pay. 
Atlantic  Trust  Co.  v.  Chapman,  208 
U.  S.  360,  52  L.  Ed.  528,  28  Sup.  Ct. 
406,  13  Ann.  Cas.  1155. 

In    api  ointing    a    receiver    of   a 
railroad  the  court  may,  where  the 


receiver's  income  is  insufficient  to 
satisfy  his  indebtedness  incurred 
for  necessary  operating  expenses, 
direct  the  payment  of  the  residue 
out  of  the  proceeds  of  a  sale  be- 
fore a  distribution  is  made  to  cred- 
itors and  lienholders.  St.  Louis 
Union  Trust  Co.  v.  Texas  Southern 
Ry  Co.,  59  Tex.  Civ.  157,  126  S.  W 
296. 

In  this  connection  see,  also,  Ellis 
V.  Vernon  I.,  L.  &  W.  Co.,  86  Tex. 
109,  23  S.  W.  858;  Mcllhenny  v. 
Binz,  80  Tex.  1,  26  Am.  St.  Rep. 
705,  13  S.  W.  655;  Union  Trust  Co. 
V.  Illinois  R.  Co.,  117  U.  S.  434,  29 
L.  Ed.  963,  6  Sup.  Ct.  809;  Knee- 
land  V.  American  L.  &  T.  Co.,  136 
U.  S.  89,  34  L.  Ed.  379,  10  Sup.  Ct. 
950;  Kneeland  v.  Bass  Foundry  & 
Mach.  Works,  140  U.  S.  592,  35 
L.  Ed.  543,  11  Sup.  Ct.  857. 

In  Missouri,  K.  &  T.  Ry.  Co.  v. 
McFadden,  89  Tex.  138,  33  S.  W. 
853  the  court  said,  "The  court  ap- 
pointing a  receiver  to  take  charge 
of  and  control  a  railroad  may 
make  the  liabilities  incurred  by 
him  a  charge  upon  the  corpus  of 
the  property,  and  upon  sale  may 
direct  their  payment  from  its  pro- 
ceeds, but  the  charge  so  created 
proceeds  from  the  order  of  the 
court,  and  does  not  arise  by  opera- 
tion of  law." 

The  following  are  entitled  to  be 
classed  as  item  of  operating  ex- 
penses: Car  rentals  (Kneeland  v. 
American  L.  &  T.  Co.,  136  U.  S. 
89,  34  L.  Ed.  379,  10  Sup.  Ct.  950; 
Thomas  v.  Western  Car  Co.,  149 
U.  S.  95,  37  L.  Ed.  663,  13  Sup.  Ct. 
824),  cars  destroyed  by  fire  (see 
Grand  Trunk  R.  Co.  v.  Central  Vt. 
R.  Co.,  88  Fe^.  636),  rolling  stock, 
equipment,  and  traffic  balances 
due  other  roads    (Miltenberger  v. 


1066 


LAW    OF    RECEIVERS. 


An  item  which  is  a  company  and  not  properly  a  receiver's 
debt  can  not  be  made  such  by  the  consent  of  the  receiver.^'' 
The  general  rank,  or  priority,  of  various  classes  of 
claims,  on  distribution,  in  federal  utility  cases  has  been  in- 
dicated, at  least  by  inference  in  various  of  the  preceding 


Logansport,  etc.,  R.  Co.,  106  U.  S. 
286,  27  L.  Ed.  117,  1  Sup.  Ct.  140), 
damages  for  injuries  to  persons 
or  property  during  receivership 
caused  by  torts  of  the  servants  of 
the  receiver  (Ryan  v.  Hays,  62 
Tex.  42,  49;  Green  v.  Coast  Line 
R.  Co.,  97  Ga.  15,  24  S.  E.  814,  54 
Am.  St.  Rep.  379,  33  L.  R.  A.  806. 

Where  a  receiver  has  used  in 
the  operation  of  the  railroad  over 
whicli  he  is  receiver,  special  funds 
of  individuals  in  his  possession  as 
receiver  a  judgment  for  such 
funds  is  properly  classed  and  paid 
as  a  charge  of  the  receivership  in 
the  same  manner  as  demands 
based  on  negligence  from  opera- 
tion. St.  Louis  Union  Trust  Co.  v. 
Texas  Southern  Ry.  Co.,  59  Tex. 
Civ.   157,   126   S.  W.   296. 

13  Where  the  obligation  to  re- 
deem unused  tickets  issued  under 
a  traffic  arrangement  between  the 
receiver's  company  and  another 
primarily  falls  upon  the  latter  and 
the  latter  is  to  look  to  the  re- 
ceiver's company  for  reimburse- 
ment, the  receiver  can  not  agree 
that  reimbursement  for  the  re- 
demption of  tickets  issued  before 
but  redeemed  after  his  appoint- 
ment shall  be  a  charge  upon  his 
own  account.  Monsarrat  v.  Mer- 
cantile Trust  Co.,  109  Fed.  230,  48 
C.    C.    A.    328. 

Even  though  a  receiver  may  be 
made  a  party  to  an  action  founded 
upon  a  toi-t  occurring  prior  to  the 
receivership,  a  judgment  obtained 


therein  is  not  a  charge  upon  the 
receiver's  account.  Hampton  v. 
Norfolk,  etc.,  R.  Co.,  127  Fed.  662, 
62  C.  C.  A.  388. 

Compensation  allowed  the  trus- 
tee under  the  mortgage  may  not 
be  a  receiver's  expense.  Peters- 
burg, etc.,  Co.  v.  Dellatorre,  70 
Fed.  643,  7  C.  C.  A.  310. 

Rental  of  cars  used  by  the  re- 
ceiver is  an  expense  of  the 
receiver's  operation  [under  the 
company  such  items  are  not  pre- 
ferred because  the  creditor  relied 
on  the  credit  of  the  company  and 
not  the  current  income].  Meyer 
v.  Western  Car  Co.,  102  U.  S.  1,  26 
L.  Ed.  59;  Kneeland  v.  American 
L.  &  T.  Co.,  136  U.  S.  89,  34  L.  Ed. 
379,  10  Sup.  Ct.  950;  Thomas  v. 
Western  Car  Co.,  149  U.  S.  95,  37 
L.  Ed.  663,  13  Sup.  Ct.  824;  Knee- 
land  V.  Bass  Foundry,  etc..  Works 
140  U.  S.  592,  35  L.  Ed.  543,  11 
Sup.  Ct.  857;  Taylor  v.  Delaware, 
etc.,  R.  Co.,  213  Fed.  622,  13 
C.  C.  A.  214. 

Where  there  is  sufficient  amount 
in  the  receiver's  income  to  pay 
for  necessary  cars  the  court  will 
not  permit  the  receiver  to  enter 
into  a  car  trust.  Taylor  v.  Phila- 
delphia, etc.,  R.  Co.,  9  Fed.  1. 

Traffic  balances  are  expenses  of 
operation.  Ames  v.  Union  Pac. 
R.  Co.,  73  Fed.  49.  Such  items 
under  the  company  are  preferred 
— though  possibly  not  to  the  ex- 
tent of  being  paid  out  of  the  cor- 
pus fund.      See  §  425,  infra. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1067 


sections,  but  it  may  be  here  set  forth  specifically.  There 
may,  in  general,  be  in  the  receiver's  hands  for  distribution 
the  following  funds:  (1)  remnants  of  the  company's  in- 
come fund  turned  over  by  it  to  the  receiver  or  afterward 
collected  by  the  receiver ;  (2)  unmortgaged  assets ;  (3)  the 
receiver's  net  income ;  (4)  restorations  to  the  income  fund, 
either  of  the  company  or  the  receiver,  from  the  proceeds 
of  the  sale  of  the  mortgaged  property  to  offset  and  to  be 
limited  in  amount  to  diversions  occurring  either  under 
the  company  or  the  receiver ;  (5)  the  corpus  fund,  balance 


An  obligation  to  refund  to  a 
lessor  taxes  wliich  it  has  paid  but 
which  tlie  receiver  should  have 
paid  as  rental  under  a  base  which 
he  has  adopted  is  a  receiver's 
debt  of  operation.  (Rental  items 
accruing  under  the  company  are 
not  preferred  because  they  were 
not  to  be  paid  out  of  current  in- 
come). United  States  Trust  Co. 
V.  Mercantile  T.  Co.,  88  Fed.  140, 
31  C.  C.  A.  427. 

Rental  of  a  leased  road  operated 
by  a  receiver  is  payable  out  of  the 
corpus  fund.  Central  T.  Co.  v. 
Continental  T.  Co.,  86  Fed.  517,  30 
C.  C.  A.  235,  certiorari  denied;  171 
U.  S.  687,  18  Sup.  Ct.  940. 

The  receiver's  expenses  of  oper- 
ating an  entire  system,  consisting 
in  part  of  leased  lines,  will  be 
made  a  burden  upon  the  leased 
property  to  the  extent  that  they 
can  not  be  paid  out  of  the  assets 
of  the  lessee.  Pennsylvania  Steel 
Co.  V.  New  York  C.  Ry.  Co.,  171 
Fed.  1019;  although  the  cost  of 
repairs  on  a  leased  road  which  are 
not  authorized  by  the  lease  can 
not  be  imrosed  upon  the  interests 
of  the  lessor.  Felton  v.  City  of 
Cincinnati,  95  Fed.  336,  37  C.  C.  A. 
88. 

Even  though  the  operation  of  a 


road  had  been  discontinued  be- 
cause of  its  dangerous  condition 
through  lack  of  repair,  danger  of 
forfeiting  the  franchise  and  pros- 
pect of  increased  business  may 
warrant  incurring  necessary  ex- 
pense for  repairs  and  renewing 
operation.  Central  Bank,  etc.,  Co. 
V.  Greenville,  etc.,  R.  Co.,  248  Fed. 
350. 

Where  a  gas  and  electric  power 
company,  controlling  and  operat- 
ing as  a  system,  several  separate 
companies,  was  under  a  receiver- 
ship, and  the  plant  of  one  of  the 
companies  was  in  such  a  state  of 
disrepair  as  to  render  it  danger- 
ous and  incapable  of  giving  ade- 
quate service  to  the  public,  the 
court  was  justified  in  causing  the 
plant  to  be  properly  repaired  be- 
fore permitting  foreclosure  of  a 
separate  mortgage  on  that  partic- 
ular plant.  Gay  v.  Hudson  River 
Electric  Power  Co.,   166   Fed.   771. 

In  this  same  receivership,  in 
connection  with  another  matter 
(173  Fed.  1003),  the  court  said: 
"The  court  is  not  only  to  protect 
and  preserve  the  physical  prop- 
erties as  such,  but  the  business, 
and  keep  them  running  as  a  'going 
concern'  or  business,  or  as 
'going    concerns    or    businesses.' 


10(38 


LAW   OF    RECEIVEnS. 


of  proceeds  of  the  sale  of  the  mortgaged  property  left 
after  restorations.  In  theory  there  might  be  a  bahmee 
fund  after  the  mortgage  debt  has  been  entirely  paid ;  but 
probably  there  has  not  been  any  case  in  which  a  court 
has  been  called  upon  to  give  any  attention  to  such  a  fund. 
The  first  three  funds  are  entirely  exhausted  on  distribu- 
tion before  restorations  are  made  or  the  corpus  fund 
itself  invaded. 

Claims  are  paid  in  the  following  order:  (1)  costs  of 
the  litigation,  including  the  compensation  of  the  receiver 
and  of  any  others,  as  for  instance,  reorganization  com- 
mittees, whose  activities  are  considered  as  having  been 
for  the  general  benefit  of  the  estate;  (2)  receiver's  in- 
debtedness; (3)  preferred  claims,  many  of  which,  how- 
ever, are  not  permitted  to  share  in  the  corpus  fund;  (4) 
the  mortgage  debt;  (5)  general  creditors;  general  credi- 
tors may  participate  in  any  of  the  funds  not  covered  by 


In  a  field  where  competition  exists, 
as  it  does  here,  it  is  evident  that 
power  to  authorize  the  making 
and  extension  and  renewal  of  con- 
tracts for  the  making  and  supply 
of  gas  generators  and  supply  of 
electrical  power  or  energy  must 
reside  in  this  court,  or  it  has  no 
power  to  continue  or  protect  the 
business  of  these  corporations,  or 
of  any  one  of  them.  Let  go  the  busi- 
ness, let  it  pass  to  competitors, 
and  the  value  of  these  properties 
of  these  corporations  is  substan- 
tially destroyed— largely,  depreci- 
ated, in  any  event.  It  is  also  a 
self-evident  proposition  that  the 
court  can  not  continue  this  busi- 
ness on  any  'hand  to  mouth' 
basis.  Business  of  this  kind  is  not 
done,  and  can  not  be  done,  in  that 
way.  It  is  a  business  generally 
speaking  of  producing,  transport- 
ing, and  selling — here  the  produc- 
tion,   transportation    and    delivery 


and  sale  of  electrical  power  and 
gas.  The  business  of  one  company 
can  not  be  dropped,  even  if  not 
immediately  of  much  profit,  with 
out  injury  to  that  company  and  to 
all  the  others.  Again,  this  partic- 
ular corporation,  and  each  of  the 
corporations  has  many  general 
creditors,  as  well  as  secured  cred- 
itors (bondholders)  and  it  is  the 
promise  and  duty  of  the  court  to 
protect  and  preserve  the  rights 
and  interests  of  all  those  of  both 
classes.  Here  there  is  an  equity 
for  the  general  creditors,  as  fully 
and  plainly  appears.  Hence  this 
court  is  not  to  consult  the  wishes 
of  the  bondholders  alone.  A  court 
of  equity  would  act  unjustly,  un- 
wisely, and  show  favoritism, 
should  it  do  so.  Still  the  court  has 
no  right  to  sacrifice  the  interest 
of  either  class,  or  to  subordinate 
the  rights  of  one  to  those  of  the 
other." 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1069 

the  mortgage,  but  such  funds  are  exhausted  in  favor  of 
the  first  three  classes  of  claims  before  restorations  are 
made  or  the  corpus  fund  used;  (6)  stockholders.  Special 
lien  claimant,  such  as  judgroent  or  mechanic's  lienors  are 
taken  care  of  as  their  rights  may  dictate. 

On  reorganization  claimants  are  taken  care  of  in  this 
same  order.  Usually  cash  must  be  provided  to  take  care 
of  the  first  three  classes.  A  detail  in  the  reorganization 
of  the  Metropolitan  Street  Railway  Company  of  New 
York  is  spoken  of  as  follows,  the  corpus  mentioned  being 
that  of  a  lessor  company,  and  the  claims  mentioned  having 
accrued  under  the  management  of  the  lessee :  ' '  This  pro- 
ceeding is  peculiar  also  in  the  circumstance  that,  at  no 
expense  to  themselves,  with  no  assessment  laid  against 
them,  the  holders  of  these  tort  claims  (damages  for 
injuries  or  deaths)  were  permitted  and  invited  to  come 
in  and  share  in  this  acquisition  of  the  corpus,  to  which 
their  debtor  had  no  title,  on  the  same  basis  as  the  holders 
of  first  mortgage  bonds.  Out  of  $1,900,000  of  such  claims 
proved,  $1,465,000  availed  of  this  unique  opportunity. 
Those  of  the  claimants  who  neglected  or  rejected  such 
opportunity  seem  hardly  in  a  position  to  insist  that  new 
law  should  be  made  in  this  case  in  order  to  classify  them 
with  operating  supply  claimants."^* 

§390.    Issuance  of  Receiver's  Certificates. 

Inasmuch  as  the  general  subject  of  receiver's  certifi- 
cates is  one  wdiich  concerns  receiverships  in  general  and 
the  same  general  principles  apply  quite  generally  to  all 
corporations,  we  will  discuss  the  subject  in  a  special 
chapter  devoted  to  that  subject  and  will  there  discuss 
those  features  which  are  particularly  applicable  to  public 
utilities.^ 

14  Pennsylvania     Steel     Co.     v.  l  See    the    chapter    devoted    to 

New  York  C.  Ry.  Co.,  208  Fed.  168,      Receiver's   Certificates, 
at  185. 


1070  LAW   OF    RECEIVERS. 

§  391.     Executory  Contracts  of  the  Public  Utility  Itself. 

In  the  nature  of  things  it  is  probably  true  that  tho 
executory  contracts  that  are  passed  over  from  an  insol- 
vent public  utility  company  to  its  receiver  are  greater 
in  number  and  more  varied  in  character  than  in  other 
receivership  cases.    However,  for  the  most  part,  the  prin- 
ciples that  govern  the  question  as  to  whether  or  not  such 
contracts  are  binding  upon  the  receiver  are  the  same.^ 
''An  executory  contract  is  not  one  that  is  not  binding 
until  it  is  renounced ;  it  is  one  that  is  not  binding  until  it 
is  adopted."-     The  receiver  is  not  the  assignee  of  the 
contract.  If  the  contract  is  secured  by  a  lien  or  is  one  that 
runs  with  the  land,  the  receiver,  of  course,  is  bound  by  it. 
Such  a  contract  is  executory  simply  in  the  sense  that 
something  remains  to  be  done  under  it  on  one  side  or  the 
other;  and  that  must  be  done.     The  obligation  placed 
upon  the  company  may  be  the  consideration  that  it  w^as 
to  pay  for  some  of  its  property  or  some  privilege  enjoyed 
by  it ;  if  the  obligation  is  not  fully  performed  at  the  time 
of  the  receivership  and  the  receiver  continues  to  hold 
the  property  or  exercise  the  privilege  he  must  perform 
the  obligation.^     If,  however,  the  performance  of  the 
obligation  is  not  protected  by  a  lien  and  amounts  simply 
to  a  method  of  paying  a  debt  or  interest  upon  a  debt 
specific  performance  can  not  be  enforced  against  the  re- 
ceiver.    Contracts  that  do  not  run  mth  the  land,  nor 

The    relation    of    principal    and  Co.,  116  N.  C.  952,  21   S.  E.  304; 

agent  is  created  by  contract,  and  Farris  v.  Receivers  of  Richmond 

the    mere    appointment    of    a    re-  &  D.  R.  Co.,  115  N.  C.  600,  20  S.  E. 

ceiver  for  the  principal  does  not  167;  Central  Trust  of  N.  Y.  v.  St. 

ipso  facto  revoke  the  agency.  Mis-  Louis,  A.  &  T,  Ry.  Co.,  (C.  C.)  40 

souri  K.  &  T.  Ry.  Co.  v.  Hudson  Fed.  426. 

(Okl.)  175  Pac.  743  as  bearing  on  2  Kansas  City  So.  R.  Co.  v.  Lusk, 

the  subject.     See  also  Leupold  v.  224  Fed.  704,  140  C.  C.  A.  244. 
Weeks,   96  Md.   280,   53   Atl.   937;  3  Joy  v.   City  of  St.  Louis,   138 

Simpson  v.  East  Tennessee  V.   &  U.  S.  1,  34  L.  Ed.  843,  11  Sup.  Ct. 

G.  Ry.  Co.,  89  Tenn.  304,  15  S.  W.  243;    Fidelity  Insurance,   etc.,   Co. 

735;  Grady  v.  Richmond  &  D,  R.  v.  Norfolk,  etc.,  R.  Co.,  72  Fed.  704. 


RAILROADS — PUBLIC    UTILITY    CORPORATIOXS.  1071 

impose  any  lien  upon  the  property,  nor  convey  any  title 
in  the  utility  itself  nor  any  interest  in  it,  nor  secure  any 
particular  sum  of  money  can  not  be  specifically  enforced 
against  the  receiver,  and  he  may  renounce  them.^  AYhere 
a  contract  has  been  fully  performed  on  one  side  and 
nothing  remains  but  the  turning  over  of  a  certain  fund 
in  the  hands  of  one  party  but  belonging  to  the  other,  the 
fact  that  the  contract  was  illegal  in  its  inception  can  not 
serve  as  a  valid  excuse  for  retaining  the  money.^ 

A  court  may  make  an  order  to  the  effect  that  an  execu- 
tory contract  will  not  be  binding  until  the  court  has  ex- 
pressly directed  the  receiver  to  adopt  it.  Under  an  order 
of  that  character  the  receiver  may  operate  under  the  con- 
tract without  losing  the  right  to  reject  it.« 

§  392.     What  Constitutes  an  Adoption  or  Rejection  of  Execu- 
tory Contracts. 

A  receiver  can  not  adopt  part  of  an  indivisible  contract 
and  reject  the  remainder.^  In  any  case  where  a  receiver 
is  entitled  to  an  election  between  adoption  and  renouncing 
he  is  entitled  to  a  reasonable  time  in  which  to  make  his 
choice.  What  will  constitute  a  reasonable  time  depends 
upon  circumstances.  The  mere  taking  possession  of  and 
using  leased  property,  such  as  cars  or  other  equipment 

4  Intercontinental  Rubber  Co.  v.  a   certain   loan,   which  was  made 

Boston  &  M.  R.  R.,  245  Fed.  127.  to    the    railroad    by    the    express 

See  Baker  v.  Central  T.  Co.,  235  company   at  the   time   the   agree- 

Fed.  17,  148  C.  C.  A.  511,  in  which  ^^""^  ^^^  °^^^^  ™ay  be  renounced 

a  traffic  agreement  by  which  the  ^  the  receiver.   Southern  Express 

Co.  V.  Western  U.,  etc.,  R.  Co.,  99 

receiver's   company  was  to  allow  tt   a   mi    or  .     r-L   ^.^    ^ 

^^       ,^  ^  .  U.  S.  191,  25  L.  Ed.  319.    See  also, 

the  other  company  a  certam  extra  central   Trust   Co.   v.   Marietta   & 

percentage  of  the  business  when-  u.    q^    etc.,    Co.,    51    Fed     15     16 

ever    said    company    needed    the  l.  R.  A.  90. 

money    to    pay     interest    on    its  5  Central  Trust  Co.  v.  Ohio,  etc., 

bonds  was  held  to  be  such  a  con-  r_  Co.,  23  Fed    306 
tract   as    the    receiver    might   re-         c  Landon  v.  Public  Utilities  Com- 

^o^Ji^^e.  mission,  245  Fed.  950. 

An  agreement  to  grant  the  ex-  1  Easton  v.  Houston,  etc.,  R.  Co., 

press  privileges  over  a  road  until  38  Fed.  784. 


1072 


LAW    OF    RECEIVERS. 


for  a  period  of  time  need  not  constitute  an  adoption  of 
the  lease,  especially  in  the  absence  of  some  action  on  the 
part  of  the  lessor  to  obtain  an  election,-  but  nse  of  it 
during  the  remainder  of  the  term  of  the  lease  would.^ 


2  Farmers'     Loan,    etc.,    Co.    v, 
Chicago  &  A.  R.  Co.,  42  Fed.  6. 

3  Easton   v.   Houston,   etc.,    Co., 
38  Fed.  784. 

The   court  does  not  bind  itself 
or  its  receiver  eo  instanti  by  the 
mere  act  of  taking  possession  of 
the  leasehold  property.    After  tak- 
ing  possession   of   such   property 
the  receiver  is  entitled  to  a  reason- 
able time  in  which  to  ascertain  the 
situation  of  affairs  and  determine 
whether  it  will  be  advantageous  to 
the    parties    In    interest,    or    the 
estate,  for  him  to  retain  and  use 
the  leasehold  property.  In  all  such 
cases  the  receiver  should  act  with 
reasonable  promptness,  and  in  the 
meantime  do  no  act  that    may  be 
construed   as   an   adoption   of   the 
lease.    St.  Joseph  &  St.  L.  R.  Co. 
v.   Humphreys,   145  U.    S.   105,   36 
L.  Ed.  690.  12  Sup.  Ct.  795;  Quincy, 
M.  &  P.  R.  Co.  v.  Humphreys,  145 
U.  S.  82,  36  L.  Ed.  632,  12  Sup.  Ct. 
787;  Turner  v.  Richardson,  7  East, 
335;  Broome  v.  Robinson,  cited  in 
7  East  339;    Sunflower  Oil  Co.  v. 
Wilson,    142    U.    S.    313.    322,    35 
L.  Ed.  1025,  1028,  12  Sup.  Ct.  235; 
Commonwealth    v.    Franklin    Ins. 
Co.,   115  Mass.  278;    Sparhawk   v. 
Yerkes,  142  U.  S.  1.  35  L.  Ed.  915, 
12  Sup.  Ct.  104;   New  York,  P.  & 
O.  R.   Co.  V.  New  York,  L.  E.   & 
W.  R.  Co.,  58  Fed.  268;   Farmers' 
Loan  &  T.  Co.  v.  Northern  P.  R. 
Co.,    58    Fed.    257; 'United    States 
Trust  Co.  V.  Wabash  Western  R. 
Co.,  150  U.  S.  287,  37  L.  Ed.  1085, 
14  Sup.  Ct.  86;   Sency  v.  Wabash 


Western  R.  Co.,  150  U.  S.  310,  37 
L.  Ed.  1092,  14  Sup.  Ct.  94;  Gaither 
V.  Stockbridge,  67  Md.  222,  9  Atl. 
632,  10  Atl.  309.  But  see  People  v. 
Universal  L.  Ins.  Co.,  30  Hun 
(N.  Y.)  142. 

What  acts  of  the  receiver  may 
be  construed  as  an  acceptance  of 
the  lease  must,  in  the  very  natuie 
of  things,  be  determined  from  the 
circumstances     surrounding     each 
particular    case,    and    is    often    a 
question    of    much    difficulty.     In 
the  matter  of  assignees  in  bank- 
ruptcy where  the  same  ru'.es  apply, 
it  has  been  held,  that  advertising 
the  leasehold  for  sale  with  a  view 
of  ascertaing  its  value  is  not  an 
adoption,  but  it  would  be  if  a  bid 
were  accepted.  Lord  Ellenborough, 
in   Turner  v.  Richardson,  7   East, 
335;  or  if  at  the  sale  the  assignee 
bid    in   the   property,   Hastings   v. 
Wilson,   Holt,   N.  P.   290;    or  con- 
veyed it,  Page  V.  Golden,  2  Stark. 
309.  As  to  what  would  be  a  reason- 
able time  in  which  to  make  the 
election,  see  ex  parte  Fletcher,  1 
Deac.  &  Ch.  318;    Ex  parte  Scott, 
1     Rose,     446,     note;      Ex     parte 
Blandy,  1  Deac.  286. 

The  general  rule  as  to  what  con. 
stitutes  an  acceptance  of  a  lease 
by  an  assignee  in  bankruptcy  is 
stated  by  Ch.  J.  Fuller  in  Quincy, 
M.  &  P.  R.  Co.  V.  Humphreys,  145 
U.  S.  82,  99,  36  L.  Ed.  632.  638,  12 
Sup.  Ct.  787,  as  follows:  "If,  how- 
ever, they  accepted  a  bidding,  or 
dealt  with  the  estate  as  their  own, 
or  used  it  in  a  manner  injurious 


RAILKOaDS — PUBLIC    UTILITY    COUPORATIONS.  1073 

An  express  rejection  is  not  always  necessary  to  show 
that  there  has  not  been  an  adoption.  In  the  case  of  rented 
equipment  the  receiver  may  pay  the  stipidated  rent  for 
a  period  of  months  but  if  he  does  so  under  the  sanction 
of  the  court  as  a  temporary  proposition  his  conduct  in 
the  premises  does  not  indicate  an  adoption  of  the  lease.^ 
An  order  of  court  acquiesced  in  by  the  parties  may 
amount  to  a  stipulation  modifying  a  contract.^  Pre- 
senting a  contract  to  the  court  on  several  occasions  for 
the  purpose  of  obtaining  orders  that  amount  to  recog- 
nition of  it  may  indicate  adoption.*'  The  fact  that  the 
receiver  within  a  reasonable  time  has  petitioned  the 
court  for  permission  to  renounce  a  contract  precludes 
the  possibility  of  an  adoption  by  conduct  or  of  an  estoj^pel 
against  rejection.'^ 

§393.     Liability  Created  by  Adoption  of  Executory  Contract. 

Where  the  receiver  adopts  an  executory  contract  he 
naturally  makes  such  contract  one  of  the  obligations  of 
the  receivership  and  subjects  the  receivership  to  its  obli- 
gations and  such  liens  as  may  be  created  by  it.^ 

to  the  persons  otherwise  entitled,  A    corporation    receiver,    unless 

they  are   not  within    this    protec-  authorized     by     court     appointing 

tion."    The  same  doctrine  is  held  him,  is  v/ithout  authority  to  make 

in  Glenny  v.  Langdon,  98  U.  S.  20,  any  binding  agreement  as  to  the 

25  L.  Ed.  43;  American  File  Co.  v.  modification    or    abrogation    of    a 

Garrett,  110  U.   S.  288,  28   L.   Ed.  contract  between  the  corporation 

149,   4   Sup.   Ct.   90;    Sparhawk   v.  of  which   he   was  receiver   and   a 

Yerkes,  142  U.  S.  1,  35  L.  Ed.  915,  third  person.     St.  Joseph  Gas  Co. 

12  Sup.  Ct.  104;   Martin  v.  Black,  v.  Barker,  243  Fed.  206. 

9  Paige   (N.  Y.)   641,  38  Am.  Dec.  e  South  Carolina,  etc.,  R.  Co.  v. 

574;    Commonwealth    v.    Franklin  Carolina,  etc.,  Ry.  Co.,  93  Fed.  543, 

Ins.   Co..   115  Mass.   278;    Berry  v.  35  C.  C.  A.  423. 

Gillis,  17  N.  H.  9,  43  Am.  Dec.  584;  ~  Peabody    Coal    Co.    v.    Nixon, 

Hoyt  v.  Stoddard,  2  Allen  (Mass.)  226  Fed.  20,   140  C.  C.  A.  446. 

442.  1  Charlotte,  Columbia  &  Augusta 

4  Piatt  V.  Philadelphia  R.  R.  Co.,  R.  R.  Co.  v.  Chester  &  L.  R.  R.  Co., 
84  Fed.  535,  28  C.  C.  A.  488.  118  N.  C.  1078,  24  S.  E.  769. 

5  Thomas  v.  Cincinnati,  etc.,  R.  A  receiver  adopting  a  lease 
Co.,  77  Fed.  667.  takes  it  subject  to  any  lien  created 
II  Rec— 08 


1074  LAW   OF   RECEIVERS. 

§  394.     Liability  Created  by  Rejection  of  Executory  Contract. 

When  a  receiver  rejects  an  executory  contract  under 
wliicli  a  service  was  to  be  rendered  to  the  company  and 
paid  for  by  the  company,  the  receiver,  if  he  accepts  the 
service  during  the  period  he  used  to  determine  his  policy 
with  reference  to  the  contract  must  pay  for  the  service. 
However,  he  pays  the  reasonable  value  of  the  service,  not 
necessarily  the  price  stipulated  in  the  contract.  What 
the  reasonable  price  is  is  to  be  determined  by  the  ordi- 
nary rules  of  evidence  governing  such  a  matter.  The 
stipulated  price  may  be  'prima  facie  evidence  of  the  rea- 
sonable price,  or  value. ^  In  many  cases  it  would  not  be. 
Under  a  car-trust  agreement,  either  in  the  form  of  a 
conditional  sale  or  a  lease,  under  which  the  company  was 
to  pay  a  certain  sum  periodically  with  the  right  to  obtain 
title  when  the  total  payments  equaled  a  stated  sum,  the 
amount  to  be  paid  periodically  by  the  company  would  not 
indicate  what  the  receiver  should  pay,  which  would  be 
only  reasonable  rental  for  the  property  during  the  period 
be  used  it.^    If  the  contract  that  the  receiver  rejects  is 

thereby  for  rent.    Link  Belt  Ma-  of  the  lease  and  the  burdens  as- 

chinery  Co.  v.  Hughes,  174  111.  155,  sumed  by  the  company,  are  bound 

51  N.  E.  179;  Lane  v.  W^ashington  by  the  lease  as  assignees  of  the 

Hotel  Co.,  190  Pa.  230,  42  Atl.  697.  company.   Easton  v.  Houston  &  T. 

A  contract  of  a  corporation  is  C.  R.  Co.,  38  Fed.  784. 

not  binding  on  its  receiver,  unless  i  Receivers  during  the  time. they 

it  has  been  affirmatively  adopted  used  electric  current  before  com- 

by  him.   Landon  v.  Public  Utilities  position    with    the    creditors,    are 

Commission  of  Kansas,  245,  Fed.  liable  for  the  ordinary  and  reason- 

950;  St.  Joseph  Gas  Co.  v.  Barker,  able  rate  for  temporary  use  though 

243  Fed.  206.  the   debtor  had  a  contract  for  a 

Receivers    are    liable    for    the  lower  rate  under  which  he  was  in 

rentals  of  branch  roads  operated  arrears.    Odell  v.  Bedford  Co.,  224 

as   an   entire   system.    Central   R.  Fed.  996. 

&  Bkg.  Co.  v.  Farmers'  Loan  &  T.  2  Kneeland  v.  American  L.,  etc., 

Co.,  79  Fed.  158.  Co.,  136  U.  S.   89,   34   L.   Ed.   379, 

Receivers  who  take  possession  10  Sup.  Ct.  950;  Fosdick  v.  Schall, 
of  cars  held  by  an  insolvent  rail-  99  U.  S.  235,  25  L.  Ed.  339;  South- 
road  company  under  a  lease,  with  ern  Express  Co.  v.  Western,  etc., 
full  authority  to  do  so,  and  oper-  R.  Co.,  99  U.  S.  191,  25  L.  Ed.  319. 
ate  the  cars  with  full  knowledge  See,    Savannah,    etc.,    R.    Co,    v. 


RAILROADS — PUBLIC    UTILITY   CORPORATIONS. 


107^ 


one  calling  for  a  service  to  be  rendered  by  the  company 
and  paid  for  by  the  other  party,  the  receiver  is  bound  by 
the  contract  as  to  price  so  long  as  he  operates  under  it.^ 
The  rejection  of  an  executory  contract  by  a  receiver  con- 
stitutes a  breach  of  the  contract  dating  back  to  the  begin- 
ning of  the  receivership ;  and  if  damages  of  a  provable 
sort  flow  from  the  breach  the  other  party  may  present  a 
claim  therefor  against  the  estate.-* 


Jacksonville,  etc.,  R.  Co.,  79  Fed. 
35,  24  C.  C.  A.  437;  Piatt  v.  Phil- 
adelphia, etc.,  R.  R.  Co.,  84  Fed. 
535,  28  C.  C.  A.  488. 

3  Manhattan  Trust  Co.  v.  City 
Of  Dayton,  59  Fed.  327,  8  C.  C.  A. 
140.  See  General  Electric  Co.  v. 
Whitney,  74  Fed.  664,  20  C.  C,  A. 
674. 

An  action  by  a  receiver  to  col- 
lect moneys  due  under  a  contract 
with  the  company  is  ancillary  to 
the  receivership  and  may  be  insti- 
tuted in  the  receivership  court. 
Keihl  V.  City  of  South  Bend,  76 
Fed.  921,  22  C.  C.  A.  618,  36  L.  R.  A. 
228. 

•t  In  as  much  as  claims  of  this 
sort  are  not  preferred  claims 
(See  §412,  infra),  there  seems 
to  be  a  bit  of  judicial  humor  in 
this  statement:  "We  think  we  can 
take  judicial  knowledge  of  the 
fate  of  contracts  made  by  an  in- 
solvent railroad  company,  which 
passes  into  the  hands  of  a  re- 
ceiver, and  are  not  assumed  by 
him.  Such  contracts  are  practi- 
cally ended.  Kansas  City,  etc.,  R. 
Co.  V.  Lusk,  224  Fed.  704,  140 
C.  C.  A.  244. 

In  this  case  it  was  held  that  a 
contract  for  the  use  of  another 
road's  terminal  could  be  rejected, 
opposition  to  such  action  being 
resisted   on   the  ground   that   the 


receiver  was  rejecting  the  con- 
tract because  his  company  had  ob- 
tained other  terminals,  that  the 
arrangement  by  which  this  had 
been  accomplished  was  illegal, 
and  that,  therefore,  the  receiver 
was  not  before  the  court  with 
clean  hands,  being  overruled  as 
raising  an  issue  with  which  the 
court  at  the  time  and  in  the  mat- 
ter before  it  was  not  concerned. 
An  order  granting  a  receiver's 
petition  for  permission  to  reject 
an  executory  contract  is  final  (in 
the  words  quoted  above,  it  ends 
the  contract)  and  is  appealable. 
Idem. 

A   receiver  is   not  bound   by   a 
contract  of  the  company  with  its 
employees    concerning    the    man- 
ner   of    their    discharge.      In    re 
Seattle,  etc.,  R.  Co.,  61  Fed.  541, 
where  a  receiver  discharges  an  em- 
ployee contrary  to  the  contract  of 
his  employment  by  the  company, 
the  receiver  can  not  make  the  em- 
ployee's claim  for  damages  due  to 
the  breach  a  preferred  claim,  nor  a 
charge   against   his   own    account. 
Whightsel  v.  Felton,  95  Fed.  923. 
When    a    railroad    company    Is, 
pursuant  to  an  order  of  the  receiv- 
ership   court,    temporarily    operat- 
ing  a    receiver's    road   and   using 
cars   that   were   in    the   receiver's 
possession   under   a   contract   not 


1076 


LAW   OF   RECEIVERS. 


§  395.     Status  of  Leases  of  the  Public  Utility  Operative  Prop- 
erty. 

A  lease  of  public  utility  operative  property,  held  by  a 
company  at  the  ti-iie  it  passes  under  a  receivership,  is 
an  executory  contract.  ''When  the  property  embraces  a 
leasehold  estate  it  is  his  (the  receiver's)  duty  to  take 
possession  of  it,  but  he  does  not  by  such  act  become 
assignee  of  the  term."^     With  reference  to  a  leasehold 


yet  adopted  by  him,  if  the  con- 
tract is  subsequently  rejected  and 
the  cars  returned  to  their  owner, 
the  operating  company  being  un- 
der contract  to  pay  all  operating 
expenses,  is  obligated  to  pay  only 
reasonable  rental  for  their  use. 
Piatt  V.  Philadelphia,  etc.,  R.  R. 
Co.,  84  Fed.  535,  28  C.  C.  A.  488. 

In  Barber  Asphalt  Paving  Co.  v. 
Forty-second  St.,  etc.,  Ry.  Co.,  180 
Fed.  648,  103  C.  C.  A.  614  (revers- 
ing Barber  Asphalt  Co.  v.  Forty- 
second  St.,  etc.,  Ry.  Co.,  175  Fed. 
154)  a  mortgage  was  given  by  a 
street  railway  company  to  secure 
Donds  running  for  a  long  term  of 
years.  The  company  owned  a  con- 
trolling interest  in  constituent 
companies.  The  mortgage  re- 
quired the  mortgagor's  stock  in 
those  companies  to  be  pledged 
with  the  trustee  of  the  mortgagee 
and  it  also  required  that  the  con- 
stituent companies  should  create 
no  liens  on  their  properties  and 
incur  no  indebtedness  other  than 
for  current  operating  expenses  for 
a  period  not  exceeding  six  months, 
except  to  the  mortgagor  company, 
and  the  mortgage  also  provided 
that  all  claims  against  the  con- 
stituent companies  then  held  or 
thereafter   acquired   by   the   mort- 


gagor should  be  held  in  trust  for 
the  trustee  of  the  mortgagee  as 
additional  security  for  the  bonds 
issued  under  the  mortgage  and 
that  such  claims  should  be  as- 
signed to  it  upon  demand.  It  was 
held  that  the  lessee  of  the  mort- 
gagor, succeeding  to  all  of  its 
property  rights  subject  to  the 
mortgage,  held  any  indebtedness 
from  the  constituent  companies  to 
it  for  operating  expenses  or  other- 
wise, subject  to  the  trust  created 
by  the  mortgage  since  the  six 
months'  provision  was  Intended 
only  to  give  that  length  of  time 
for  the  payment  of  such  expenses 
by  the  constituent  companies  or 
by  the  mortgagor,  its  successor  or 
assigns,  but  such  indebtedness  so 
incurred  by  them  to  receivers  of 
the  lessee,  who  were  operating  the 
system  was  not  subject  to  the 
mortgage  trust  mentioned. 

A  receiver  of  a  street  railroad 
system  will  not  be  required  by  the 
court  to  continue  an  arrangement 
by  which  it  furnished  power  and 
the  use  of  its  tracks  to  an  inde- 
pendent company  without  compen- 
sation. Central  Trust  Co.  v.  Third 
Ave.  R.  Co.,  165  Fed.  494. 

1  Pennsylvania  Steel  Co.  v.  New 
York  C.  Ry.  Co.,  198  Fed.  721,  117 
C.  C.  A.  503. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1U77 


contract  the  receiver's  position  is  mucli  the  same  as  with 
reference  to  other  executory  contracts  and  most  of  the 
general  rules,  as  set  forth  in  the  preceding  section,  apply.^ 


'■^  The  receiver  is  entitled  to  a 
reasonable  time  to  decide  whether 
or  not  he  will  adopt  the  lease,  and 
unless  and  until  he  does  so  he  is 
not  liable  upon  its  covenants  to 
pay  rent.  Pennsylvania  Steel  Co. 
V.  New  York  City  Ry.  Co.,  198 
Fed.  721,  117  C.  C.  A.  503,  revers- 
ing decrees  (C.  C.) ;  In  re  New 
York  City  Ry.  Co.,  188  Fed.  339 
and  (C.  C.) ;  Pennsylvania  Steel 
Co.  v.  New  York  City  Ry.  Co.,  188 
Fed.  343,  modifying  decrees 
(C.  C.)  Pennsylvania  Steel  Co.  v. 
New  York  City  Ry.  Co.,  189  Fed. 
661,  190  Fed.  609,  and  (D.  C.)  189 
Fed.  661,  194  Fed.  543;  Central 
Trust  Co.  v.  Wabash,  etc.,  Ry.  Co., 
34  Fed.  259;  Quincy  M.,  etc.,  R. 
Co.  V.  Humphreys,  145  U.  S.  82,  36 
L.  Ed.  632,  12  Sup.  Ct.  787. 

A  court  does  not  bind  itself  or 
its  receivers  to  pay  the  agreed 
rentals  of  a  leased  line  eo  instanti 
by  the  mere  act  of  taking  posses- 
sion. Reasonable  time  necessarily 
had  to  be  taken  to  ascertain  the 
situation  of  affairs.  United  States 
Trust  Co.  V.  Wabash  West.  Ry. 
Co.,  150  U.  S.  287,  300,  37  L.  Ed, 
1085,  14  Sup.  Ct.  86,  90. 

A  reasonable  time  is  allowed  to 
the  receiver  within  which  to  adopt 
or  reject  leases  upon  branch  rail- 
roads ]t»Jd  by  the  receivership. 
(C.  C.  A.  1897)  Mercantile  Trust 
Co.  V.  Farmers'  Loan  &  Trust  Co., 
SI  Fed.  254,  26  C.  C.  A.  383,  affirm- 
ing decree  Mercantile  Trust  Co.  v. 
St.  Louis  &  S.  F.  Ry.  Co.  (C.  C. 
1891)  "1  Fed.  601;  (certiorari  de- 
nied Mercantile  Trust  Co.  v. 
Farmers'  Loan  &  T.  Co.,  168  U.  S. 


710,  42  L.  Ed.  1213,  18  Sup.  Ct.  944). 

Mere  payment  by  receiver  of 
compensation  required  by  the 
lease  for  use  of  a  street  railroad 
does  not  constitute  a  final  adop- 
tion of  the  lease  by  him.  Penn- 
sylvania Steel  Co.  V.  New  York 
City  Ry.  Co.,  176  Fed.  471. 

For  the  purpose  of  preserving 
the  system  and  continuing  opera- 
tion until  a  permanent  receiver 
may  be  appointed  and  have  time 
to  act,  a  temporary  receiver  may 
be  ordered  to  comply  with  terms 
of  the  lease  and  a  provision  in  the 
order  to  the  effect  that  such  action 
shall  be  without  prejudice  to  the 
receiver's  right  to  abandon  the 
lease  is  effective.  Intercontinental 
Rubber  Co.  v.  Boston  &  M.  R.  R., 
245  Fed.  127. 

An  order  directing  a  receiver 
temporarily  to  pay  rent  in  order 
to  prevent  a  forfeiture  of  the  lease 
may  effectively  provide  that  such 
payment  shall  be  without  preju 
dice  to  the  receiver's  right  subse- 
quently to  reject  the  lease.  Penn- 
sylvania Steel  Co.  V.  New  York 
C.  Ry.  Co.,  175  Fed.  812. 

When  a  system  has  been  dis- 
rupted by  foreclosure  of  mort- 
gages on  part  thereof,  the  situa- 
tion renders  inoperative  a  provi- 
sion of  a  lease  postponing  for  one 
year  after  default  the  lessor's  right 
of  re-entry.  Pennsylvania  Steel 
Co.  V.  New  York  C.  Ry.  Co.,  165 
Fed.  463. 

A  claim  of  the  lessor  for  rent 
accruing  before  the  receivership  is 
not  entitled  to  priority  over  lien 
creditors.     It  is  an  unsecured  lia- 


1078  LAW   OF   RECEIVERS. 

There  is  an  important  distinction,  however,  relative  to 
leases  of  utility  operative  property,  with  reference  to  the 
obligation  placed  upon  the  receiver  to  pay  rent  for  the 
time  he  nses  the  property,  if  he  finally  rejects  the  lease. 
Such  a  lease  is  not  like  that  of  a  business  building  by  a 
commercial  corporation  nor  even  of  equipment  and 
similar  property  by  a  public  utility  corporation.  In  the 
latter  cases  lessors,  as  a  practical  proposition,  can  readily 
find  other  uses  for  their  property  if  it  is  suddenly  turned 
back  to  them.  But  a  public  utility  company,  whose  operat- 
ing organization  has  been  disbanded  because  its  property 
is  being  operated  by  a  lessee,  can  not  itself  suddenly  take 
hold  of,  nor  find  another  lessee  ready  to  take  hold  of  the 
property  and  operate  it  so  as  to  prevent  danger  of  for- 
feiture of  franchises,  or  deterioration,  or  other  loss  from 
non-user.  If  the  lessor  is  so  situated  that  it  can  "knock 
at  the  door  of  the  court  and  demand  back  its  property, 
it  is,  of  course,  in  a  position  to  demand  the  stipulated 
rent. '  '^  But  if  the  lessor  is  not  so  situated  and  must  leave 
the  property  for  a  time  in  the  hands  of  the  receiver,  and 
the  latter  can  not  make  it  a  profitable  part  of  the  estate 
and  must  turn  it  back  to  the  owner,  then  the  presumption 
is  that  he  has  been  operating  it  for  the  benefit  of  the 
lessor.  The  general  rule,  then,  is  with  exceptions  for 
special  cases,  such  as  branch  or  feeding  lines  that  were 
never  operated  for  any  profit  they  themselves  could  make, 
that  all  the  lessor  is  entitled  to  is  the  net  income  that  the 
receiver  has  been  able  to  realize  from  the  property ;  and 

bility  and  must  rank  along  with  Co.,  149  TJ.  S.  95,  37  L.  Ed.  663,  13 

all  other  claims  of  the  same  class  Sup.  Ct.  824;   New  York  P.  &  O. 

on  final  distribution  of  the  assets.  R.  Co.  v.  New  York,  L.  E.  &  W.  R. 

Huidekoper  v.   Hinckley   Locomo-  Co.,  58  Fed.  268. 
tive  Works,  99  U.  S.  258,  25  L.  Ed.  3  Farmers'    Loan,    etc.,     Co.    v. 

344;    Fosdick  v.   Schall,    99   U.    S.  Northern  Pac.  R.  Co.,  58  Fed.  257; 

235,   25    L.   Ed.   339;    Union   Trust  Pennsylvania    Steel    Co.    v.    New 

Co.  V.  Illinois  M.  R.  Co.,  117  U.  S.  York  C.  Ry.  Co.,  198  Fed.  721,  117 

434,  470,  29  L.  Ed.  963,  975,  6  Sup.  C.  C.  A.  503,  512. 
Ct.  809;   Thomas  v.  Western  Car 


RAILROADS— PUBLIC    UTILITY    CORPORATIONS. 


1079 


that,  if  the  receiver  has  suffered  actual  loss,  the  lessor 
must  reimburse  him.^ 

A  receiver  who  adopts  a  lease  must  pay  the  stipulated 
rental,  including  collateral  payments,  in  the  nature  of 
rental,  such  as  taxes,  interest  on  bonds,  and  repairs.^ 


4  Quincy,     etc.,     R.     R.     Co.     v. 
Humphreys,  145  U.  S.  82,  36  L.  Ed. 
G32,  12  Sup.  Ct.  787;  United  States 
Trust  Co.  V.  Wabash,  etc.,  R.  R, 
Co.,  150  U.  S.  287,  37  L.  Ed.  1085, 
14  Sup.  Ct.  86;  Park  v.  New  York, 
etc.,  R.  Co.,  57  Fed.  799;  New  York 
P.  &  O.  R.  Co.  V.  New  York  L.  E., 
etc.,   R.   Co.,   58   Fed.   268;    (1897) 
Mercantile  Trust  Co.  v.  Farmers' 
Loan  &  Trust  Co.,  81  Fed.  254,  26 
C.  C.  A.  383,  affirming  decree  Mer- 
cantile  Trust  Co.  V.   St.  Louis  & 
S.  F.  Ry.  Co.   (C.  C.  1896)   71  Fed. 
601;    (certiorari  denied  Mercantile 
Trust  Co.  V.  Farmers'  Loan  &  Trust 
Co.,  168  U.  S.  710,  42  L.Ed.  1213,  18 
Sup.  Ct.  944) ;   Pennsylvania  Steel 
Co.  V.  New  York  City  Ry.  Co.,  219 
Fed.  939;    Pennsylvania  Steel  Co. 
V.  New  York  City  Ry.  Co.,  198  Fed. 
721,  117  C.  C.  A.  503. 

See  also:  In  re  New  York  City 
Ry.  Co.,  188  Fed.  339  and  (C.  C.) ; 
Pennsylvania  Steel  Co.  v.  New 
York  City  Ry.  Co.,  188  Fed.  343, 
modifying  decrees  (C.  C.)  Penn- 
sylvania Steel  Co.  V.  New  York 
City  Ry.  Co.,  189  Fed.  661,  190  Fed. 
609,  and  (D.  C.)  189  Fed.  661,  194 
Fed.  543. 

A  receiver's  claim  for  a  deficit 
against  the  lessor  is  an  expense 
of  the  receiver's  operation  and,  if 
necessary,  when  the  lessor  is  also 
under  a  receivership,  may  be  paid 
out  of  the  latter's  corpus  fund. 
Pennsylvania  Steel  Co.  v.  New 
York  C.  Ry.  Co.,  198  Fed.  721,  117 
C.  C.  A.  503. 


If  a  mortgagee,  under  the  terms 
of  his  mortgage,  is  entitled  to  have 
the  property,  including  a  leased 
branch  or  feeding  line,  operated  as 
a  unit,  the  receiver  will  not  be 
permitted  to  abandon  the  lease. 
Mercantile  Trust  Co.  v.  St.  Louis, 
etc.,  Ry.  Co.,  71  Fed.  601. 

Because  the  lessor,  while  full 
rent  is  being  paid,  is  not  in  a  posi- 
tion to  declare  a  forfeiture,  a  re- 
ceiver, who,  while  operating  a 
leased  road,  has  been  paying  full 
rental,  can  not  on  subsequently 
abandoning  the  lease,  have  his  for- 
mer payments  credited  as  having 
been  paid  on  account  of  net  in- 
come. Pennsylvania  Steel  Co,  v. 
New  York  C.  Ry.  Co.,  225  Fed. 
734,  141  C.  C.  A.  6. 

A  mortgagee  of  a  leased  road, 
which  is  operated  by  a  receiver  of 
the  lessee  at  a  loss,  has  no  equi- 
table right  to  have  an  amount 
equal  to  what  is  claimed  to  be  the 
rental  value  of  the  leased  and 
mortgaged  road  taken  from  the  in- 
come derived  by  the  receiver  from 
the  operation  of  another  road 
owned  by  the  lessee  arid  applied 
to  the  mortgage  debt.  Cox  v. 
Terre  Haute,  etc.,  R.  Co.,  133  Fed. 
371,  66  C.  C.  A.  433. 

5  Decree  Mercantile  Trust  Co.  v. 
Atlantic  &  P.  R.  Co.  (C.  C.  1897), 
80  Fed.  18,  affirmed;  United  States' 
Trust  Co.  v.  Mercantile  Trust  Co., 
88  Fed.  140,  31  C.  C.  A.  427;  Penn- 
sylvania Steel  Co.  V.  New  York 
City  Ry.  Co.,  176  Fed.  471;  Mercan- 


1080  LAW    OF    RECEIVERS. 

Under  the  general  rule  that  a  court  will  protect  its 
own  receiver  in  every  necessary  and  equitable  way,  the 
court  will  not  permit  a  forfeiture  of  a  leasehold  interest 
to  be  declared  against  the  receiver  if  he  has  acted  with 
due  diligence,  under  the  circumstances,  in  paying  the 
rent,  or  if  there  exists  an  equitable  ground  of  estoppel 
against  the  lessor.^ 

§  336.  Duty  of  Receiver  Respecting  Wages  of  Operating  Em- 
ployees. 
A  receiver  is  generally  authorized  by  the  order  of  the 
court  to  employ  needful  agents  and  servants  on  such 
compensation  as  he  deems  reasonable  with  leave  to  apply 
to  the  court  for  instructions  from  time  to  time.^  But  by 
an  act  of  Congress  the  employees  of  a  railroad  company 
in  the  hands  of  a  receiver  are  given  a  specific  right  to  be 
heard  in  respect  to  the  terms  and  conditions  of  their  em- 
ployment. Thus  in  the  Arbitration  Act  of  July  15,  1913, 
one  of  the  provisions  (§  8674  U.  S.  Comp.  Statutes,  1918) 
provides  as  follows:  "Whenever  receivers  appointed  by 
a  federal  court  are  in  the  possession  and  control  of  the 
business  of  employers  covered  by  this  act  the  employees 
of  such  employers  shall  have  the  right  to  be  heard  through 
their  representatives  in  such  court  upon  all  questions 
affecting  the  terms  and  conditions  of  their  employment; 
and  no  reduction  of  wages  shall  be  made  by  such  receivers 
without  the  authority  of  the  court  therefor,  after  notice 
to  such  employees,  said  notice  to  be  given  not  less  than 
twenty  days  before  the  hearing  upon  the  receivers'  peti- 
tion or  application,  and  to  be  posted  upon  all  customary 
bulletin  boards  along  or  upon  the  railway  or  in  the  cus- 

lile   Trust  Co.  v.  Farmers'   Loan,  certiorari  denied,  171  U.  S.  6S7,  18 

etc.,  Co.,  81  Fed.  254,  26  C.  C.  A.  Sup.  Ct.  940. 

383;     Pennsylvania    Steel    Co.    v.  c  Johnson  v.  Lehigh  Valley  Trac- 

New  York  City  Ry.  Co.,  176  Fed.  tion  Co..  130  Fed.  932. 

471;    Central   Trust   Co.   v.    Conti-  i  Atlantic    Trust    Co.    v.    Chap- 

nental   Trust  Co.   of   City   of  New  man,  208  U.  S.  360,  52  L.  Ed.  528, 

York,  80  Fed.  517,  30  C.  C.  A.  235,  28  Sup.  Ct.  406,  13  Ann.  Cas.  1155. 


RAILROADS— PI'lU.IC    UTILITY    CORPORATIONS.  1081 

ternary  places  on  the  premises  of  other  employers  covered 
by  tins  act." 

Prior  to  the  enactment  of  this  act  the  matter  of  fixing 
the  wages  of  the  employees  of  the  receivership  and  re- 
ducing them  when  deemed  necessary  were  matters  at- 
tended to  by  the  receiver  subject  to  review  by  the  receiv- 
ership court,-  but  the  practice  recommended  by  the  courts 
was  that  the  receiver  should  not  reduce  wages  without 
giving  the  employees  an  opportunity  to  be  heard  in  re- 
gard to  the  matter.^  The  right  of  the  receiver  to  act  in 
matters  relative  to  the  employees  of  the  railroad  prop- 
erty involved  in  the  receivership  is  not  an  arbitrary  one.^ 
The  court,  however,  will  not  interfere  with  the  actions  of 
the  receiver  in  regard  to  the  details  of  management  un- 
less there  appears  to  be  an  abuse  of  discretion.  The 
court  necessarily  can  not  take  a  hand  in  all  the  details  of 
management  and  must  rely  upon  the  discretion  of  its  re- 
ceiver in  such  matters.  If  the  court  becomes  convinced 
that  the  policy  of  management  by  its  receiver  amounts  to 
an  abuse  of  discretion,  the  proper  remedy  is  to  displace 
him  by  a  new  receiver  to  whom  such  matters  can  be  more 
satisfactorily  intrusted.^ 

§397.    Extent  of  Protection  Given  by  Court  to  Receivers  in 
Operating-  Railroad. 

The  rights  of  the  receiver  in  respect  to  the  business  of 
operating  the  railroad  under  the  orders  of  the  court  are 
not  different  in  any  respect  from  those  of  a  private  rail- 
way corporation.  The  only  difference  in  the  remedy 
which  the  courts  will  apply  to  prevent  or  punish  a  viola- 

2  In  Thomas  v.  Cincinnati,  etc.,      connection,    Ames    v.    Union    Pac. 
Ry.  Co.,  62  Fed.  17,  a  10  per  cent      Ry.  Co.,  62  Fed.  7. 

reduction  in  wages  by  the  receiver  -i  United  States  v.  Kane,  23  Fed. 

was  approved.     See,  also,  United  748. 

States   Trust   Co.   v.   Omaha,   etc.,  r.  Continental       Trust       Co.      v. 

Ry.  Co.,  63  Fed.  737.  Toledo,  St.  L.  &  K.  C.  R,  Co.,  59 

3  Ames   V.   Union   Pac.   Ry.   Co.,  Fed.  514. 
60    Fed.    674.      See,    also,    in    this 


1082  LAW   OF    RECEIVERS. 

tion  of  the  orders  of  the  court  when  such  a  violation  pre- 
vents or  impedes  the  operation  of  the  road  and  is  intended 
to  do  so.^ 

The  general  policy  of  the  court  in  this  respect  is  shown 
by  the  following  quotation  from  a  Supreme  Court  deci- 
sion- in  which  the  court  said : 

''Railroads  are  common  carriers,  and  owe  duties  to 
the  public.  The  rights  of  the  public  in  respect  to  these 
great  highways  of  communication  should  be  fostered  by 
the  courts ;  and  it  is  one  of  the  most  useful  functions  of  a 
court  of  equity  that  its  methods  of  procedure  are  capable 
of  being  made  such  as  to  accommodate  themselves  to  the 
development  of  the  interests  of  the  public,  in  the  progress 
of  trade  and  traffic,  by  new  methods  of  intercourse  and 
transportation." 

Any  unlawful  interference  with  the  operations  of  the 
railroad  while  in  the  hands  of  the  receiver  constitutes  a 
contempt  of  court  since  it  is  in  the  nature  of  a  direct  dis- 
obedience or  resistance  to  the  orders  of  the  court.^ 

In  one  of  the  well-known  cases^  the  court  said :  ''There 
is  no  doubt  that  Phelan  intended  to  prevent  utterly  the 
operation  of  the  Southern  road  by  calling  out  the  re- 
ceivers employees.  He  wished  thus  to  paralyze  his  busi- 
ness. He  did  the  trust  a  very  substantial  injury  by  stop- 
ping all  traffic  for  the  time,  by  making  it  necessary  for  the 

1  Thomas  v.  Cincinnati,  N.  O.  &  notice  to  an  employee  of  a  rail- 
T.  P.  Ry.  Co.,  62  Fed.  803.  road   in   the   hands   of  a  receiver 

2  Jay  V.  St.'  Louis,  138  U.  S.  1,      requesting  him  to  stay  away  from 

50.  11  Sup.  Ct.  243,  34  L.  Ed.  843.      "^   ^'^"P^   "^"^   ^^^   1"'^^^^^   ^'^^ 

culty,  a  strilve  being  m  progress, 

3  Secor  V.  Toledo,  etc.,  R.   Co.,      ^^^    ^^^^j^^^   ^.j^^^.    j^.^    compliance 

7  Biss.  513,  Fed.  Cas.  No.  12605;  ^.q^j^  command  the  protection  of 

Re  Doolittle,  23  Fed.  544;  United  the   employees   of  the   road,   was 

States  V.  Kane,  23  Fed.  748;     In  guilty  of  contempt  in  that  he  was 

re  Higgins,  27  Fed.  443.  interfering  with  the  operation  of 

In  re  Wabash  R.   Co.,   24   Fed.  the  road. 

217,  it  was  held  that  one  signed  4  Thomas  v.  Cincinnati,  N.  O.  & 

himself   as   chairman   and   sent   a  T.  P.  R.  Co.,  62  Fed.  803. 


IMILROADS — PUBLIC    UTILITY    CORPORATIONS.  1083 

receiver  to  pay  heavy  expenses  for  unusual  police  pro- 
tection, and  putting  liim  to  mucli  trouble  and  expense 
by  securing  new  employees.  Now,  if  the  receiver  were  a 
private  corporation,  could  he  recover  damages  for  the 
injury  thus  inflicted  on  the  business  of  the  road!  A 
malicious  or  unlawful  interference  with  the  business  of 
another  by  inducing  his  employees  to  leave  his  service 
is  an  actionable  wrong,  and  subjects  the  offender  to 
liability  for  the  loss  so  occasioned.  In  Walker  v.  Cronin, 
107  Mass.  555,  it  was  held  that  a  count  in  a  declaration 
which  alleged  that  a  plaintiff  was  a  manufacturer  of 
shoes,  and  for  the  prosecution  of  his  business  it  was 
necessary  for  him  to  employ  many  shoemakers ;  that  the 
defendants,  well  knowing  this,  did  maliciously  and  with- 
out justifiable  cause  molest  him  in  carrying  on  said  busi- 
ness, with  the  unlawful  purpose  of  preventing  him  from 
carrying  it  on,  and  willfully  induced  many  shoemakers 
who  were  in  his  employment,  and  others  who  were  about 
to  enter,  to  abandon  it  without  his  consent  and  against 
his  will ;  and  that  thereby  the  plaintiff  lost  their  services 
and  profits  and  advantages,  and  was  put  to  great  expense 
to  procure'  other  suitable  workmen,  and  was  otherwise 
injured  in  his  business — stated,  a  good  cause  of  action. 
See,  also.  Sherry  v.  Perkins,  147  Mass.  212,  17  N.  E.  307. 
"The  real  question,  therefore,  is  whether  the  act  of 
Phelan  in  instigating  and  inciting  the  employees  of  the 
receiver  to  leave  his  employ  was  Avithout  lawful  excuse, 
and  therefore  malicious.  The  question  is  not  whether 
such  an  act  would  subject  Phelan  to  punishment  by  indict- 
ment and  trial  under  the  criminal  laws,  but  whether  the 
act  was  unlawful  in  the  sense  that  he  could  be  made  to 
pay  damages  for  the  loss  occasioned.  Of  course  if  the 
act  would  subject  him  to  punishment  for  an  indictable 
misdemeanor  and  crime,  a  fortiori  would  the  act  be  un- 
lawful; but  his  act  may  be  a  contempt  without  being  a 
crime." 


1084  LAW    OF    RECEIVERS. 

The  court  will  not  allow  rules  of  a  union  of  railway 
employees  to  interfere  with  the  employees  of  the  receiver 
handling  freight  from  other  roads  which  are  under  the 
ban  of  the  union. ^ 

And  in  one  case''  where  the  obstruction  to  the  opera- 
tion of  the  railway  system  was  attempted  to  be  justified 
in  a  contempt  proceeding  on  the  ground  of  the  right  of 
assembly  and  free  speech  the  court  remarked:  ''If  the 
obstruction  to  the  operation  of  the  road  by  the  receiver 
was  unlawful  and  malicious,  it  is  not  less  a  contempt  be- 
cause the  instrument  which  he  used  to  effect  it  was  his 
tongue,  rather  than  his  hand." 

§  398.     Adjustment  of  Labor  Grievances  by  the  Court  Itself. 

The  receiver  appointed  by  the  court  to  manage  and 
operate  a  railroad  pending  the  receivership  proceedings 
is  an  officer  of  the  court  and  in  such  capacity  represents 
all  parties  interested  in  the  property.  The  persons  em- 
ployed by  him  occupy  such  a  relation  to  the  court  that, 
in  a  controversy  betw^een  them  and  the  receiver  concern- 
ing any  wrongs  and  injuries  arising  out  of  their  em- 
ployment, they  may  be  heard  by  the  court  upgn  a  proper 
application  being  made  to  it.  And  when  such  an  appli- 
cation is  made  it  becomes  the  duty  of  the  court  to  con- 
sider the  same,  and  if  facts  set  forth  in  the  application 
are  of  a  character  to  make  it  proper  to  further  consider 
them,  the  receiver  should  be  required  to  answer  them. 
The  court  will  then  be  able  from  the  pleadings  to  deter- 
mine whether  the  issue  is  of  such  a  character  as  to  make 
it  proper  to  hear  testimony  and  make  a  formal  investi- 
gation, either  by  a  reference  to  a  master  or  by  hearing 
witnesses  in  open  court.  The  receiver  from  the  nature 
of  the  qualities  and  abilities  for  which  he  is  selected,  is 
expected  to  look  after  the  details  of  the  business  and  to 

5  Waterhouse  v.  Comer,  55  Fed.  r,  Thomas  v.  Cincinnati,  etc.,  Ry. 

149,  19  L.  R.  A.  403.  Co.,  62  Fed.  803. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1085 


apply  to  the  court  from  time  to  time  when  special  in- 
structions seem  necessary.  The  very  nature  of  his  rela- 
tion to  the  court  and  his  duties  in  respect  to  those  inter- 
ested in  the  property  require  him  to  exercise  the  largest 
degree  of  discretion  possible  in  the  discharge  of  his 
duties.  The  supervision  of  the  management  by  the  re- 
ceiver is  in  the  court  which  appointed  him  and  in  w^hicli 
the  primary  jurisdiction  attached.  His  discretion  in  such 
management  will  not  be  interfered  with  except  where 
some  abuse  and  wrong  is  manifest.^ 

The  position  of  the  court  in  regard  to  grievances  and 
complaints  by  the  employees  of  its  receiver  operating  a 
railroad  has  always  been  to  remedy  any  wrongs  or 
abuses  which  are  clearly  shown  to  exist. - 

Insofar  as  such  .grievances  relate  to  the  question  of 
wages,  whether  in  regard  to  lowering  or  increasing  them, 
the  rule  has  been  stated  as  follows  r 


1  Farmers'  Loan  &  Trust  Co.  v. 
Central,  etc.,  Banking  Co.,  166 
Fed.  333.  In  the  above  case  the 
court  refused  to  sanction  the  dis- 
charge of  a  conductor  of  long 
service  upon  unsubstantiated  re- 
ports of  detectives  as  to  miscon- 
duct on  his  part. 

2  United  States  Trust  Co.  v. 
Omaha  &  St.  L.  R.  Co.,  63  Fed. 
737;  In  re  Wabash  Ry.  Co.,  24 
Fed.  217;  United  States  v.  Kane, 
23  Fed.  748. 

^  An  order  of  the  court,  adopting 
a  schedule  of  wages  to  be  paid  by 
its  receivers,  is  not  violated  by 
them  ir  respect  to  employees  re- 
ceiving monthly  wages,  by  vary- 
ing the  train  service  to  meet 
changing  conditions  of  traffic, 
even  though  such  change  requires 
somewhat  longer  hours  of  service 
and  more  miles  of  service;  it  ap- 
p(!avlng  that  the  total  service  re- 


quired is  not  unreasonable  in 
itself  or  by  comparison  with  the 
character  of  the  service  required 
on  other  lines.  Dexter  v.  Union 
Pac.  Ry.  Co.   (C.  C),  75  Fed.  947. 

Upon  the  theory  that  by  a  rule 
of  comity  the  courts  of  another 
state  would  give  heed  to  its 
orders,  made  for  the  purpose  of 
unity  of  action  and  for  the  best 
interests  of  the  whole  system. 

In  Guarantee,  etc.,  Deposit  Co. 
V.  Philadelphia,  R.  &  N.  E.  R.  Co., 
69  Conn.  709,  38  L.  R.  A.  804,  38 
Atl.  792,  the  receiver  reduced  the 
schedule  of  wages  existing  in  re- 
spect to  the  engineers  and  firemen 
but  the  court  by  its  order  required 
him  to  resume  payment  of  the  old 
schedule.  The  order  was  ques- 
tioned insofar  as  it  affected  the 
system  outside  of  the  jurisdiction 
of  the  court  in  respect  to  work 
done   in   the   interstate   character 


1086  LAW   OF   KECEIVERS. 

''The  Superior  Court  has  the  power  to  direct  a  re- 
ceiver in  respect  to  the  wages  to  be  paid  in  the  manage- 
ment of  a  property  under  its  charge ;  but  it  is  a  power  to 
be  exercised  only  in  clear  cases  of  necessity,  and  with 
exceeding  caution.  A  main  purpose  of  appointing  a  re- 
ceiver is  to  remit  to  him  those  details  of  management 
which  can  not  well  be  administered  by  the  court.  Where 
plainly  necessary,  the  power  may  be  exercised  either  by 
an  order  establishing  a  schedule  of  wages,  or  by  the  ap- 
pointment of  a  receiver  in  whose  discretion  the  court  can 
place  greater  confidence.  The  court  may  act  on  the  ap- 
plication of  a  receiver  or  without  any  application.  The 
situation  may  be  such  as  to  justify  the  employees  of  the 
receiver  in  bringing  the  subject  to  the  attention  of  the 
court  by  an  appropriate  petition,  and  if  an  investigation 
is  deemed  requisite,  they  may  properly  be  heard." 

Judge  Ricks  in  passing  on  the  duties  of  the  court  in 
relation  to  wage  controversies,  in  speaking  of  the  pro- 
priety of  the  court  in  determining  the  details  of  such  mat- 
ters, said:'*  ''Courts  are  not  constituted  to  manage  and 
operate  railroads.  The  judges,  learned  in  the  law^  though 
they  may  be,  are  not  experienced  in  large  business  under- 
takings. They  are  not  trained  in  those  departments  of 
railroad  management  which  relate  to  the  wages  of  em- 
ployees, to  the  number  necessary  for  the  maintenance  of 
the  roadbed  and  for  the  safe  operation  of  trains,  to  the 
tariffs  for  freight,  and  the  purchase  of  supplies.  Even 
if  capable  of  mastering  such  details,  their  time  will  not 
permit.    They  are  occupied  in  determining  the  legal  rights 

i)f  the  service.  The  court,  how-  near  future  and  offering  to  pro- 
over,  disregarded  the  objection.  duce  testimony  to  show  that 
4  Continental  Trust  Co.  v.  there  was  no  necessity  on  the  part 
Toledo,  St.  L.  &  K.  C.  R.  Co.,  59  of  the  receiver  to  reduce  wages 
Fed.  514.  This  was  an  applica-  as  proposed  in  his  schedule.  The 
tion  made  by  a  committee  of  em-  proceedings  went  into  the  ques- 
ployees  to  set  aside  a  certain  tion  of  the  wages  paid  on  other 
schedule  of  wages  promulgated  by  roads  and  the  like, 
the  receiver  to  take  effect  in  the 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1087 

rf  parties  iu  litigated  case.s,  and  tboiigli  in  these  days 
of  large  ventures  and  improvident  railroad  enterprises 
tli«  courts  are  called  upon,  through  receivers,  to  tem- 
porarily manage  them  pending  litigation  necessary  to  a 
foreclosure  sale,  yet  as  before  stated,  they  assume  this 
burden  because  it  can  not  be  evaded;  but  they  manage 
them  through  receivers,  selected  for  their  experience  and 
demonstrated  ability,  and  they  rely  upon  their  experience 
and  judgment  to  wisely  and  economically  administer  the 
trust." 

In  one  of  the  earlier  cases^  which  arose  in  1893  a  peti- 
tion was  filed  by  a  committee  of  the  Brotherhood  of  Loco- 
motive Engineers  seeking  the  action  of  the  court  to 
adjust  and  in  fact  arbitrate  a  controversy  between  their 
trade  union  and  the  receiver  of  the  court  relative  to  the 
wages  and  conditions  of  employment  of  the  engineers. 
The  court  caused  several  conferences  between  its  receiver 
and  the  engineers  with  a  view  to  formulating  an  amicable 
agreement.  The  receiver  objected  to  entering  into  any 
agreement  with  the  organization  basing  his  objections 
upon  arguments  against  the  propriety  and  policy  of  such 
agreements.  The  court,  speaking  through  Judge  Speer, 
in  meeting  the  objections  and  deciding  the  matter,  said: 
<<The  gravity  and  importance  of  the  considerations  thus 
presented  are  exceedingly  great.  The  control,  under  any 
circumstances,  by  the  courts,  of  contracts  between  the 
representatives  of  the  immense  values  invested  with 
corporations  engaged  in  the  public  duty  of  transporta- 
tion, and  the  laborers  employed  in  the  same  service,  will 
doubtless  appear  to  many  as  novel  and  dangerous.  It  is 
well,  however,  to  consider  if  a  proper  provision,  by  appeal 
to  the  courts,  in  the  frequent  and  destructive  conflicts  be- 
tween organized  capital  and  organized  labor  will  not 
afford  the  simplest,  most  satisfactory  and  effective 
method  for  the  settlement  of  such  controversies.    Is  it  not 

5  Waterhouse  v.  Comer,  55  Fed.  149,  19  L.  R.  A.  403. 


1088  LAVr   OF    RECEIVERS. 

the  only  method  by  which  the  public,  and  indeed,  the  par- 
ties themselves,  can  be  protected  from  the  inevitable 
hardship  and  loss  which  all  must  endure  from  the  fre- 
quently recurring  strikes. 

"It  will  not  be  wise  for  those  engaged  with  the  mainte- 
nance of  public  order  to  ignore  the  immensity  of  the 
changes  in  the  relations  of  the  employing  and  employed 
classes,  occasioned  by  the  phenomenal  development  of 
'Commerce  and  the  prevalence  of  labor  organizations." 

The  court  then  adverted  to  the  enormous  amount  of 
business  done  by  the  railroads  and  the  fact  that  more 
than  80  per  cent  of  the  locomotive  engineers  of  the  United 
States  belonged  to  the  organization  in  question,  and  said : 
"Whether  these  facts  and  other  facts  equally  significant 
will  justify  judicial  control  of  contracts  essential  to  the 
uninterrupted  transportation  of  the  country,  in  which  the 
public  is  so  vitally  concerned,  it  is  clear  that  where  the 
property  of  railway  or  other  corporations  is  being  ad- 
ministered by  a  receiver,  under  the  superintending  power 
of  a  court  of  equity,  it  is  competent  for  a  court  to  adjust 
difficulties  between  the  receiver  and  his  employees,  which 
in  the  absence  of  such  adjustment,  would  tend  to  injure 
the  property  and  to  defeat  the  purpose  of  the  receiver- 
ship. Indeed,  the  power  of  the  court  to  direct  a  contract 
between  its  officers  does  not  appear  to  be  questioned.  •  The 
power  of  the  court  has  always,  on  proper  occasions,  been 
exercised  to  protect  the  properties  from  the  damaging 
and  unlawful  results  of  a  strike  of  the  laborers  in  its 
employ. ' ' 

The  court,  however,  in  the  above  case  refused  to  sanc- 
tion a  part  of  the  agreement  which  would  permit  the 
members  of  the  Brotherhood  to  refuse  to  handle  cars  be- 
longing to  a  railroad  with  which  it  might  have  some  la  Dor 
controversy  and  the  court  made  the  agreement  entered 
into  as  to  its  terms  and  conditions  apply  to  all  engineers 


RAILROADS — PUBIJC    UTILITY    COKPORATIONS.  1089 

employed  by  the  receiver  whether  members  or  non-mem- 
bers of  the  Brotherhood. 

§  399.     Right  of  Employees  to  Quit  Employment. 

Employees  of  a  railroad  company  which  is  in  the  hands 
of  a  receiver  may  abandon  their  employment  if  not  satis- 
fied with  their  wages,  hours  or  conditions  of  employment 
and  they  may  by  persuasion  induce  other  employees  to  do 
likewise,  but  if  they  combine  together  and  resort  to 
threats  and  violence  in  order  to  do  so  or  overawe  others 
by  demonstrations  of  force,  and  thereby  prevent  a  re- 
ceiver from  operating  the  road,  it  constitutes  a  con- 
spiracy to  do  an  unlawful  act  and  places  them  in  con- 
tempt of  court.  ^ 

In  other  w^ords,  such  employees  may  quit  their  employ- 
ment in  the  same  manner  and  under  like  circumstances 
of  employees  of  public  utilities  under  operation  by  the 
corporation  rather  than  a  receiver,  provided  that  they 
do  not  intentionally  disable  the  property  from  opera- 
tion.2 

i^  400.    Right  of  Employees  to  Organize  and  Extent  of  Their 
Right  to  Strike. 

The  right  of  the  employees  of  a  receiver  operating  a 
railroad  to  organize  into  or  join  labor  unions  which  may 
take  collective  action  in  regard  to  their  terms  and  con- 
ditions of  employment,  is  not  questioned  and  has  been 
recognized  by  the  courts  in  dealing  with  the  subject.  In 
combination  with  this  right  to  join  such  organizations 
must  be  considered  the  extent  and  circumstances  under 
which  the  right  to  strike  may  be  exercised.  The  whole 
subject  was  set  forth  very  clearly  by  Judge  Taft  in  an 
early  case^  in  the  federal  court,  in  which  he  said:    "Now, 

1  United  States  v.  Kane,  23  Fed.  i  Thomas  v.  Cincinnati,  etc.,  Ry. 
748      (opinion      by      Mr.      Justice      Co.,  62  Fed.  803. 

Brewer).  In  Waterliouse  v.  Comer,  55  Fed. 

2  In  re  Higgins,  27  Fed.  443.  149,    19    L.    R.    A.    403,    tlie    court 
II  Rec— 69 


1090  LAW    OF    RECEIVERS. 

it  may  be  conceded  in  tlie  outset  that  the  employees  of 
the  receiver  had  the  right  to  organize  into  or  to  join  a 
labor  nnion  which  should  take  joint  action  as  to  their 
terms  of  employment.  It  is  of  benefit  to  them  and  to  the 
public  that  laborers  should  unite  in  their  common  interest 
and  for  lawful  purposes.  They  have  labor  to  sell.  If 
they  stand  together,  they  are  often  able,  all  of  them,  to 
command  better  prices  for  their  labor  than  when  dealing 
singly  mth  rich  employers,  because  of  the  necessity  of 
the  single  employee  may  compel  him  to  accept  any  terms 
offered  him.  The  accumulation  of  a  fund  for  the  sup- 
port of  those  who  feel  that  the  wages  offered  are  below 
market  prices  is  one  of  the  legitimate  objects  of  such  an 
organization.  They  have  a  right  to  appoint  officers  who 
shall  advise  them  as  to  the  course  to  be  taken  by  them  in 
their  relations  vnth  their  employer.  They  may  unite  with 
other  unions.  The  officers  they  appoint,  or  any  other  per- 
son to  whom  they  may  choose  to  listen,  may  advise  them 
as  to  the  proper  course  to  be  taken  by  them  in  regard 
to  their  employment,  or  if  they  choose  to  repose  such 
authority  in  any  one,  may  order  them,  on  pain  of  expul- 
sion from  their  union,  peaceably  to  leave  the  employ  of 
their  employer  because  any  of  the  terms  of  their  employ- 
ment are  unsatisfactory.  It  follows,  therefore  (to  give  an 
illustration  which  will  be  understood)  that  if  Phelan  had 
come  to  this  city  when  the  receiver  reduced  the  wages  of 
his  employees  by  ten  per  cent  and  had  urged  a  peaceable 
strike,  and  had  succeeded  in  maintaining  one,  the  loss  to 
the  business  of  the  receiver  would  not  be  ground  for  re- 
directed its  receiver  to  enter  into  a  labor  dispute  or  controversy  and 
an  employment  contract  with  the  the  court  required  the  same  terms, 
Brotherhood  of  Locomotive  Engi-  conditions  and  regulations  pro- 
neers  although  it  refused  to  sane-  vided  for  in  said  contract  to  apply 
tion  certain  clauses  which  had  to  all  employees  of  like  class  of 
been  proposed  by  the  Brotherhood  service  regardless  of  whether  they 
relative  to  the  right  to  refuse  to  were  members  of  the  Brotherhood 
handle  cars  of  companies  with  or  not. 
which  the  organization  might  have 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1091 

covering  damages,  and  Plielan  would  not  have  been  liable 
to  contempt  even  if  the  strike  much  impeded  the  operation 
of  the  road  under  the  order  of  the  court.  His  action  in 
giving  the  advice,  or  issuing  an  order  based  on  unsatis- 
factory terms  of  employment,  would  have  been  entirely 
lawful.  But  his  coming  here  and  his  advice  to  the  South- 
ern Railway  employees,  or  to  the  employees  of  other 
roads,  to  quit,  had  nothing  to  do  with  their  terms  of  em- 
ployment. They  were  not  dissatisfied  with  their  service 
or  their  pay.  Phelan  came  to  Cincinnati  to  carry  out  tlie 
purpose  of  a  combination  of  men.  And  his  act  in  incit- 
ing the  employees  of  all  Cincinnati  roads  to  quit  service 
was  part  of  that  combination.  If  the  combination  was  un- 
lawful then  every  act  in  pursuance  of  it  was  unlawful, 
and  his  instigation  of  the  strike  would  be  an  unlawful 
wrong  done  by  him  to  every  railway  company  in  the  city, 
for  which  they  can  recover  damages,  and  for  which,  so  far 
as  his  acts  affected  the  Southern  Railway,  he  is  in  con- 
tempt of  this  court. 

"Now,  what  w^as  the  combination  and  its  legal 
character?  Was  it  an  unlawful  conspiracy?  I  do 
not  mean  by  this  an  indictable  conspiracy  because 
that  depends  upon  the  statute ;  but  w^as  it  a  conspiracy  at 
common  law?  If  it  was,  then  injury  inflicted  would  be 
without  legal  jurisdiction,  and  malicious.  A  conspiracy 
is  a  combination  of  two  or  more  persons,  by  concerted 
action,  to  accomplish  a  criminal  or  unlawful  purpose,  or 
some  purpose  not  in  itself  criminal  or  unlawful  by 
criminal  or  unlawful  means.  Pettibone  v.  United  States, 
148  U.  S.  197,  13  Sup.  Ct.  542.  What  were  the  purposes 
of  this  combination  of  Debs,  Phelan,  and  the  American 
Railway  Union  board  of  directors?  They  proposed  to 
inflict  pecuniary  injury  on  Pullman  by  compelling  the 
railway  companies  to  give  up  using  his  cars,  and  on  the 
refusal  of  the  railway  companies  to  yield  to  compi^lsion, 
to  inflict  pecuniary  injuries  upon  the  railway  companies 


1092  LAW   OF    RECEIVERS. 

by  inciting  tlieir  employees  to  quit  tlieir  services,  and  thus 
paralyze  their  business.  It  could  not  have  been  unknown 
to  the  combiners  that  the  Pullman  cars  were  operated  by 
the  railway  companies  under  contracts  with  Pullman. 
Such  large  transactions  are  never  conducted  without  con- 
tracts saving  the  rights  of  both  sides,  and  the  combiners 
had  every  reason  to  believe  that  it  would  be  a  violation 
of  those  contracts  for  the  companies  to  refuse  further  to 
haul  Pullman  cars  in  their  trains.  One  purpose  of  the 
combination  was  to  compel  railway  companies  to  injure 
Pullman  by  breaking  tlieir  contracts  with  him.  The  re- 
ceiver of  this  court  is  under  contract  to  Pullman,  which 
he  would  have  to  break  were  he  to  yield  to  the  demand  of 
Phelan  and  his  associates.  The  breach  of  a  contract  is 
unlawful.  A  combination  with  that  as  its  purpose  is  un- 
lawful, and  is  a  conspiracy.  Angle  v.  Railway  Co.,  151 
U.  S.  1, 14  Sup.  Ct.  240. 

"But  the  combination  was  unlawful  without  respect  to 
the  contract  feature.  It  was  a  boycott.  The  employees  of 
the  railway  companies  had  no  grievance  against  their  em- 
ployers. Handling  and  hauling  Pullman  cars  did  not 
render  their  services  any  more  burdensome.  They  had  no 
complaint  against  the  use  of  Pullman  cars  as  cars.  They 
came  into  no  natural  relations  mth  Pullman  in  handling 
the  cars.  He  paid  them  no  wages.  He  did  not  reg-ulate 
their  hours,  or  in  any  way  determine  their  services. 
Simply  to  injure  him  in  his  business,  they  were  incited 
and  encouraged  to  compel  the  railway  companies  to  with- 
draw custom  from  him  by  threats  of  quitting  their  service, 
and  actually  quitting  their  service.  This  inflicted  an  in- 
jury upon  the  companies  that  was  very  great,  and  it 
was  unlawful,  because  it  was  w^ithout  lav/ful  excuse.  All 
the  employees  had  the  right  to  quit  their  employment,  but 
they  had  no  right  to  combine  to  quite  in  order  thereby  to 
compel  their  employer  to  withdraw  from  a  mutually 
profitable  relation  with  a  third  person  for  the  purpose  of 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1093 

injuring  that  tliird  person,  wlien  the  rekition  thus  sought 
to  be  broken  had  no  effect  whatever  on  the  character  or 
reward  of  their  service.    It  is  the  motive  for  quitting,  and 
the  end  sought  thereby,  that  make  the  injury  inflicted 
thereby  unlawful,  and  the  combination  by  which  it  is 
effected  an  unlawful  conspiracy.    The  distinction  between 
a  lawful  and  peaceable  strike  entered  upon  to  obtain  con- 
cessions in  the  terms  of  the  strikers  employment  and  a 
boycott  is  not  a  fanciful  one,  or  one  which  needs  the  power 
of  fine  distinction  to  determine  which  is  which.     Every 
laboring  man  recognizes  one  or  the  other  as  quickly  as  the 
lawyer  or  the  judge.     The  combination  under  discussion 
was  a  boycott.    It  was  so  termed  by  Debs,  Phelan,  and  all 
engaged   in   it.     Boycotts   although   unaccompanied   by 
violence  or  intimidation,  have  been  pronounced  unlawful 
in  every  state  of  the  United  States  where  the  question  has 
arisen,  unless  it  be  in  Minnesota,  and  they  are  held  to  be 
unlawful  in  England.     .     .     .     But  the  illegal  character 
of  this  combination  with  Debs  at  its  head  and  Phelan  as 
an  associate  does  not  depend  alone  upon  the  general  law 
of  boycotts.    The  gigantic  character  of  the  conspiracy  of 
the  American  Railway  Union  staggers  the  imagination. 
The  railroads  have  become  as  necessary  to  the  life  and 
health  and  comfort  of  the  people  of  this  country  as  are 
the  arteries  on  the  human  body,  and  yet  Debs  and  Phelan 
and  their  associates  proposed,  by  inciting  the  employees 
of  all  the  railways  in  the  country  to  suddenly  quit  their 
service  without  any  dissatisfaction  with  the  terms  of  their 
own  employment,  to  paralyze  utterly  all  the  traffic  by 
which  tlie  people  live,  and  in  this  way  to  compel  Pullman, 
for  whose  acts  neither  the  public  nor  the  railway  com- 
panies are  in  the  slightest  degree  responsible,  and  over 
whose  acts  they  can  lawfully  exercise  no  control,  to  pay 
more  wages  to  his  employees.     The  merits  of  the  con- 
troversy between  Pullman  and  his   employees  liave  no 
bearing   whatever   on   the   legality   of   the   combination 


1094 


LAW   OF    RECEIVERS. 


effected  through  the  American  Railway  Union.  TL-e  pur- 
pose shortly  stated  was  to  starve  the  railroad  companies 
and  the  public  into  compelling  Pullman  to  do  something 
which  they  had  no  lawful  right  to  compel  him  to  do. 
Certainly  the  starvation  of  a  nation  can  not  be  a  lawful 
purpose  of  a  combination  and  it  is  utterly  immaterial 
whether  the  purpose  is  effected  by  means  usually  lawful 
or  otherwise." 

Although  the  right  of  employees  to  strike  is  fully  recog- 
nized, if  employees  of  a  receiver  operating  a  railroad,  by 
threats  and  intimidations  prevent  other  employees  of  the 
receiver  from  working,  they  may  be  found  guilty  of  con- 
tempt of  court.2  B^t  before  such  striking  employees  will 
be  found  guilty  of  contempt  it  must  appear  that  their 


2  In  Thomas  v.  Cincinnati,  N.  O. 
&  T.  P.  Ry.  Co.,  62  Fed.  803,  Judge 
Taft,  after  citing  authorities,  said: 
"These  authorities  show  that  any 
wilful  attempt  by  any  one,  with 
knowledge  that  the  road  is  in  the 
hands  of  the  court,  to  prevent  or 
impede  the  receiver  from  comply- 
ing with  the  order  of  the  court  in 
running  the  road,  when  the  at- 
tempt is  unlawful,  and  as  between 
private  individuals,  would  give  a 
right  of  action  for  damages,  is  a 
contempt  of  the  order  of  the  court. 
The  rights  of  the  receiver  with 
reference  to  his  business  in  con- 
ducting the  railroad  under  order 
of  the  court  are  not  different  in 
any  respect  from  those  of  a  pri- 
vate railway  corporation.  The 
only  difference  is  in  the  remedy 
which  the  courts  will  apply  to  pre- 
vent or  punish  a  violation  of  them 
when  such  a  violation  prevents  or 
impedes  the  operation  of  the 
road,  and  is  intended  to  do  so." 
If  those  who  strike  attempt  by 


threats  and  intimidation  to  pre- 
vent other  employees  of  the  re- 
ceiver from  working,  they  may  be 
found  guilty  of  contempt  of  court. 
Secor  V.  Toledo,  etc.,  Ry.  Co.,  7 
Biss.  513,  Fed.  Cas.  No.  12605; 
King  V.  Ohio,  etc.,  Ry.  Co.,  7  Biss. 
529,  Fed.  Cas.  No.  7800;  Re  Hig- 
gins,  27  Fed.  443;  Re  Doolittle,  23 
Fed.  544;  United  States  v.  Kane, 
23  Fed.  748;  Frank  v.  Denver  & 
R.  G.  R.  Co.,  23  Fed.  757  (opinion 
by  Mr.  Justice  Brewer  discussing 
the  subject  exhaustively). 

See,  also,  in  regard  to  strikes 
on  railroads:  Booth  v.  Brown,  62 
Fed.  794;  Southern  California  Ry. 
Co.  V.  Rutherford,  62  Fed.  796; 
United  States  v.  Clune,  62  Fed. 
798;  United  States  v.  Elliott,  62 
Fed.  801;  Thomas  v.  Cincinnati, 
etc.,  Ry.  Co.,  62  Fed.  803;  United 
States  V.  Agler,  62  Fed.  824; 
United  States  v.  Debs,  63  Fed. 
436;  United  States  v.  Elliott,  64 
Fed.  27;  United  States  v.  Debs, 
64  Fed.  724;  Re  Lennon,  150  U.  S. 
393,  37  L.  Ed.  1120,  14  Sup.  Ct.  123. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1095 

language  or  acts  amounted  to  more  than  mere  requests 
or  persuasions  and  that  it  was  of  such  a  character  and 
under  such  circumstances  and  with  such  demonstrations, 
open  or  covert,  that  it  amounts  to  a  tlireat  or  intimida- 
tion to  the  remaining  employees.^ 

If  the  obstruction  to  the  operation  of  the  road  by  the 
receiver  was  unlawful  and  malicious,  it  is  none  the  less 
a  contempt  because  the  instrument  which  the  contemner 
used  to  effect  it  was  his  tongue  rather  than  his  hand.  In 
other  words  the  question  of  right  of  assembly  and  free 
speech  is  not  involved.^ 

Striking  employees  of  a  receiver  may  be  restrained 
from  in  any  manner  injuring  the  property  in  the  hands 
of  the  receiver  or  unlawfully  interfering  with  or  obstruct- 
ing him  in  the  performance  of  his  duty  of  operating 
the  receivership  railroad  by  a  conspiracy  to  quit  his 
service,^  but  the  court  will  enjoin  employees  from  quitting 
the  employment  if  done  lawf  ully.«  But  it  has  been  held 
that  railroad  employees  can  not  be  enjoined  from  strik- 
ing and  persuading  their  fellow  employees  from  also 
striking  provided  no  violence  is  being  employed  by  them.^ 
It  has  been  heW  that  under  the  Clayton  Act  (Compiled 

3  United  States  v.  Kane,  23  Fed.  tirely  inapplicable.  I  think  that 
748;  In  re  Doolittle,  23  Fed.  544.  section  20  was  intended  to  legalize 

4  Thomas  v.  Cincinnati,  N.  O.  lawful  strikes,  and  peaceful  law- 
&  T.  P.  Ry.  Co.,  62  Fed.  803.  ful  persuasion  of  workmen. '   The 

r>  Farmers'  Loan  &  Trust  Co.  v.  orders  which  were  issued  to  work- 
Northern  Pac.  R.  Co.,  60  Fed.  803.  men  in  this  case  were   dishonest 

0  Arthur  v.  Oakes,  63  Fed.  310,  and  corrupt,  and  they  were  given 

n  C.  C.  A.  209,  25  L.  R.  A.  414.  no  reason  for  their  ceasing  work. 

T  Wabash   R.   R.   Co.   v.   Hanna-  The  statute  has  no  application  to 

han,  121  Fed.  563.  such   a    situation.      The    Sherman 

See,  also,  Clayton  Act.  (38  Stat.  Act   is   thus    left  in   full   force   in 

730  C.  323).  cases  like  this.     The  Clayton  Act 

•s  United    States    v.    Norris,    255  does  not  authorize  molestation  of 

Fed.  423.    In  the  above  case  Judge  employees    by    strikers.      Kroger 

Sanborn  said:     "The  strike  in  this  Grocery,   etc.,   Co.   v.   Retail,   etc., 

case  had  nothing  to  do  with  a  dis-  Co.    (D.    C),    250    Fed.    890.'    Nor 

pute    over    wages,     as     the    jury  does  it  apply  to  an  unlawful  act 

found;   so  the  Clayton  Act  is  en-  like  a  secondary  boycott.     United 


1096  LAW    OF    KECEIVERS. 

Statutes  §  1243d)  that  regular  and  proper  strikes  by 
trade  unions  employed  in  interstate  commerce  are  not 
witliin  the  purview  of  the  Sherman  Anti-Trust  Act  al- 
though irregular  and  malicious  strikes  not  entered  into 
for  the  betterment  of  labor  conditions  are  within  the  act. 
And  under  the  Clayton  Act  the  federal  courts  are  pro- 
hibited from  issuing  restraining  orders  or  injunctions  in 
cases  between  employer  and  employee  involving  labor  dis- 
putes unless  necessary  to  prevent  irreparable  injury  to 
property  or  property  rights. 

§  401.     Right  of  Strikers  to  Reinstatement  by  Receiver. 

In  Booth  v.  Brown^  the  court  refused  to  direct  its  re- 
ceiver to  reinstate  to  their  former  positions  as  engineers 
and  trainmen  employees  who  had  gone  out  on  a  sympa- 
thetic strike  without  any  grievance  of  their  own.  The 
court  stated  that  to  do  so  would  necessitate  the  dismissal 
of  the  men  who  had  taken  their  places.  The  court  refused 
to  interfere  with  the  discretion  of  the  superintendent  of 
the  road  in  the  matter  but  stated  that  the  officers  of  the 
court  kept  no  black  list  and  suggested  that  the  superin- 
tendent would  undoubtedly  place  all  applicants  upon  the 
waiting  list  and  call  upon  them  to  fill  places  as  fast  as 
vacancies  occurred.  The  court,  however,  condemned  the^ 
action  of  the  men  in  striking  without  justification  or' 
excuse  and  characterized  their  actions  as  tending  to 
obstruct  travel  on  the  road. 

§  402.    Right  of  Receiver  to  Recover  Treble  Damages  Under 
Anti-Trust  Act  Against  Unincorporated  Labor  Union. 

A  notable  case  involving  both  the  right  of  the  receiver 
of  corporations  alleged  to  have  been  injured  by  the 
actions  of  a  very  large  organization  of  coal  miners  to 
recover  treble  damages  under  the  provisions  of  the  Sher- 

States  V.  King    (D.   C),   250   Fed.  i  Booth  v.  Brown,   62   Fed.   794. 

908." 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1097 

man  Anti-Trust  law  and  the  riglit  to  sue  the  organization, 
which  was  an  unincorporated  one,  by  its  name  as  an 
entity,  arose  in  Dowd  v.  United  Mine  Workers  of  Amer- 
ica,^ decided  by  the  Circuit  Court  of  Appeals  for  the 
Eighth  Circuit.  The  court  hehl  that  the  receiver  had 
stated  a  cause  of  action  as  against  a  general  demurrer 
and  that  he  had  properly  sued  the  organization  as  an 
entity  under  the  name  by  which  it  was  commonly  known 
and  called.  The  salient  points  of  the  decision  appear  in 
the  following  quotation  from  the  opinion  rendered  by 
Judge  Carland,  in  which  he  said:  "The  defendants, 
composing  an  organization  of  400,000  miners,  capable  of 
doing  great  good  or  wrong,  claim  that  they  are  not  liable 
to  be  sued  in  the  name  of  the  association,  but  that  the 
injured  plaintiff  must  pursue  the  individual  members 
whom  he  can  show  were  liable  for  the  injury,  leaving  the 
powerful  organization  to  go  free.  We  do  not  think  it 
can  be  said  that  the  defendants,  United  Workers  of 
America  and  the  local  unions,  are  not  associations  exist- 
ing under  or  authorized  by  law  within  the  meaning  of 
section  8,  above  quoted.  But,  if  defendants  are  associa- 
tions within  the  meaning  of  the  law,  it  is  next  insisted 
that  an  incorporated  association  can  not  be  sued  in  the 
name  of  the  association.  It  is  true  that,  in  the  absence 
of  a  specific  statute  to  the  contrary,  the  rule  at  common 
law,  and  under  the  codes,  is  that  an  incorporated  associa- 
tion is  not  recognized  as  having  a  legal  existence  apart 
from  its  members.  The  action  lies  against  the  members 
individually,  but  not  against  the  incorporated  association 
in  its  collective  capacity  and  name.  In  many  of  the  states 
statutes  have  been  passed  changing  this  rule,  so  that  un- 
incorporated associations  not  having  corporate  powers 

1  Dowd  V.  United  Mine  workers  case  in   United  Mine  Workers  of 

of  America,  235  Fed.  1,  148  C.  C.  America  v.  Coronado  Coal  Co.  (C. 

A.  495.  C.  A.),  258  Fed.  829. 

See,  also,  another  phase  of  the  In  this  connection,  see,  also,  sec- 
litigation   set    forth   in   the   above  tion  321,  supra. 


1098  LAW    OF    RECEIVERS. 

may  be  sued  in  the  name  of  the  association.  It  has  also 
been  ruled  that  the  common-law  rule,  that  only  entities 
known  to  the  law  are  capable  of  being  sued,  may  not  only 
be  modified  by  express  enactment,  but  also  by  statutory 
implication.  Taif  Vale  R.  Co.  v.  Amalgamated  R.  Ser- 
vants' Society,  85  L.  T.  Rep.  (N.  S.)  147. 

''If  we  are  correct  in  our  view  that  voluntary  unin- 
corporated associations  are  included  in  the  word  ''asso- 
ciations" as  used  in  section  8,  above  quoted,  then  we  are 
of  the  opinion  that  there  is  a  clear  and  necessary  implica- 
tion that  the  association  may  be  sued  in  its  own  name; 
otherwise  the  provision  in  the  law  that  the  association 
should  be  liable  could  not  be  enforced,  and  the  law  would 
fail  as  against  all  such  associations,  the  remedy  of  the 
injured  party  being  confined  to  an  action  against  the  mere 
agents  and  employees  of  the  association,  in  most  cases 
unable  to  respond  in  damages.  The  question  as  to  the 
liability  of  an  unincorporated  labor  organization  to  be 
sued  under  the  act  of  July  2, 1890,  in  the  name  of  the  asso- 
ciation, does  not  seem  to  have  been  discussed  in  any  re- 
ported case  which  we  have  been  able  to  find.  The  fact 
that  labor  organizations  were  before  Congress  seeking  to 
be  exempted  from  the  act  is  of  course  conclusive  evidence 
that  Congress  knew  of  such  organizations,  and  did  not 
intend  to  exempt  them,  while  by  Clayton  Act,  Oct.  15, 1914, 
§  4,  a  remedy  is  given  to  one  injured  in  his  business  or 
property  by  reason  of  anything  forbidden  in  the  anti- 
trust laws,  regardless  of  who  shall  commit  the  injury. 

"The  case  of  Loewe  v.  Lawlor,  208  U.  S.  274,  28  Sup. 
Ct.  301,  52  L.  Ed.  488,  13  Ann.  Cas.  815,  and  Lawlor  v. 
Loewe,  235  U.  S.  522,  35  Sup.  Ct.  170,  59  L.  Ed.  341, 
known  as  the  Danbury  Hatters'  Case,  was  twice  before 
the  United  States  Supreme  Court.  In  this  case  the  de- 
fendants were  members  of  the  United  Hatters  of  North 
America  and  also  of  the  American  Federation  of  Labor. 
The  association  by  name  was  not  a  party  defendant,  but 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1099 

a  large  verdict  in  damages  was  recovered,  and  the  re- 
covery sustained  on  appeal.    The  case  of  Eastern  States 
Retail  Lumber  Dealers'  Association  v.  United  States,  234 
U.  S.  600,  34  Sup.  Ct.  951,  58  L.  Ed.  1490,  L.  R.  A.  1915A, 
788,  was  a  case  brought  by  the  United  States  for  a  viola- 
,  tion  of  the  act  of  July  2,  1890,  against  various  lumber 
associations  composed  largely  of  retail  lumber  dealers 
in  New  York,  New  Jersey,  Pennsylvania,  Connecticut, 
Massachusetts,  Rhode  Island,  Maryland,  and  the  District 
of  Columbia,  and  the  officers  and  directors  of  the  asso- 
ciations.    No  objection  to  suing  the  defendants  in  the 
name  of  the  association  was  made  in  this  case.     The 
case  of  the  United  States  v.  Workingmen's  Amalgamated 
Council  (C.  C),  54  Fed.  994,  26  L.  R.  A.  158,  was  cited 
with  approval  by  the  Supreme  Court  of  the  United  States 
in  Loewe  v.  Lawlor,  208  U.  S.  301,  28  Sup.  Ct.  301,  52 
L.  Ed.  488,  13  Ann.  Cas.  815.     No  objection  was  made 
that  this  suit  was  against  the  association  by  name.    The 
result  of  what  has  been  said  is  that  the  United  Mine 
Workers  of  America  and  the  local  unions  were  properly 
sued  in  the  name  of  the  association.     Whether  they  are 
in  fact  liable  in  this  action  is  another  question,  not  now 
to  be  considered. 

''We  now  come  to  the  question  as  to  whether  the  com- 
plaint states  a  cause  of  action.  The  complaint  is  neces- 
sarily voluminous  as  it  describes  an  alleged  conspiracy. 
A  copy  appears  in  the  margin.-  It  will  not  be  necessary 
or  convenient  to  restate  in  this  opinion  the  allegations  of 
the  complaint,  as  they  are  fully  stated  in  the  copy  set  out 
in  the  margin.  A  careful  consideration  of  the  same  has 
led  to  the  conclusion  that  it  sufficiently  alleges  a  combina- 
tion and  conspiracy  in  restraint  of  interstate  trade  and 
commerce  between  the  defendants,  that  the  acts  alleged 
to  have  been  committed  by  them  in  pursuance  of  said 

2  See  copy  of  tlie  complaint  referred  to  above  in  the  chapter  devoted 
to  Forms. 


1100  LAW    OF    RECEIVERS. 

combination  and  conspiracy  resulted  in  damage  to  some 
or  all  of  the  coal  companies,  and  that  when  these  acts 
were  committed  the  operating  coal  companies  were  en- 
gaged in  interstate  trade  and  commerce  in  the  mining  and 
shipment  of  coal.  It  is  objected  that  the  complaint  fails 
to  show  that  the  plaintiffs  were  engaged  in  interstate 
trade  or  commerce  at  the  time  of  the  commission  of  the 
alleged  wrongs,  or  that  the  plaintiffs  have  suffered  dam- 
ages to  interstate  trade  or  commerce  by  reason  of  de- 
fendant's acts.  The  complaint  alleges  that  at  the  time 
the  receiver  was  appointed  and  for  many  years  prior 
thereto  certain  of  the  coal  companies  were  engaged  in 
the  production,  loading,  and  shipment  of  coal  for  inter- 
state trade  and  commerce  from  coal  lands  located  in 
Sebastian  County,  Ark.  It  is  claimed  that,  as  the  com- 
plaint does  not  allege  the  date  when  the  receiver  was 
appointed  it  is  impossible  to  determine  when  the  coal 
companies  were  engaged  in  interstate  commerce  in  rela- 
tion to  the  mining  and  shipment  of  coal.  This  contention 
is  without  merit. 

''It  is  not  claimed  that  the  causes  of  action  have  been 
barred  by  the  statute  of  limitations,  and  the  complaint 
fully  shows  that  75  per  cent  of  all  coal  mined  and  shipped 
was  shipped  to  customers  outside  of  the  state  of  Arkan- 
sas. It  is  alleged  in  the  complaint  that  by  reason  of  the 
combination  and  conspiracy  pleaded,  and  the  acts  done  in 
pursuance  thereof,  such  companies  have  suffered  great 
loss  and  injury  to  their  business  and  property,  in  the 
sum  of  $427,820.77.  This  allegation  is  followed  by  an 
itemized  statement  of  the  character  and  amount  of  dam- 
age. Whether  they  have  been  damaged  as  alleged  only 
a  trial  can  determine.  Certainly  on  general  demurrer 
the  complaint  must  be  held  to  allege  some  damage. 

''Some  of  the  coal  companies  were  not  actually  engaged 
in  interstate  commerce  at  the  time  the  alleged  acts  were 
committed  by  the  defendants ;  but  they  were  preparing  to 


RAILROADS PUBLIC    UTILITY    CORPORATIONS.  1101 

do  so,  and  were  prevented  from  so  doing,  as  they  allege, 
by  the  wrongs  of  the  defendants.  It  was  held  in  Penn- 
sylvania Sugar  Refining  Co.  v.  American  Sugar  Re- 
fining Co.  et  al.,  by  the  Circuit  Court  of  Appeals  of  the 
Second  Circuit,  166  Fed.  254,  92  C.  C.  A.  318,  that: 

''  'A  conspiracy  to  prevent  a  manufacturer  who  pro- 
cures his  supplies  and  disposes  of  his  products  by  means 
of  interstate  commerce  from  engaging  in  business  at  all 
necessarily  places  restraints  upon  such  commerce.  Its 
flow  is  restricted  and  interrupted.  The  importation  and 
exportation  of  articles  of  commerce  are  directly  pre- 
vented, and  none  the  less  so  because  the  conspiracy  may 
be  of  so  wide  a  scope  as  to  interfere  with  interstate  com- 
merce also.'  To  the  same  effect  is  Thomsen  et  al.  v. 
Union  Castle  Mail  Steamship  Co.  et  al,  166  Fed.  251,  92 
C.  C.  A.  315  (Second  Circuit). 

''It  is  next  objected  that  the  alleged  wrongs  of  the  de- 
fendants do  not  constitute  an  interference  with  interstate 
trade  or  commerce.  We  do  not  think,  since  the  case  of 
Loewe  v.  Lawlor,  208  U.  S.  247,  28  Sup.  Ct.  301,  52  L.  Ed. 
488,  13  Ann.  Cas.  815,  and  Lawlor  v.  Loewe,  235  U.  S. 
522,  35  Sup.  Ct.  170,  59  L.  Ed.  341,  it  can  be  said  that  this 
can  be  considered  an  open  question.  In  rendering  the 
opinion  of  the  Supreme  Court  when  the  case  was  before 
it  last.  Justice  Holmes  said:  'The  substance  of  the 
charge  is  that  the  plaintiffs  were  hat  manufacturers  who 
employed  nonunion  labor ;  that  the  defendants  were  mem- 
bers of  the  United  Hatters  of  North  America  and  also  of 
the  American  Federation  of  Labor.  That,  in  pursuance 
of  the  general  scheme  to  unionize  the  labor  employed  by 
the  manufacturers  of  fur  hats  (a  purpose  previously 
made  effective  against  all  but  a  few  manufacturers),  the 
defendants  and  other  members  of  the  United  Hatters 
caused  the  American  Federation  of  Labor  to  declare  a 
boycott  against  the  plaintiffs,  and  against  all  hats  sold 
by  the  plaintiffs  to  dealers  in  other  states  and  against 


1102  L-VW   OF    RECEIVERS. 

dealers  wlio  sliould  deal  in  tliem;  and  that  tliey  carried 
ont  their  plan  with  such  success  that  they  have  restrained 
or  destroyed  the  plaintiff's  commerce  with  other  states.' 

''This  charge  being  proven,  the  learned  justice  further 
said  (235  U.  S.  534,  35  Sup.  Ct.  172,  59  L.  Ed.  341) :  'We 
agree  with  the  Circuit  Court  of  Appeals  that  a  combina- 
tion and  conspiracy  forbidden  by  the  statutes  were 
proved,  and  that  the  question  is  narrowed  to  the  respon- 
sibility of  the  defendants  for  what  was  done  by  the  sanc- 
tion and  procurement  of  the  societies  above  named.' 
[Here  the  court  referred  to  the  cases  appended  in  the 
note  .  .  .  hereto"*  as  bearing  on  the  Sherman  Anti- 
Trust  Act.] 

"It  is  next  contended  that,  if  plaintiffs  have  suffered 
damage  to  their  interstate  connnerce  or  trade,  such  dam- 
age is  indirect,  incidental,  and  too  remote  to  entitle  them 
to  recover  in  this  action.  As  against  a  general  demurrer 
the  complaint,  as  we  have  stated,  is  good  so  far  as  the 
question  of  damages  is  concerned.  The  law  provides 
that  any  person  who  shall  be  injured  in  his  business  or 
property  rights  by  reason  of  any  thing  forbidden  or  de- 
clared unlawful  by  the  act  shall  recover  threefold  dam- 

3  The  court  here  referred  to  the  R.  R.  Co.,  226  U.  S.  61,  57  L.  Ed. 

following  cases  as  bearing  on  the  124,  33  Sup.  Ct.  53;  United  States 

construction  of  the  Sherman  Anti-  v.  Reading  Co.,  226  U.  S.  324,  57 

Trust  Law,  namely:     Standard  Oil  L.  Ed.  243,  33  Sup.  Ct.  90;    United 


Co.  V.  United  States,  221  U.  S.  1, 
Ann.    Cas.    1912D,    734,    55    L.    Ed. 


States  V.  Patten,  226  U.  S.  525, 
57  L.  Ed.  333,  44  L.  R.  A.  (N.  S.) 
325,  33  Sup.  Ct.  141;  Nash  v. 
619.  34  L.  R.  A.  (N.  S.)  834,  31  ^^.^^^  g^^^^^^  ^29  U.  S.  373.  57 
Sup.  Ct.  502;  United  States  v.  ^  ^^  ^232,  33  Sup.  Ct.  780; 
American  Tobacco  Co.,  221  U.  S.  gtraus  v.  American  Publishers' 
106,  55  L.  Ed.  663,  31  Sup.  Ct.  632;  Association,  231  U.  S.  222,  Ann. 
United  States  v.  St.  Louis  Ter-  Cas.  1915A,  369,  58  L.  Ed.  192, 
minal,  224  U.  S.  383,  56  L.  Ed.  810,  L.  R.  A.  1915A,  1099,  34  Sup.  Ct. 
32  Sup.  Ct.  507;  Standard  Sanitary  84;  Eastern  States  Lumber  Assn. 
Mfg.  Co.  V.  United  States,  226  v.  United  States,  234  U.  S.  600, 
U.  S.  20,  57  L.  Ed.  107,  33  Sup.  Ct.  58  L.  Ed,  1490,  L.  R.  A.  1915A, 
9;   United  States  v.  Union  Pacific      788,  34  Sup.  Ct.  951. 


RAILROADS — PUBLIC    UTILITY    COUPORATIONS.  1103 

ages  by  him  sustained.     It  is  the  source  of  the  injury, 
and  not  the  character  of  the  property  injured,  which  con- 
stitutes  the  test  of  recovery.     Assuming  that  an   un- 
lawful conspiracy  or  combination  in  restraint  of  inter- 
state commerce  exists,  then,  if  any  person  is  injured  by 
it  in  his  business  or  property  rights,  he  may  recover. 
Chattanooga  Foundry  &  Pipe  Works  v.  City  of  Atlanta 
203  U.  S.  390,  27  Sup.  Ct.  65,  51  L.  Ed.  241.     The  com- 
plaint alleges  actual  interference  with  and  destruction  of 
cars  of  common  carriers  to  be  used  in  interstate  com- 
merce for  the  transportation  of  coal.     This  fact  alone 
would  show  an  interference  with  interstate  commerce. 
Steers  v.  United  States,  192  Fed.  1,  112  C.  C.  A.  423; 
United  States  v.  Reading  Co.,  226  U.  S.  324,  33  Sup   Ct' 
90, 57  L.  Ed.  243.    ...  ,  f       . 

''After  considering  the  complaint  and  the  decisions  of 
the  Supreme  Court  and  other  courts,  we  can  come  to  no 
other  conclusion  than  that  the  case  made  by  the  com- 
plaint falls  within  that  class  of  restraints  of  trade  aimed 
at  compelling  third  parties  and  strangers  involuntarily 
not  to  engage  in  the  course  of  interstate  trade,  except  on 
conditions  that  the  combination  imposes,  and  therefore 
violates  the  act  of  July  2,  1890.'* 

4.    Amenability  of  Public  Utility  Receivers  to  Govern- 
tneiital  Control. 

§  403.     Gereral  Statement. 

It  is  a  matter  of  common  knowledge  that  there  are 
many  United  States  statutes  and  provisions  of  state  con- 
stitutions and  state  statutes  dealing  with  and  regulating 
the  business  of  public  utility  corporations.  As  far  as 
federal  power  in  this  direction  is  concerned  the  authority 
of  Congress  is  limited,  by  constitutional  provision,  to 
matters  connected  with  interstate  commerce  but,  within 
that  sphere,  it  has  found  occasion  and  necessity  for 
Ijassing  numerous  and  varied  laws.   In  every  state  there 


1104  LAW    OF    RECEIVERS. 

are  numerous  constitutional  and  statutory  provisions 
dealing  with  this  subject  in  every  phase,  from  the  mode 
and  method  of  organizing  and  financing  a  company  down 
to  the  minutest  detail  of  the  operation  of  its  business. 
It  is,  of  course,  impractical,  to  deal  in  a  text  book  with 
the  details  of  such  statutes. 

In  many  instances  it  is  expressly  provided  in  the  con- 
stitutions and  statutes  themselves,  that  their  require- 
ments and  directions  shall  apply  to  utility  concerns  when 
they  are  under  receivers'  control  as  well  as  when  they 
are  being  operated  by  the  owners.^  In  some  instances 
special  statutes  provide  that  statutes  relating  to  utility 
corporations  shall  apply  to  their  receivers  as  well,  where 
such  direct  enactment  is  absent  courts  have  construed 
terms  used  in  the  statutes  to  designate  the  companies 
such  as  common  carrier, ^  owner,^  corporation,^  to  include 
receiver.  In  one  way  or  another  it  may  be  said  that  such 
constitutional  and  statutory  provisions  are  applicable 
to  receivers  in  charge  of  public  utility  properties  and 
control  their  management  thereof. 

§  404.     Amenability  of  Federal  Receivers  to  State  Laws  and 
Regulations. 

As  far  as  federal  receivers  are  concerned  the  federal 
courts  have  shown  a  sedulous  disposition  not  to  interfere 
with  state  or  municipal  legislative  authority  and  have  re- 
quired their  receivers  to  respect  it.  We  have  seen  an 
instance  of  this  in  the  argument  used  by  a  federal  court 
to  sustain  a  decision  to  the  effect  that  a  claim  for  freight 
rates  collected  by  a  receiver  in  excess  of  those  established 

1  §  7,  United  States  Employers'  3  Bush  v.  State,  128  Ark.  448,  194 
Liability  Act   (1908).     See  People      S.  W.  857. 

V.   Joline,   65   Misc.   Rep.   394,   121  4  Commonwealth  v.   Felton,   107 

N.  Y.  Supp.  857,  860.  Ky.  330,  21  Ky.  Law  Rep.  1039,  53 

2  United    States    v.    Nixon,    235  S.  W.  1046, 
U.   S.   231,  59   L.   Ed.   207,  35   Sup. 

r;t.  49. 


RAILROADS PUBLIC    UTILITY    CORPORATIONS. 


1105 


by  a  state  public  service  commission  is  a  preferred  claim 
and  is  to  be  paid,  if  necessary,  out  of  the  corpus  fund.^ 
In  this  regard,  federal  courts  have  shown  not  only  a 
willingness  to  have  their  receivers  submit  to  such  polit- 
ical authority,  but  also  a  disposition  to  be  accommodating 
to  a  public  desire  for  improvements.-  Congress  itself  has 
taken  a  hand  in  this  matter  and  has  enacted  that  receivers 
appointed  by  federal  courts  shall  manage  and  operate 
the  property  under  their  control  in  accordance  with  the 
laws  of  the  state  in  which  it  is  situated.^  In  deference  to 
the  spirit  of  this  act  of  Congress  the  courts  usually  in- 
corporate in  the  order  of  appointment  a  provision  to  the 
effect  that  the  receiver  shall  operate  the  property  in 
accordance  with  the  laws  of  the  state."'  Congress  has  also 
enacted  that  a  receiver  appointed  by  a  federal  court  may 
be  sued  in  any  matter  concerning  his  management  of  tlie 


1  See  §  425,  infra. 

2  Central  Trust  Co.  v.  Wabash, 
St.  L.  &  P.  R.  Co.,  26  Fed.  3.  In 
this  case  Mr.  Justice  Brewer  says: 
"It  is  not  gracious  to  the  federal 
court  which  has  taken  possession 
of  property  by  its  receivers  to 
make  that  possession  an  obstacle 
to  any  proposed  public  improve- 
ment. We  should,  so  far  as  lies 
in  our  power,  extend  every  facility 
to  every  proposed  public  improve- 
ment, simply  aiming  to  preserve 
the  rights  which  attach  to  prop- 
erty while  it  is  in  our  possession, 
and  that  is  all." 

A  federal  receiver  is  bound  to 
obey  the  laws  of  the  state  in  the 
same  manner  as  the  original  would 
have  been  obligated.  Railroad 
Commission  v.  Alabama  Great  So. 
R.  Co.,  185  Ala.  354,  L.  R.  A.  1915D, 
98,  64  So.  13. 

3  U.  S.  Compiled  Statutes  1918, 
§  1047,  states:  "Whenever  iv  any 
II  Rec— 70 


cause  pending  in  any  court  of  the 
United  States  there  shall  be  a  re- 
ceiver or  manager  in  possession  of 
any  property,  such  receiver  or 
manager  shall  manage  and  operate 
such  property  according  to  the  re- 
quirements of  the  valid  laws  of 
the  state  in  which  such  property 
shall  be  situated,  in  the  same  man- 
ner that  the  owner  or  possessor 
thereof  would  be  bound  to  do  if 
in  possession  thereof.  Any  re- 
ceiver or  manager  who  shall  wil- 
fully violate  any  provision  of  this 
section,  shall  be  fined  not  more 
than  three  thousand  dollars,  or  im- 
prisoned not  more  than  one  year, 
or  both.  (March  3,  1887,  Ch.  373, 
§  2,  24  Stat.  554,  Aug.  13,  1888, 
Ch.  866,  §  3,  25  Stat.  436.  March  3, 
1911,  Ch.  231,  §  65,  36  Stat.  1104.)" 
4  See  Kaw  Valley  Drainage  Dis- 
trict V.  Missouri  Pac.  Ry.  Co.,  99 
Kan.  188,  161  Pac.  937,  for  copy  of 
order  of  federal  court  appointing 
receiver  over  railroad. 


llOii 


LAW    OF    RECEIVERS. 


estate  without  previous  leave  of  eourt.^  Even  before  the 
enactment  of  such  a  statute  leave  of  court  was  not  neces- 
sary for  maintaining  an  independent  action  against  the 
receiver  in  the  receivership  court  itself.^  The  statute  has 
been  construed  as  not  depriving  the  receivership  court  of 
jurisdiction  to  hear  and  decide  matters  that  are  ancillary, 
or  auxiliary,  to  the  receivership  proceeding/  It  has  been 
construed  as  not  depriving  the  receivership  court  of  its 
exclusive  jurisdiction  to  determine  matters  that  pertain 
to  the  distribution  of  the  funds  of  the  estate.'^  It  has  been 
construed  as  permitting  an  action  to  be  instituted  against 
a  federal  receiver  in  a  state  court  without  previous  per- 
mission and  we,  therefore,  find  many  actions  concerning 
such  receivers  decided  by  state  courts/'  Where  a  pro- 
ceeding, such  as  mandamus,  a  judginent  in  which  might 


5U.  S.  Compiled  Statutes  1918, 
§  1048,  provide  as  follows:  "Every 
receiver  or  manager  of  any  prop- 
erty appointed  by  any  court  of  the 
United  States  may  be  sued  in  re- 
spect of  any  act  or  transaction  of 
his  in  carrying  on  the  business 
connected  with  such  property  with- 
out the  previous  leave  of  the  court 
in  which  such  receiver  or  manager 
was  appointed;  but  such  suit  shall 
be  subject  to  the  general  equity 
jurisdiction  of  the  court  in  which 
such  receiver  or  manager  was  ap- 
pointed, so  far  as  the  same  may  be 
necessary  to  the  ends  of  justice. 
(March  3,  1887,  Ch.  373,  §  3,  24  Stat. 
555.  Aug.  13,  1888,  Ch.  866,  §  3,  25 
Stat.  436,  March  3,  1911,  Ch.  231, 
§  66,  36  Stat.  1104.)" 

0  Texas  &  P.  R.  Co.  v.  Cox,  145 
U.  S.  593,  36  L.  Ed.  829,  12  Sup.  Ct. 
905. 

7  In  re  Swan,  150  U.  S.  637,  37 
L.  Ed.  1207,  14  Sup.  Ct.  225;  City 
of  Shelbyville  v.  Glover,  184  Fed. 
234,  106  C.  C.  A.  376. 


In  the  so-called  Metropolitan  Re- 
ceivership it  was  arranged  in  the 
order  of  appointment  that  tort 
claims  arising  under  the  com- 
pany's management  might  be  set- 
tled in  the  receivership  proceed- 
ing itself.  See  In  re  Reisenberg 
(In  re  Metropolitan  Receivership), 
208  U.  S.  90,  52  L.  Ed.  403,  28  Sup. 
Ct.  219. 

8  Freeman  v.  Barry,  63  Tex.  Civ. 
295,  133  S.  W.  748. 

While  proceedings  to  garrlish  a 
debt  in  the  hands  of  the  receiver 
may  be  instituted  without  the  con- 
sent of  the  receivership  court,  that 
court  must  be  resorted  to  to  col- 
lect any  money.  Lamb  v.  Whit- 
man, 17  Ga.  App.  687,  87  S.  E. 
1095;  Irwin  v.  McKechnie,  58 
Minn.  145,  49  Am.  St.  Rep.  495,  26 
L.  R.  A.  218,  59  N.  W.  987. 

9  Erb  V.  Morasch,  177  U.  S.  594, 
44  L.  Ed.  897,  20  Sup.  Ct.  819; 
Gableman  v.  Peoria,  etc.,  R.  Co., 
179  U.  S.  335,  45  L.  Ed.  220,  21 
Sup.  Ct.  171. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1107 


act  directly  against  the  receiver  in  liis  control  of  the 
property,  has  been  begun  in  a  state  court,  it  may  be 
moved  to  the  receivership  court  as  being  ancillary  to 
the  receivership  proceeding.^^  It  has  been  decided  that 
this  statute  refers  to  acts  of  the  receiver  and  not  of  tlie 
company  occurring  before  his  appointment.^^     The  act. 


10  state  of  Washington  v.  North- 
ern  Pac.    R.   Co.    (C.   C.)    75   Fed. 

;:;33. 

11  Maxwell  v.  Missouri  Valley, 
etc.,  S.  Co.,  181  Iowa  108,  164 
N.  W.  329;  Galveston  H.,  etc.,  R. 
Co.  V.  Pennefather,  etc.,  Co.,  59 
Tex.  Civ.  636,  126  S.  W.  948. 

Speaking  of  this  matter  in  an 
action  for  damages  for  breach  ot 
an  executory  contract  which  had 
been  repudiated  by  a  receiver,  the 
court,  in  Brown  v.  Warner,  78 
Tex.  543,  22  Am.  St.  Rep.  67,  11 
L.  R.  A.  394,  14  S.  W.  1032,  said: 
"The  life  of  a  railroad  depends 
upon  its  active  operation  as  a  'go- 
ing concern,'  and  a  receiver  over 
it  must  necessarily  exercise  many 
of  the  powers  of  a  proprietor  in 
its  management,  and  be  sub 
jected  to  a  similar  liability  for 
his  own  official  acts,  and  those 
of  his  servants  and  agents.  He  is 
liable  as  receiver  for  his  contracts 
made  in  his  official  capacity,  and 
for  the  torts  committed  by  his 
sei'vants  and  agents  in  the  oper- 
ation of  the  road.  By  reason  of 
the  liability  incurred  by  the  oper- 
ation of  so  much  machinery  and 
the  employment  of  so  many  men, 
it  may  seem  upon  first  blush,  that 
their  liability  is  defined  by  a  dif- 
ferent rule  from  that  which  pre- 
scribes the  liability  of  receivers 
in  ordinary  cases.  But  the  rule  is 
the  same.  The  receiver  of  the 
rvoperty  of  a  railroad  is  no  more 


the  representative  of  the  company 
than  the  receiver  of  the  property 
of  a  natural  person  is  the  repre- 
sentative of  such  person.  Let  us 
suppose,  then,  that  the  proprietor 
of  a  cotton  gin  has  contracted  to 
gin  the  cotton  of  his  neighbor  at 
a  certain  rate,  and  that  before  he 
has  performed  his  contract  the 
property  is  placed  in  the  hands 
of  a  receiver,  who  is  directed  to 
operate  it.  Can  it  be  said  that  he 
is  liable  in  damages  should  he  re- 
fuse to  comply  with  the  contract? 
Clearly  not.  He  is  appointed,  not 
to  carry  out  the  proprietor's  con- 
tracts, but  to  manage  and  pre- 
serve the  property.  So,  the  re- 
ceiver of  a  railroad  company  is 
no  more  bound  to  do  a  particular 
thing  which  the  company  has  con- 
tracted to  do  than  he  is  liable  to 
pay  a  debt  which  the  company  has 
contracted  to  pay.  Let  us,  then, 
apply  the  principles  to  the  case 
made  by  the  plaintiff's  petition. 
When  the  appellants  were  ap- 
pointed receivers,  and  placed  in 
charge  of  the  railway,  there  was 
a  contract  existing  between  the 
railroad  company  and  the  plaintiff 
for  the  maintenance  of  a  switch 
at  Warner's  Station.  That  was 
purely  a  personal  contract.  The 
duty  of  the  receivers  was  to  hold 
and  operate  the  railroad  and  they 
were  no  more  bound  to  carry  out 
the  company's  contract  to  main- 
tain the  switch  than  they  were  to 


1108 


LAW   OF    RECEIVERS. 


liowever,  gives  rise  to  many  actions  against  the  receiver 
begun  without  previous  permission  that,  under  the  gen- 
eral equity  rule  governing  the  matter,^^  could  not  be  so 
maintained  but  for  the  sanction  of  the  statute.^^ 

In  regard  to  the  matter  of  their  amenability  to  legis- 
lative authority  there  is  no  difference  between  the  federal 
equity  utility  receivers  and  receivers  over  utility  prop- 
erty appointed  by  state  courts. 

§  405.     Amenability  of  Receivers  to  the  Authority  of  Public 
Service  Commissions. 

Coming  now  to  more  specific  instances  of  the  matters 
considered  in  the  preceding  section,  we  find  an  important 
instance  of  the  amenability  of  utility  receivers  to  legis- 
lative control  in  the  authority  given  over  their  conduct 
to  public  service  commissions,  or  railroad  commissions, 
or  public  utility  commissions,  or  bodies  of  a  like  character. 


discharge  its  obligations  to  pay 
money.  When,  in  the  manage- 
ment of  the  road,  they  deemed  it 
proper  to  remove  the  switch,  and 
did  remove  it,  the  contract  of  the 
company  was  brolven,  and  it  was 
liable  in  damages  for  its  breach. 
That  the  appointment  and  acts  of 
the  receivers  do  not  absolve  it 
from  its  liability  to  carry  out  its 
contracts,  was  decided,  in  effect, 
by  this  court  in  Hunt  v.  Reilly, 
50  Tex.  99.  If  appellee  were  un- 
able to  recover  damages  of  the 
company  for  its  breach  of  the  con- 
tract, by  reason  of  its  insolvency, 
it  is  a  misfortune  he  has  suffered, 
doubtless,  in  company  with  nu- 
merous other  simple  -  contract 
creditors.  For  the  failure  to  per- 
form the  contract,  his  cause  of 
action  was  against  the  company, 
and  it  was  not  of  that  character 
which    could    be    brought    against 


the  receivers  without  leave  of  the 
court.  U.  S.  Stat.  1886-87,  49th 
Cong.,  2d  Sess.,  p.  554,  sec.  3." 

12  See   §  405,  infra. 

13  A  receiver  of  a  railroad  com- 
pany appointed  by  a  court  of  the 
United  States  may  be  sued,  with- 
out the  permission  of  such  court, 
under  the  Act  of  March  3,  1887, 
for  a  cause  of  action  arising  from 
the  acts  of  his  pfedecessor  in  the 
same  office.  McNulta  v.  Loch- 
ridge,  141  U.  S.  327-332,  35  L.  Ed. 
796,  12  Sup.  Ct.  11  (1891),  affirm- 
ing decision  of  Supreme  Court  of 
Illinois,  137  111.  270,  31  Am.  St. 
Rep.  362,  27  N.  E.  452;  Texas  & 
P.  R.  Co.  V.  Cox,  145  U.  S.  593,  36 
L.  Ed.  829,  12  Sup.  Ct.  905. 

The  receiver  may  show  consent 
to  the  jurisdiction  by  appearing 
and  answering.  American  Steel 
&  Wire  Co.  v.  Bearse,  194  Mass. 
59G,  80  N.  E.  623. 


RAILROADS PUBLIC    UTILITY    COUPORATIONS.  1109 

CoiigTess  lias  created  tlie  Interstate  Commerce  Com- 
mission and  given  it  power  to  deal  Avitli  certain  matters 
relating  to  interstate  commerce.  The  commission  lias 
itself  ruled  that  receivers  are  common  carriers  and  sub- 
ject to  its  jurisdiction,^  and  provided  that  ''when  the  line 
of  a  carrier  is  operated  by  a  receiver  or  trustee  both  the 
carrier  and  its  receiver  or  trustee  should  be  made  de- 
fendants in  cases  involving  transportation  over  such 
lines.  "^  The  commission  itself  has  ruled  that  it  has  no 
authority  to  impose  any  lien  upon  property  belonging  to 
a  receivership  estate,  or,  for  that  matter,  to  enforce  any 
of  its  orders.  If  its  orders  are  not  voluntarily  obeyed, 
enforcement  is  to  be  found  at  the  hands  of  a  court  of 
proper  jurisdiction.^  The  commission  therefore  deals 
with  a  receiver  without  any  reference  to  his  relation  to 
the  court  and  it  is  not  necessary  to  secure  permission  of 
the  receivership  court  to  make  him  a  party  to  a  proceed- 
ing before  the  commission.'*  The  appointment  of  a  re- 
ceiver over  a  carrier  does  not  cause  to  abate  proceedings 
pending  before  the  commission  relative  to  the  business  of 
the  carrier.^ 

A  receiver  is  entitled  to  test  by  a  court  proceeding  the 
validity  of  any  order  made  by  the  commission  that  affects 
his  estate  and  in  hearing  such  a  matter  instituted  by  a 

1  Independent  Refiners'  Associ-  Pac.  Ry.  Co.  (1S96),  6  Interstate 
ation  V.  Western  New  York  &  P.      Commerce  Reports  520. 

R.  Co.,  6  Interstate  Commerce  Re-  An  order  relating  to  a  crossing, 

ports  378  (1896).  affecting  a   federal  receiver,   may 

2  Article  2,  Rules  of  Practice  be  made  by  a  public  service  com- 
before  the  Interstate  Commerce  mission  without  obtaining  the  con- 
Commission,  sent    of    the    receivership    court. 

3  Loud  v.  South  Carolina  R.  Co.,  State  ex  rel  Mo.  K.  &  T.  R.  Co.  v. 
4  Interstate  Commerce  Reports  Public  Service  Com.,  271  Mo.  270, 
205.  197  S.  W.  5P. 

4  Board  of  Trade  v.  Alabama,  5  Trammel  v.  Clyde  S.  S.  Co. 
etc.,  Ry.  Co.,  6  Interstate  Com-  (1892),  4  Interstate  Commerce  Re- 
merce  Reports  1;  Evans  v.  Union  ports  120. 


1110  LAW    OF    RECEIVERS. 

receiver  tlie  attitude  of  the  court  is  tlie  same  as  it  would 
be  if  the  proceeding  had  been  begun  by  the  company.^ 
Since  a  receiver  is  not  bound  by  the  executory  contracts 
of  his  company  he  is  not  criminally  liable  under  the  Inter- 
state Commerce  Act  for  failing  to  carry  out  a  joint  tarift 
arrangement  made  by  his  company  with  another  company 
and  which  he  has  never  recognized  in  any  wayJ 

As  to  state  public  service  commissions,  their  powers 
are  such  that  they  are  brought  into  touch  in  an  important 
way  with  reorganization  plans  for  a  utility  that  is  in  the 
control  of  a  receiver,^  and  that  their  orders  fixing  rates 
for  service  are  binding  upon  a  receiver  as  well  as  a  com- 
pany.^ Most  of  the  statutes  expressly  mention  receivers 
as  being  amenable  to  the  authority  of  these  commissions. 
Their  powers  are  usually  of  much  wider  scope  than  those 
of  the  Interstate  Commerce  Commission,  including  not 
only  the  power  to  fix  rates  for  service,  but  also  to  regu- 
late the  methods  and  extent  of  financing  the  companies 
and  many  details  with  reference  to  the  construction  and 
maintenance  of  the  utility  property  both  from  the  point 
of  view  of  making  their  operations  as  free  from  danger 
to  the  public  and  their  employees  as  possible  and  of 
giving  as  adequate  a  service  to  the  public  as  possible. 
The  commissions  have  themselves  expressed  the  propo- 
sition that  their  jurisdiction  extends  over  federal  re- 
ceivers, basing  it  upon  the  United  States  statutes  referred 

6  Farmers'  Loan  &  Trust  Co.  v.  change  the  legal  rates  established 
Northern  Pac.  Ry.  Co.,  83  Fed.  by  a  public  utility  commission 
249^  without  its  consent.     State  v.  In- 

XT   -J.  ^    c^  4.  T,„   n^,,vc^ir       dependence  Gas  Co.,  102  Kan.  712, 

7  United   States  v.  De   Coursey,  ^  „.  „      ^  ,        o^  ^ 

oo  T^  .^    ono  1^2  Pac.  713.     See,  also.  State  ex 

82  Fed.  302.  ,   „  .  x  t       j        /t^       ^    -ic- 

rel.  Bristow  v.  Landon  (Kan.),  16d 

8  See  chapter  devoted  to  reor-  p^^  ^^^^  j^^^  ^^^  McHenry  v. 
ganizations  of  public  utilities.  Bankers  Trust  Co.  (Tex.  Civ.),  206 

0  Re  Benwood  &  McMechen  Con-  g    ^^    56O,   v.here  the   court  held 

sol.  Water  Co.,  P.  U.  R.  1917D,  460.  jj-   j^ad   authority  to  fix  the   rates 

A  receiver  appointed  by  a  state  to  be   charged  by  its  receiver  of 

court  •  has      no      jurisdiction      to  an  irrigation  system. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


nil 


to  in  tbe  preceding  section  and  supporting  it  by  the  cita- 
tion 01  judicial  autliority.^" 

Orders  of  tlie  state  commissions  are,  however,  subject 
to  judicial  review  where  they  are  unreasonable.^^ 


10  See  Colorado  State  Board  of 
Stock  Inspection  Commissioners 
V.  Atchison,  etc.,  Ry.  Co.,  P.  U.  R. 
1916D,  751.  This  case  concerned 
an  order  directing  the  road  to 
build  protecting  fences.  The 
commission,  in  view  of  the  fact 
that  the  act  expressly  declared 
receivers  to  be  within  its  terms, 
held  that  it  had  authority  over  a 
company  whose  property  was  in 
the  possession  of  either  a  state 
or  federal  receiver. 

City  of  Moberly  v.  Pryor,  P.  U. 
R.  1917B,  425.  This  case  involved 
an  order  of  the  Missouri  State 
Commission  directing  a  federal 
receiver  to  widen  a  subway  cross- 
ing. 

Jordan  v.  St.  Louis,  etc.,  R.  Co., 
P.  U.  R.  1917A,  182.  This  case 
involved  an  order  of  the  Okla- 
homa State  Commission  directing 
the  receiver  to  permit  a  shipper 
to  maintain  bins  and  a  grain  ele- 
vator on  the  right  of  way  to  facil- 
itate loading. 

The  fact  that  a  natural  gas  com- 
pany has  been  in  the  hands  of  a 
receiver  for  over  three  years  and 
that  it  has  more  customers  than 
it  can  properly  serve,  may  be  con- 
sidered in  ascertaining  the  going 
value  in  a  rate  valuation.  Landon 
V.  City  of  Lawrence  (Kan.),  P.  U. 
R.  1916B,  331. 

11  Kaw  Valley  Drainage  Dist.  v. 
Missouri  Pac.  Ry.  Co.,  99  Kan. 
188,  161  Pac.  937.  This  action 
was  a  mandamus  proceeding  to 
compel  a  federal  receiver  to   de- 


stroy a  bridge  over  which  his  line 
ran  on  the  score  that  it  caused 
floods  in  the  river  and  was  there- 
fore dangerous  to  life  and  prop- 
erty. The  court  sustained  its  jur- 
isdiction over  the  receiver  on  the 
authority  of  the  United  States 
Statutes  mentioned  in  the  preced- 
ing section  (citing  Grant  v.  Buck- 
ner,  172  U.  S.  232,  43  L.  Ed.  430, 
19  Sup.  Ct.  163,  as  authority).  It 
was  held  that  the  order  was  a 
-valid  exercise  of  the  police  power 
of  the  state  to  protect  the  life  and 
property  of  its  citizens;  but  the 
peremptory  writ  of  mandamus 
was  withheld  pending  negotia- 
tions as  to  a  compromise. 

Other  state  cases  holding,  on 
the  authority  of  the  United  States 
statutes,  that  a  federal  receiver 
may  be  a  defendant  before  the 
commission  or  a  court  without 
previous  consent  of  the  receiver- 
ship court  are:  Railroad  Commis- 
sion of  Alabama  v.  Alabama  G., 
etc.,  R.  Co.,  185  Ala.  354,  L.  R.  A. 
1915D,  98,  64  So.  13;  State  v.  Pub- 
lic Service  Commission,  271  Mo. 
270,  197  S.  W.  56. 

Service  of  notice  of  a  hearing 
before  a  service  commission  upon 
a  general  agent  who  had  been, 
pursuant  to  constitutional  provi- 
sion, designated  by  the  company 
as  agent  upon  whom  process 
might  be  served  and  who,  after 
the  appointment  of  the  receiver, 
continued  in  his  employ  and  con- 
tinued to  receive  legal  notices 
with  the  sanction  of  the  receiver. 


1112 


LAW    OF   RECEIVERS. 


A  receivership  court  may  refuse  to  direct  its  receiver 
to  obey  an  order  of  a  public  service  commission  until  the 
validity  and  reasonableness  of  the  order  have  been  judi- 
cially established;^-  and  has  not  jurisdiction  to  order,  at 
the  instance  of  a  commission,  its  receiver  to  make  im- 
provements in  the  property  that  will  put  an  unreasonable 
burden  upon  the  bondholders.^^  The  fact  that  receiver's 
certificates  are  passed  upon  and  their  issuance  approved 
by  a  public  service  commission  does  not  affect  their  stand- 
ing as  against  the  estate  nor  add  anything  of  force  to 
what  was  given  by  the  order  of  the  court  authorizing  the 
receiver  to  issue  them.  ^^  A  state  court  has  no  jurisdiction 
to  appoint  receivers  for  the  purpose  of  regulating  the 


is  binding  upon  the  receiver. 
Lusk  V.  State,  47  Okla.  648,  150 ' 
Pac.  151. 

See,  also,  Village  of  Girard  v. 
Girard  Water  Co..  P.  U.  R.  1917E, 
366;  Webb  City  Commercial  Club 
V.  St.  Louis  &  S.  F.  R.  Co.  (1914), 
1  Mo.  P.  S.  C.  R.  334. 

If  to  run  a  certain  character  of 
train  service  would  make  the  op- 
eration of  a  branch  line  unre- 
munerative  and  the  balance  of 
the  system  in  the  state  does  not 
pay  the  expenses  of  operation 
and  the  interstate  part  of  the  sys- 
tem is  in  the  hands  of  a  receiver, 
such  an  order  on  the  part  of  the 
railway  commission  may  violate 
the  due  process  constitutional  pro- 
visions. Marshall  v.  Bush  (Neb.), 
167  N.  W.  59. 

12  Pennsylvania  Steel  Co.  v. 
New  York  City  Ry.  Co.,  165  Fed. 
470;  see  People  v.  W^hitridge,  144 
App.  Div.  486,  129  N.  Y.  Supp.  295. 
Neither  the  courts  nor  the  re- 
ceivers of  public  utifity  corpora- 
tions have  jurisdiction  to  change 
legal  rates  without  the  consent  of 
the    public    utilities    commission; 


but,  when  the  legal  rates  charged 
by  the  receiver  of  a  public  service 
corporation  have  been  enjoined  by 
a  court  of  competent  jurisdiction, 
the  receiver  may  put  into  effect 
rates  to  be  charged  until  the  com- 
mission establishes  a  new  rate. 
State  v.  Independence  Gas  Co., 
102  Kan.  712,  172  Pac.  713. 

The  jurisdiction  of  a  federal 
court  of  a  suit  by  state  receivers 
of  a  natural  gas  company  to  en- 
join the  enforcement  of  rates 
fixed  by  a  state  commission,  in 
which  a  preliminary  injunction 
was  granted,  is  not  affected,  by  a 
subsequent  order  of  the  state 
court  fixing  temporary  rates.  Lan- 
don  V.  Public  Utilities  Commis- 
sion of  State  of  Kansas,  242  Fed. 
658.  As  to  rule  respecting  inter- 
state  service,  see  Landon  v.  Pub- 
lic Utilities  Commission  of  Kansas, 
245  Fed.  950. 

13  Farmers'  Loan  &  Trust  Co.  v. 
Burbank  Power  &  Water  Co.,  196 
Fed.  539. 

14  St.  Louis  Union  Trust  Co.  v, 
Texas  Southern  Ry.  Co.,  59  Tex. 
Civ.  App.  157,  126  S.  W.  296. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1113 

rates  of  public  utility  corporations.^^  The  fact  that  the 
court  has  appointed  a  receiver  at  the  instance  of  a  public 
service  corporation  (a  railroad  company)  upon  its  volun- 
tary dissolution  pursuant  to  the  statute,  will  not  interfere 
with  the  public  service  commission's  issuing  its  certificate 
of  dissolution  pursuant  to  the  statute. ^^ 

In  a  strongly  contested  case^'^  in  Kansas  bearing  on  the 
right  of  control  over  a  receiver  by  a  public  utility  com- 
mission on  the  question  of  rates  to  be  charged  by  him, 
the  court  said:  "Are  the  receivers  subject  to  the  control 
of  the  Public  Utilities  Commission,  under  the  public 
utilities  act?  The  Kansas  Natural  Gas  Comjjany,  whose 
property  is  now  in  the  possession  of  the  receivers,  and 
whose  business  is  now  being  conducted  by  them,  w^as 
engaged  in  the  business  of  a  public  utility.  When  the 
receivers  continue  to  do  the  same  business  and  render 
the  same  service  as  that  performed  by  the  Kansas 
Natural  Gas  Company,  they  are  a  public  utility,  as  de- 
fined in  the  public  utilities  act,  and  are  subject  to  the 
provisions  of  the  act.  The  appointment  of  receivers  to 
carry  on  the  business  of  a  public  utility  does  not  with- 
draw that  public  utility  or  its  receivers  from  the  control 
of  the  laws  of  the  state.  The  Public  Utilities  Commission 
can  make  the  same  orders,  rules,  and  regulations  govern- 
ing these  receivers  and  the  property  in  their  control  that 
they  could  have  made  concerning  the  Kansas  Natural  Gas 
Company  and  its  property,  before  the  receivers  were  ap- 
pointed. The  receivers  have  the  same  right  to  appeal  to 
the  courts  that  the  Kansas  Natural  Gas  Company  had — 
no  greater,  no  less. 

"Who  has  the  power  to  fix  the  rates  at  which  natural 
gas  shall  be  sold  by  the  receivers  of  the  Kansas  Natural 

15  state  V.  Independence  Gas  it  State  ex  rel  Caster  v.  Flan- 
Co.,  102  Kan.  712,  172  Pac.  713.  nelly,    96    Kan.    372,    152    Pac.    22, 

16  Jeffries  v.  Commonwealth,  121  P.  U.  R.  191G0,  810. 
Va.    425,    93    S.    E.    701,    P.    U.    R. 

1918B,  5. 


1114  LAW   OF   RECEIVERS. 

Gas  Company,  tlie  Public  Utilities  Commission,  or  the 
court  appointing  the  receivers !  The  Legislature  has  said 
that  the  Public  Utilities  Commission  shall  fix  these  rates. 
The  courts  have  repeatedly  declared  that  the  courts  can 
not  fix  rates,  and  that  fixing  rates  is  a  legislative  func- 
tion. When  rates  are  fixed,  the  courts  can  ascertain 
whether  or  not  they  are  in  violation  of  law  or  of  some 
constitutional  provision.  But  courts  have  not  the  author- 
ity to  determine  what  rates  will  be  reasonable,  just,  com- 
pensatory, or  legal,  and  then  put  in  effect  those  rates. 
The  commission  can  not  finally  determine  what  rates  ^^ill 
be  legal  and  will  not  violate  constitutional  provisions. 
The  commission  is  the  body  authorized  by  law  to  say  in 
the  first  instance  what  rates  are  legal  and  will  not  violate 
constitutional  provisions,  but  the  courts  must  finally  say 
whether  or  not  the  rates  fixed  are  illegal  or  do  violate 
such  provisions.  The  one  function  is  legislative,  while 
the  other  is  judicial.  The  commission  can  not  invade  the 
field  occupied  by  the  court ;  neither  can  the  court  invade 
the  field  occupied  by  the  commission.  The  commission 
must  act  first,  and  the  courts  afterward. 

''It  is  contended  that  the  receivers  are  engaged  in 
interstate  commerce,  and  for  that  reason  are  beyond  the 
control  of  the  Public  Utilities  Commission.  That  the 
transportation  of  natural  gas  from  one  state  to  another 
is  interstate  commerce  must  be  conceded.  West  v.  Kansas 
Natural  Gas  Co.,  221  U.  S.  229,  31  Sup.  Ct.  564,  55  L.  Ed. 
716,  35  L.  Pv.  A.  (N.  S.)  1193;  Haskell  v.  Cowham,  109 
C.  C.  A.  235,  187  Fed.  403.  Numerous  other  cases  might 
be  cited.  However,  that  is  not  the  question  we  have  to 
determine.  Our  question  is.  When  does  the  natural  gas 
that  is  sold  by  the  receivers  in  the  several  cities  in  this 
state  cease  to  be  an  article  of  interstate  commerce?  In 
7  Encycl.  U.  S.  Sup.  Ct.  Rep.  298,  we  find  a  clear  and  con- 
densed statement  of  the  rules  to  be  deduced  from  the 
decisions  of  the  United  States  Supreme  Court,  as  follows : 


RAILROADS PUBLIC    UTILITY    CORPORATIONS.  1115 

"  'The  general  rule  is  that  as  long  as  an  article  im- 
ported remains  in  the  hands  of  the  importer  in  the  orig- 
inal and  unbroken  package  in  which  it  was  imported,  it 
is  protected  by  the  commerce  clause  of  the  Constitution 
from  the  interference  of  state  laws,  and  that  it  is  only 
when  the  original  package  has  been  sold  by  the  importer 
or  has  been  broken  up  by  him,  or  has  otherwise  become 
mixed  with  the  common  mass  of  property  in  the  state, 
that  it  becomes  subject  to  state  legislation.' 

''The  original  package  rules  will  be  of  some  assistance 
m  determining  whether  or  not  the  receivers'  sale  of  gas 
in  this  state  is  interstate  commerce.    The  original  package 
of  gas  is  broken  when  the  first  gas  is  taken  out  of  the 
pipe  lines  and  sold  in  tl^is  state.     Thereafter  the  gas 
ceases  to  be  an  article  of  interstate  commerce.    The  gas, 
when  sold,  had  become  mixed  with  the  common  mass  of 
property  in  this  state  by  being  so  commingled  with  gas 
produced  here  as  to  completely  lose  its  identity.    It  is  a 
matter  of  common  knowledge  that  service  pipes  from  the 
pipe  lines  of  the  distributing  companies  to  private  resi- 
dences and  other  buildings  belong  to  the  owners  of  the 
property   served,   and   installations   are  made   at  their 
expense.      If  the  analogy  of  original  packages  or  im- 
portation of  property  in  bulk  applies  to  gas  in  the  mains, 
it   ceases   to    apply   when   thousands    of    service   pipes 
are  filled  with  gas  to  be  drawn  off  at  such  times  and  in 
such  quantities  as  the  individual  consumer  desires.     In- 
terstate commerce  is  at  an  end  when  the  bulk  of  the 
imported  gas  is  broken  up  for  indiscriminate  distribu^ 
tiou  to  individual  purchasers  at  retail  sale.    The  gas  tlien 
becomes  mixed  wdtli  the  common  mass  of  property  in  the 
state.     To  exclude  the  power  of  the  state  from  control 
over  an  article  imported  into  it,  it  is  necessary  that  the 
article  be  capable  of  being  pointed  out  and  identified,  and 
the  owner  be  able  to  sav: 


1116  LAW   OF    RECEIVERS. 

**  'Tliis  came  from  another  state,  and  had  not  yet  be- 
come commingled  with  the  mass  of  property  in  this  state 
so  as  to  make  it  a  part  of  that  property. ' 

''All  property  now  owned  in  this  state,  and  not  pro- 
duced here,  was  at  one  time  a  part  of  interstate  com- 
merce. The  goods  on  the  merchant's  shelf,  the  wagons 
and  plows  in  the  farmer's  field,  the  horses  and  cattle  that 
he  has  imported  from  another  state,  were  all  a  part  of 
interstate  commerce  at  one  time,  but  have  ceased  to  be 
such,  although  they  have  not  been  sold  and  are  still  owned 
by  the  persons  that  imported  them.  These  ceased  to  be 
under  the  protection  of  the  interstate  commerce  clause  of 
the  Constitution  when  they  became  a  part  of  the  property 
of  this  state.  The  farmer  who  imports  a  wagon,  a  horse, 
a  car  load  of  corn,  or  a  piano,  may  or  may  not  intend  to 
sell  the  article  imported.  Does  the  interstate  commerce 
character  of  this  property  attach  until  it  is  sold  ?  It  does 
not.  It  can  not.  A  car  load  or  a  train  load  of  wheat  may 
be  shipped  from  this  state  to  Kansas  City,  Mo.,  and  be 
there  placed  in  an  elevator  and  mixed  with  another  car 
load  or  train  load  of  wheat  from  some  county  in  Missouri, 
and  may  be  held  for  delivery  to  some  one  who  has  ordered 
it,  or  be  held  for  sale  to  any  one  who  will  buy  it.  Will 
that  wdieat  from  Kansas,  after  being  commingled  with 
the  wheat  from  Missouri,  be  under  the  protection  of  the 
interstate  commerce  clause  of  the  federal  Constitution 
and  outside  the  control  of  Missouri,  under  laws  legally 
enacted  by  its  Legislature?  If  this  question  is  answered 
in  the  affirmative,  it  extends  interstate  commerce  much 
farther  than  any  decision  of  any  court  yet  rendered,  of 
which  we  have  any  knowledge  or  information.  Before 
selUng  natural  gas,  it  became  necessary  to  obtain  fran- 
chises from  the  several  cities,  under  the  laws  of  this  state. 
These  laws  provided  that  in  certain  classes  of  cities  the 
franchises  might  name  the  price  at  which  gas  should  be 
sold.    If  the  business  done  by  the  receivers  in  this  state  is 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  HIT 

interstate  commerce,  and  the  state  lias  no  power  to  regu- 
late the  price  at  which  gas  may  be  sold,  the  laws  providing 
for  fixing  rates  in  franchises  were  invalid,  so  far  as  gas 
coming  from  another  state  is  concerned. 

'^  Granting  for  the  moment  that  the  sale  of  natural  gas 
under  the  circumstances  disclosed  is  interstate  commerce, 
it  is  not  national  in  its  nature,  it  admits  of  no  one  uniform 
system  of  regulation,  and  it  is  not  that  kind  of  interstate 
commerce  wdiich  requires  exclusive  legislation  by  Con- 
gress. It  is  therefore  subject  to  state  control  until  Con- 
gress acts.    .    .    . 

"Congress  has  not  acted  in  this  field,  except  to  prohibit 
unfair  methods  of  competition.  We  hold,  therefore,  that 
the  receivers  are  not  engaged  in  interstate  commerce 
when  selling  natural  gas  to  consumers  thereof  in  this 
state." 

§  406.     Amenability  of  Receivers  to  Remedial  Laws  of  Civil  or 
Penal  Character, 

Statutory  regulations  imposed  upon  public  utility  cor- 
porations, both  by  national  and  state  authority,  are  ex- 
ceedingly numerous  and  varied.  As  to  how  far  they 
control  utility  receivers  in  their  management  of  estates 
certain  general  principles  may  be  stated. 

The  receiver  may  not  either  abandon  public  utility 
property  in  such  a  way  as  to  destroy  or  affect  property 
rights,  or  rights  in  the  nature  of  property  rights  ac- 
quired by  or  created  in  favor  of  other  parties,  public  or 
private,  by  the  conditions  or  circumstances  under  which 
the  public  utility  was  constructed;  nor  will  he  be  per- 
mitted to  insist  upon  doubtful  rights  for  his  company  to 
the  impairment  of  the  rights  of  others.  There  may  not 
in  this  principle  be  any  direct  reference  to  any  partic- 
ular statutory  regulation ;  it  may  refer  simply  to  public 


1118 


LIW    OF    RECEIVERS. 


policy  or  tlie  care  that  a  receivership  court  exercises 
Avith  reference  to  what  might  be  called  the  public  interest.^ 
Statutes  that  in  their  nature  are  remedial  are  generally 
held  to  be  applicable  to  receivers,  whereas  those  that  are 
penal  are  held  not  to  be.-  Such  laws  as  anti-trust  laws 
and  those  against  unfair  discrimination  are  strictly  con- 


1  Paige  V.  Schenectady  R.  Co., 
178  N.  Y.  102,  70  N.  E.  213;  see, 
also,  Thompson  v.  Schenectady 
Ry.  Co.,  131  Fed.  577,  65  C.  C.  A. 
325;  Louisville  Trust  Co.  v.  Cin- 
cinnati I.  P.  R.  Co.,  78  Fed.  307. 

2  United  States  v.  Ramsey,  197 
Fed.  144,  116  C.  C.  A.  568,  42 
L.  R.  A.  (N.  S.)  1031.  (Federal 
statute  with  reference  to  the  num- 
ber of  hours  an  employee  of  a 
common  carrier  might  be  kept  al 
work  held  to  apply.) 

Bush  V.  State,  128  Ark.  448,  194 
S.  W.  857.  (Statute  requiring  sig- 
nals at  a  crossing  held  to  apply.) 

State  V.  Minneapolis,  etc.,  Ry. 
Co.,  88  Iowa  689,  56  N.  W.  400. 
(Receiver  not  criminally  liable  for 
train  obstructing  a  street.) 

In  City  of  San  Marcos  v.  Inter- 
national &  G.  N.  Ry.  Co.  (Tex.  Civ. 
App.),  203  S.  W.  458,  the  court 
said: 

"Appellant  relies  upon  the  fact 
that  Baker  was  appointed  by  the 
federal  court;  the  theory  being 
that  the  federal  statutes  requiring 
receivers  appointed  by  the  federal 
courts  in  possession  of  property  to 
manage  and  operate  the  same  ac- 
cording to  the  requirements  of  the 
laws  of  the  state  in  which  the 
property  is  situated  makes  the  re- 
ceiver liable  for  any  penalty  pre- 
scribed for  failure  to  comply  with 
a  statute  of  the  state.     There  is 


no  merit  in  this  contention.  The 
liability  must  rest  solely  on  the 
state  statute,  and  under  the  rules 
for  construing  penal  statutes,  re- 
ceivers can  not  be  held  to  be  in- 
cluded. A  receiver  appointed  by  a 
federal  court  would  be  in  the  same 
position  as  one  appointed  by  a 
state    court." 

People  v.  Blair,  183  Mich.  130, 
149  N.  W.  1039.  (Receiver  not 
liable  for  train  obstructing  a 
street.) 

Robinson  v.  Harmon,  157  Mich. 
272,  117  N.  W.  664,  15  Detroit  Leg. 
N.  713.  (Federal  receiver  liable 
for  not  transporting  freight  as  re- 
quired by  state  statute,  since  U.  S. 
statute  requires  him  to  obey  state 
laws  and  particular  state  statute 
involved  is  not  penal.) 

State  V.  Norfolk  &  S.  Ry.  Co., 
152  N.  C.  785,  21  Ann.  Cas.  692, 
26  L.  R.  A.  (N.  S.)  710,  67  S.  E. 
42.  (Receivers  held  indictable  for 
cars  obstructing  public  road.) 

Huguelet  v.  Warfield,  84  S.  C. 
87,  65  S.  E.  985.  (Receivers  liable 
for  adjusting  and  paying  claim 
for  loss  of  freight  within  statu- 
tory time.) 

A  receiver  will  not  be  held  crim- 
inally liable,  under  the  Interstate 
Commerce  Act,  for  violating  a 
joint  traffic  agreement  of  the  com- 
pany where  he  has  not  adopted 
the  contract.  United  States  v.  De 
Coursey,  82  Fed.  302. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1119 


slrued.  Any  proposed  conduct  of  a  receiver  will  not  be 
viewed  as  in  violation  of  such  statute  unless  it  must 
necessarily  have  such  an  effect ;  nor  will  any  past  conduct 
be  so  viewed  unless  it  is  clarly  shown  to  have  been  so.^ 

If,  however,  the  statute  applies  to  commerce  carriers 
in  respect  to  the  operation  of  the  carrier  business,  the 
receiver  so  operating  will  be  deemed  a  common  carrier 
and  brought  within  the  terms  of  the  statute.^ 

Statutes  relating  to  the  method  of  serving  legal  process 
or  notice  upon  public  utility  corporations  are  usually  held 
to  apply  to  receivers.^ 


3  Under  an  Act  of  Congress, 
such  as  the  Hepburn  Act  (Act  of 
Congress  June  29,  1906,  34  Stat. 
584,  Ch.  3591),  which  provides  after 
a.  certain  date  it  will  be  unlawful 
for  a  railroad  company  to  trans- 
port from  one  state  to  another 
any  commodity  mined  or  pro- 
duced by  it,  the  fact  that  a  rail- 
road company  had  in  the  past 
done  so  is  not  ground  for  refusing 
to  issue  receiver  certificates  and 
expend  money  in  developing  new 
coal  mines  where  it  does  not  ap- 
pear that  the  receiver  will  not  be 
able  to  market  the  coal  produced 
within  the  state  or  operate  the 
properties  without  violating  the 
law.  Central  Trust  Co.  v.  Pitts- 
burg, S.  &  U.  R.  Co.,  52  Misc.  Rep. 
195,  101  N.  Y.  Supp.  837;  Bayles  v. 
Kansas  Pac.  R.  Co.,  13  Colo.  181, 
5  L.  R.  A.  480,  22  Pac.  341. 

4  In  United  States  v.  Nixon,  235 
U.  S.  231,  59  L.  Ed.  207,  35  Sup.  Ct. 
49,  it  was  held  that  a  receiver  op- 
erating a  railway  was  a  common 
carrier  within  the  terms  of  a  cattle 
quarantine  act  prohibiting  the 
transportation  of  cattle  from  a 
quarantine  state  to  any  other 
state,    the    court   saying: 


"For  in  so  far  as  he  transports 
passengers  and  property  he  is  a 
common  carrier  with  rights  and 
civil  responsibilities  as  such  (Ed- 
dy V.  Lafayette,  163  U.  S.  464,  41 
L.  Ed.  228,  16  Sup.  Ct.  Rep.  1082; 
Hutchinson,  Carr.  §  77).  And  there 
is  no  reason  suggested  why  a  re- 
ceiver, operating  a  railroad,  should 
not  also  be  subject  to  the  penal 
provisions  of  a  statute  prohibiting 
any  common  carrier  from  trans- 
porting live  stock  by  rail  from  a 
quarantine  district  into  another 
state.  Erb  v.  Morasch,  177  U.  S. 
584,  44  L.  Ed.  897,  20  Sup.  Ct.  Rep. 
819;  United  States  v.  Ramsey,  42 
L.  R.  A.  (N.  S.)  1031,  116  C.  C.  A. 
568,  197  Fed.  144." 

5  In  an  action  in  which  service 
of  process  on  a  station  agent  of  a 
railroad  in  the  possession  of  a  re- 
ceiver was  declared  to  be  suffi- 
cient, it  was  said  that  the  third 
section  of  the  Judicial  Act  of 
March  3,  1887,  authorizing  suit  to 
be  brought  against  receivers  of 
railroads  without  special  leave  of 
court  by  which  they  were  ap- 
pointed, is  intended  to  place  the 
receiver  on  the  same  plane  with 
railway    companies,    both    as    re- 


1120 


LAW    OF   RECElVErS. 


5.    Liability  of  the  Receivership  Estate  for  Injuries  Due 
to  Negligence. 

§  407.     General  Statement. 

Ill  discussing  the  question  as  to  liability  for  injury  due 
to  the  negligent  management  or  operation  of  utility  prop- 
erty that  has  been  placed  under  the  control  of  a  receiver, 
it  is  the  common  practice  to  consider  the  matter  as  if  it 
were  a  question  between  the  company  and  the  receiver  as 
to  which  was  liable.  To  understand  the  matter  correctly, 
however,  it  is  necessary  to  have  in  mind  an  important 
distinction.  The  real  question  involved  is  as  to  how  far 
the  receivership  estate,  is  liable  to  pay  damages  for  the 
injury.  That  matter  has  been  discussed  hitherto.  In  the 
absence  of  a  special  statute  placing  liability  for  the  dam- 


spects  their  liability  to  be  sued 
for  acts  done  while  operating  the 
railroad,  and  as  respects  the  mode 
of  obtaining  service.  Eddy  v.  La 
Fayette,  49  Fed.  807,  1  C.  C.  A. 
441;  Central  Trust  Co.  v.  St. 
Louis  A.  &  T.  Ry.  Co.,  40  Fed.  426 
(affirmed  in  Eddy  v.  La  Fayette, 
16.3  U.  S.  456,  41  L.  Ed.  225,  16 
Sup.  Ct.  1082) ;  Lamb  v.  Whitman, 
17  Ga.  App.  687,  87  S.  E.  1095. 

Where  a  I'eceiver  continues  sta- 
tion agents  in  office  with  direc- 
tions to  continue  the  performance 
of  their  duties,  statutes  allowing 
service  of  process  upon  them  is 
lield  valid.  In  re  Seaboard  Air 
Line  Ry.  (In  re  Boatwright),  166 
Fed.  376:  Ernest  v.  Pere  Mar- 
quette R.  Co.,  176  Mich.  398,  Ann. 
Cas.  1915B,  594,  47  L.  R.  A.  (N.  S.) 
179,  142  N.  W.  567;  Lamb  v.  Mc- 
Elwaney,  143  Ga.  490,  85  S.  E.  705. 

Service  upon  former  process 
agent  of  the  railroad  has  been 
held  valid.  Jacobs  v.  Blair,  157 
App.  Div.  601,  142  N.  Y.  Supp.  897. 


Service  of  process  upon  the  re- 
ceiver's general  manager  in 
charge  of  the  office  and  in  control 
of  the  road  has  been  held  suffi- 
cient. Peterson  v.  Baker,  78  Kan. 
337,  97  Pac.  373. 

Receivers  of  a  foreign  corpora- 
tion must  be  served  as  natural 
persons  when  the  cause  of  action 
grows  out  of  transactions  with 
receivers  of  another  line  and 
w'here  the  line  does  not  extend 
within  the  state.  Kading  v. 
Waters,  137  Minn.  328,  163  N.  W. 
521. 

Even  if  service  upon  a  receiver 
would  be  good  if  made  in  the  man- 
ner prescribed  for  service  upon 
his  corporation,  it  is  not  good  if 
it  does  not  comply  with  provi- 
sions relating  to  that  sort  of  a 
service.  Gursky  v.  Blair,  218  N.  Y. 
41,  L.  R.  A.  i916F,  359,  112  N.  E. 
431;  Beaumont,  etc.,  Ry.  Co.  v. 
Daniel,  (Tex.  Civ.)   186  S.  W.  383. 


RAILROADS—PUBLIC    UTJLITY    CORPORATIONS.  1121 

ages  upon  the  property  itself,  regardless  of  whose  neo-li- 
gence  is  directly  responsible  for  the  injury,  or  in  the 
absence  of  personal,  as  distinguished  from  official,  lia- 
bility of  the  receiver,  the  claim  for  damages  may  rank 
with  general  unsecured  claims  or  it  may  rank  with  claims 
against  the  receiver,  as  arising  out  of  his  operation  of  the 
property,  and  have  a  preference  over  all  claims  of  gen- 
eral creditors   and  even  over  the  claims  of  a  secured 
creditor.     The  general  rule  is  to  place  the  claim  in  the 
former  class  if  the  injury  was  caused  before  the  receiv- 
ership and  while  the  property  was  in  the  hands  of  the 
company  and  to  place  it  in  the  latter  class  if  the  injury 
occurred    after    the    receiver    took   possession.      As    to 
injuries  caused  before  the  receiver  took  possession  the 
rule  may  be  altered,  and  in  many  states  is  altered,  bv 
special  statutes.!   It  is  proper  enough,  then,  to  speak  of 
the  liability  of  the  company  and  the  liability  of  the  re- 
ceiver, if  we  have  this  distinction  in  mind.  If  the  company 
has  assets  that  are  not  involved  in  the  estate  then  a 
different  question  arises.    As  far  as  the  estate  is  con- 
cerned the  real  question  is  who  shall  be  sued,  the  com- 
pany or  the  receiver. 

§  408.    Liability  of  the  Company. 

The  general  common  law  rule  concerning  liability  for 
injury  growing  out  of  the  negligent  maintenance  or  oper- 
ation of  property  is  that  the  responsibility  rests  upon  the 
person  who  was  in  control  at  the  time  that  the  injury 
was  caused,  regardless  of  any  question  concernino-  the 
ownership  of  the  property;  and  this  rule  is  not  cha'nged 
by  the  fact  that  a  receivership  over  the  property  may 
have  been  created  pending  a  determination  of  the  amount 

iSee    Preferred    Claims,    §§414  For  liability  of  receiver  for  torts 

et  seq..   infra,   and   Receiver's   In-      generally,  see  §  177 
debtedness,  §§  389  et  seq.,  infra. 
II  Rec— 71 


1122  LAW   OF    RECEIVERS. 

of  damages  or  a  settlement  of  the  claim  for  damages  due 
to  the  injury.^ 

Manifestly  the  receiver  could  not  be  in  control  of  the 
public  utility  property,  as  such  receiver,  before  he  took 
possession  under  his  appointment  and  presumably  the 
company  would  be.  For  an  injury  occurring  before  the 
receiver  takes  possession,  the  company  and  not  the  re- 
ceiver is  responsible.  If  the  purpose  of  an  action  for 
damages  is  to  attempt  to  satisfy  a  judgment  out  of  prop- 
erty owned  by  the  company  but  not  involved  in  the  re- 
ceivership estate,  then  no  question  affecting  the  receiver 
or  the  estate  arises  and  the  company  alone  is  the  proper 
party  defendant.  If  however  the  purpose  is  to  establish 
a  claim  against  the  estate  then  the  question  as  to  whether 
or  not  the  action  shall  be  against  the  company  alone  or 
against  the  receiver  alone  depends  upon  the  relation  of 
the  receiver  to  the  title  of  the  property.  A  chancery  re- 
ceiver, such  as  the  federal  utility  receivers  are,  is  not 
the  assignee  of  the  company's  title,  but  a  mere  holder 
and  preserver  thereof;  whether  or  not  a  statutory  re- 
ceiver is  an  assignee  or  a  mere  holder  of  the  title  depends 
on  the  specific  provisions  of  the  statute  under  which  he 
is  appointed.  If  the  receiver  does  not  take  title  his  ap- 
pointment does  not  affect  the  existence  of  the  company; 
the  company  continues  to  function  except  in  so  far  as 
haulted  by  proper  activities  of  the  receiver ;  the  company 
remains  the  only  proper  party  defendant  in  an  action 
based  upon  an  injury  for  which  the  company  is  respon- 

1  Lauber  v.  Linch,  65  Misc.  Rep.  Georgetown  &  W.  R.  Co.,  174  Fed. 

209,  119  N.  Y.  Supp.  614.  731. 

Chicago,  R.   I.   &   P.  Ry.   Co.  v.  An  action  for  personal  injuries 

McBride  (Ark.),  206  S.  W.  149.  before    the   appointment   of   a    re- 
Damages    for    injuries    to    em-  ceiver     can     not     be     maintained 

ployees   for  a   receiver   of  a   rail-  against  him.     It  must  be  brought 

road  are  a  part  of  the  operating  against  the  corporation.     Finance 

expenses    and    should   be    paid    as  Co.  v.  Charleston,  C.  &  C.  R.  Co., 

such    from    the    earnings    of    the  46  Fed.  508. 

property.      Meyer    Rubber    Co.    v. 


RAILROADS PUBLIC    UTILITY    CORPORATIONS. 


1123 


sible.  If  tlie  receiver  takes  title  the  conipany  ceases  en- 
tirely to  function;  actions  pending  against  it  abate  and 
are  revived  by  substituting  the  receiver  as  defendant  for 
the  company;  new  actions  must  be  commenced  against 
the  receiver. 2  Statutes  like  the  United  States  statutes 
permitting  federal  receivers  to  be  sued  without  leave  of 


2  St.  Louis  &  S.  F.  R.  Co.  v. 
Coy,  113  Ark.  265,  168  S.  W.  1106; 
Fountain  v.  Sticknej%  145  Iowa 
167,  139  Am.  St.  Rep.  410,  123 
N.  W.  947;  Price  v.  Delano,  187 
Mich.  49,  153  N.  W.  7;  Allen  v.  St. 
Louis  &  S.  F.  R.  Co.,  184  Mo.  App. 
492,  170  S.  W.  455;  St.  Louis  B.  & 
M.  Ry.  Co.  V.  Knowles,  (Tex.  Civ.) 
180  S.  W.  1146;  San  Antonio,  U. 
&  G.  R.  Co.  V.  Vivian,  (Tex.  Civ. 
App.)  180  S.  W.  952. 

In  the  following  cases  it  was 
held  that  the  receivers  were 
proper  parties:  Hollowell  v.  Nor- 
folk &  S.  Ry.  Co.,  153  N.  C.  19,  68 
S.  E.  894;  Dallas  Cons.,  etc.,  Co. 
v.  Hurley,  10  Tex.  Civ.  246,  31 
S.  W.  73;  International,  etc.,  R. 
Co.  V.  Ormond,  57  Tex.  Civ.  79, 
121  S.  W.  899;  Decker  v.  Gardner, 
124  N.  Y.  334,  11  L,  R.  A.  480,  26 
N.  E.  814,  is  one  of  the  earlier 
leading  cases. 

In  this  case  the  question  under 
review  is  fully  discussed  and  the 
doctrine  stated  in  the  text  estab- 
lished. This  is  undoubtedly  the 
accepted  doctrine  and  is  probably 
not  denied  in  any  well  considered 
case  when  read  in  the  light  of  the 
particular  facts  of  the  case.  Gen- 
eral statement,  taken  out  of  their 
context  and  interpreted  without 
reference  to  the  character  of  the 
receiver  may  of  course  be  mis- 
leading. 

In  the  following  cases  it  was 
held    that    the    receiver    was    not 


liable  for  torts  committed  before 
he  took  possession. 

The  law  appears  to  be  well 
settled  that,  where  an  action  is 
brought  against  a  railroad  com- 
pany for  damages  based  on  negli- 
gence in  operating  its  road,  it  is  a 
sufficient  defense  to  show  that  the 
road  at  the  time  of  the  commis- 
sion of  the  alleged  negligent  act 
was  not  in  its  possession  and  con- 
trol, but  was  in  the  possession  and 
control  of  a  receiver,  who  had  ex- 
clusive charge  of  the  employment 
and  management  of  the  agents  and 
employees  engaged  in  operating 
such  railroad.  Ohio,  etc.,  R.  Co.  v. 
Davis  (1864),  23  Ind.  553,  85  Am. 
Dec.  477;  Bell  v.  Indianapolis,  etc., 
R.  Co.  (1876),  53  Ind.  57;  State  v. 
Wabash  Ry.  Co.  (1888),  115  Ind. 
466,  17  N.  E.  909,  1  L.  R.  A.  179; 
Godfrey  v.  Ohio,  etc.,  R.  Co.  (18S8), 
116  Ind.  30,  18  N.  E.  61;  Chicago 
&  E.  I.  R.  Co.  V.  Van  Stone,  (Ind. 
App.)  119  N.  E.  874;  Naglee  v. 
Alexandria,  etc.,  R.  Co.,  83  Va. 
707,  5  Am.  St.  Rep.  308,  3  S.  E. 
369.  Where  the  accident  occurred 
while  the  receiver  was  lawfully 
operating  the  road,  he  is  liable, 
although  formal  authority  to  op- 
erate cars  was  only  given  subse- 
quent thereto.  Watkins  v.  Kansas 
City  &  W.  B.  Ry.  Co.  (Mo.  App.), 
209   S.   W.   950. 

When  a  railroad  is  in  the  hands 
of  and  being  operated  by  a  re- 
ceiver,  neither   the   company   nor 


1124      ■  LAW    OF    RECEIVERS. 

the  receivership  court  and  state  statutes  expressly  mak- 
ing public  utilitj^  receivers  liable  for  the  negligence  of 
their  employees  and  servants  have  reference  only  to 
injuries  occurring  under  the  administration  of  the  re- 
ceiver and  have  no  bearing  on  those  that  occur  under  the 
company 's  management.^ 

The  receivership  court  is  interested  in  the  question 
as  to  whether  or  not  its  receiver  shall  be  sued  from  two 
points  of  view.  In  the  first  place,  the  court  will  not  permit 
the  receiver's  possession  of  the  property  to  be  invaded. 
An  action  that  is  not  intended  to  nor  can  not  have  any 
such  effect  does  not  encroach  upon  the  prerogatives  of  tlie 
receivership  court;  and  it  is  the  general  rule,  applicable 
in  all  receiverships,  that  such  an  action  against  the  owner 
of  the  property,  or  even  against  the  receiver,  may  be 
prosecuted  independently  of  that  court."*  In  the  second 
place,  as  stated  above,  the  court  desires  to  know  the  rank 
of  a  claim  evidenced  by  a  judgment  for  damages.  If  the 
judgment  is  against  the  company,  presumably  the  claim 
would  rank  as  a  general,  unsecured  claim;  if  against  the 
receiver,  the  presumption  would  be  that  it  is  an  operating 
claim  against  him.    This  is  the  real  reason  for  the  rule 

the  receiver  is  liable  for  an  injury  3  Harrell  v.  Atkinson,  9  Ga.  App. 

to  one   employee  by  another   em-  ]50,  70  S.  E.  954;   St.  Louis,  B.  & 

ployee.     Youngblood  v.  Comer,  97  m.  Ry.  Co.  v.  Dawson,  (Tex.  Civ.) 

Ga.    152,    23    S.    E.    509,    25    S.    E.  ^^74  g   ^_  g^Q_ 

838:  Henderson  v.  Walker,  55  Ga.  ,  „,,  •    .  ^. 

„^'      ,  ^,        ,        ^    ^  -1  Where  judgment  is  pronounced 

481;  Thurman  v.  Cherokee  R.  Co., 

r/.  /~i      nnn  against  a  receiver,  the  judgment  is 

OD  Ga.  o7b. 

The  rule  in  regard  to  the  joint  "«*  *«  ^«  satisfied  by  execution  or 

liability   of   the   receiver   and   the  ^^^^  process  but  is  to  be  made  the 

corporation  over  which  he  is  ap-  basis  of  a  claim  to  be  presented 

pointed  does  not  apply  to  a  corpo-  against  the  estate  and  paid  in  the 

ration   where    the    portion    of   the  ordinary  course  of  administration, 

road  on  which  the  injury  happened  Andrews  v.  Rice,  (Tex.  Civ.  App.) 

has  been  taken  out  of  the  hands  198  S.  W.  666.     See,  also,  Pac.  Ry. 

of  the  corporation  and  put  in  the  Co.  v.  Wade,  91  Cal.  449,  25  Am.  St, 

hands    of   the    receiver.      Lock    v.  Rep.  201,  13  L.  R.  A.  754,  27  Pac. 

Franklin   &    H.    Turnpk.    Co.,    100  768;    Equitable   Trust   Co.   v.  Wa- 

Tenn.  163.  bash  R.  Co.  (C.  C.  A.),  244  Fed.  66. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1125 


requiring  permission  to  sue  the  receiver  to  be  obtained 
before  commencing  action  against  liim.  The  purpose  of 
the  rule  is  to  give  the  court  information  as  to  vrhat  the 
rank  of  a  claim  based  upon  an}^  judgment  in  the  action 
will  be  and  the  rule  is  for  the  benefit  of  the  creditors  of 
the  estate.^  If  the  court  permits  its  receiver  to  be  joined 


5  The  rule  does  not  apply  where 
the  action  is  brought  in  the  re- 
ceivership court  itself.  Curtis  v. 
Mauger,  (Ind.)  114  N.  B.  408.  See 
Texas,  etc.,  R.  Co.  v.  Cox,  145  U.  S. 
593,  36  L.  Ed.  829,  12  Sup.  Ct.  905. 

Justification  for  joining  a  re- 
ceiver as  defendant  in  an  action 
against  the  company  before  his  ap- 
pointment may  be  based  upon  the 
fact  that  the  order  of  appointment 
included  a  provision  authorizing 
him  to  defend  existing  actions.  In- 
ternational &  G.  N.  R.  Co.  V, 
Wynne,  57  Tex.  Civ.  68,  122  S.  W. 
50. 

In  Moore  v.  Southern  States 
Land  &  Timber  Co.,  (C.  C.)  83 
Fed.  399,  the  court  said:  "It  has, 
however,  been  held  that  when  a 
decree  appointing  a  receiver  and 
awarding  an  injunction,  so  far  as 
disclosed  upon  its  face,  was  to  pro- 
vide for  the  safe-keeping  of  the 
property  of  the  corporation,  and  to 
prevent  any  transfers  thereof,  and 
such  decree  did  not  state  that  the 
ulterior  intent  of  the  court  was  to 
make  an  equitable  distribution  of 
the  funds,  and  contained  no  direc- 
tion to  the  receiver  to  give  notice 
to  the  creditors  to  file  their  claims, 
the  decree  imposed  no  restrictions 
upon  creditors  in  prosecuting  their 
claims,  either  at  law  or  in  equity, 
and  a  judgment  subsequently  re- 
covered by  a  creditor  is  as  much  a 
lien  on  the  real  estate  of  the  cor- 
poration debtor  as  if  the  appoint- 


ment of  a  receiver  had  never  been 
made  (citing  authorities).  I  think 
this  ruling  is  founded  in  reason, 
and  my  opinion  is  that  until  the 
court  has  made  some  decree  show- 
ing that  its  ulterior  intent  is  to 
make  an  equitable  distribution  of 
the  funds,  and  giving  notice  to  the 
creditors  to  file  their  claims,  such 
creditors  may  sue  at  law,  and  ac- 
quire a  priority.  Up  to  that  time 
the  complainant  is  permitted  to 
dismiss  the  case  and  discharge  the 
receiver." 

In  Marshall  v.  Wabash  Ry.  Co., 
(Mich.)  167  N.  W.  19,  the  plaintiff 
sought  to  have  a  judgment  against 
the  railroad  company  for  personal 
injuries  declared  a  preferred  lien 
upon  the  property,  which  was 
being  foreclosed  under  a  mortgage 
and  in  which  proceeding  a  I'eceiver 
had  been  appointed.  The  court,  in 
refusing  to  accord  it  such  prefer- 
ence said:  "We  are  impressed, 
however,  that  plaintiff's  judgment 
is  valid  as  it  stands,  and,  under 
the  statute,  constitutes  a  lien  on 
all  the  property  of  the  defendant 
Wabash  Railroad  Company  against 
which  the  action  ran,  subject  to 
any  valid  prior  mortgage  upon  any 
of  such  property.  His  action  was 
legally  begun  in  the  circuit  court 
of  Lenawee  county  before  the  re- 
ceivers were  appointed  or  suit 
begun  in  the  foreclosure  case. 
When  the  federal  court  of  another 
state  later  took  jurisdiction  in  the 


112G 


LAW    OF    RECEIVEHS. 


in  an  action  for  injuries  for  which  the  company  alone  is 
responsible,  it  does  so  mainly  in  order  that  the  receiver, 
as  trustee  for  all  the  creditors,  may  see  that  an  entirely 
unfounded  claim  is  not  fraudulently  or  erroneously 
foisted  upon  the  estate.  If,  because  of  his  statutory  re- 
lation to  the  title  or  because  of  the  provisions  of  any 
statute,  the  receiver  is  sued,  without  the  permission  or 
knowledge  of  the  court,  for  an  injury  for  which  the  com- 
pany alone  is  responsible  it  is  his  duty  when  a  claim 


foreclosure  proceedings  and  ap- 
pointed receivers  pendente  lite, 
presumably  to  conserve  the  mort- 
gaged property  tor  the  purpose  of 
the  decree  of  foreclosure  as  be- 
tween the  parties  to  that  suit,  the 
state  court  was  not  deprived 
thereby  of  its  right  to  proceed 
with  this  distinct  personal  action 
in  which  it  had  first  taken  juris- 
diction. By  permission  of  the 
court  appointing  them  the  receiv- 
ers could  have  appeared  in  the 
case  and  defended  had  they  seen 
fit  to  do  so.  Its  progress  did  not 
interfere  with  their  possession  of 
the  mortgaged  property  or  with 
the  mortgage  foreclosure.  They 
did  not  represent  the  Wabash 
Railroad  in  its  individual  char- 
acter, nor  supersede  it  in  the  exer- 
cise of  its  corporate  powers,  be- 
yond their  temporary  custody  and 
control  of  its  mortgaged  property. 
The  corporation  was  energetically 
and  independently,  so  far  as 
shown,  pursuing  an  active  defense 
of  plaintiff's  case  to  the  court  of 
last  resort  while  the  foreclosure 
proceedings  were  pending.  There 
is  nothing  before  us  to  indicate 
that  the  foreclosure  suit  in  the 
federal  court  was  for  the  purpose 
of  making  equitable  distribution  of 
the     assets     of     the     corporation 


amongst  its  creditors  or  had  any 
object  beyond  the  ordinary  fore- 
closure of  a  mortgage  and  inci- 
dental conservation  of  the  mort- 
gaged property  while  the  suit  was 
in  progress. 

"While  authorities  are  cited  by 
defendants  sustaining  extreme 
views  as  to  the  immunity  afforded 
delinquent  railroads  from  legal 
liability  by  appointment  of  re- 
ceivers to  conserve  mortgaged 
property  during  foreclosure  pro- 
ceedings, we  think  there  is  re- 
spectable authority  and  better 
reason  for  the  view  that  so  long  as 
the  presumably  temporary  posses- 
sion by  the  receivers  of  the  prop- 
erty they  are  appointed  to  con- 
serve is  not  disturbed  other  courts 
are  not  closed  by  the  foreclosure 
suit  to  those  desiring  to  pursue 
their  legal  remedies  against  the 
defaulting  corporation." 

A  person  receiving  personal  in- 
juries for  which  a  judgment  had 
been  rendered  against  the  mort- 
gagor railroad  company  for  wrong 
committed  before  the  appointment 
of  a  receiver  is  a  general  creditor 
and  the  earnings  of  the  receiver- 
ship need  not  be  applied  first  to 
the  payment  of  these  judgments. 
Central  Trust  Co.  v.  East  Tennes- 
see, V.  &  G.  R.  Co.,  30  Fed.  895. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1127 


founded  on  a  judgment  against  him  is  presented  in  the 
estate  to  see  that  the  court  is  made  acquainted  with  the 
facts.  If  the  court,  the  receiver,  and  the  creditors  are 
alert  a  general  unsecured  claim,  though  evidenced  by  a 
judgment  against  the  receiver,  can  not  be  advanced  in 
raiik.*^ 


§  409.     Liability  of  the  Receiver. 

It  might  happen  that  a  receiver  is  not  in  possession 
and  exclusive  control  of  the  property  at  the  time  an  in- 
jury occurs,  although  it  occurs  after  his  appointment. 
Under  such  circumstances  the  receiver  would  not  be 
liable.  1  Some  state  statutes  expressly  make  the  receiver 
liable  for  the  torts  of  his  agents ;-  and  in  some  cases^  he 


0  Hampton  v.  Norfolk,  etc.,  R. 
Co.,  127  Fed.  662,  62  C.  C.  A.  388. 

One  having  a  just  cause  of  ac- 
tion for  injuries  caused  by  the 
management  of  a  locomotive  en- 
gine may  bring  his  action  against 
both  the  railroad  company  and  re- 
c  jivers  appointed  to  take  charge  of 
its  property,  in  order  to  establish 
his  demand  in  one  action  against 
whichever  is  legally  liable.  Union 
Pac.  Ry.  Co.  v.  Smith,  59  Kan.  80, 
52  Pac.  102. 

1  Pennsylvania  R.  Co.  v.  Jones, 
155  U.  S.  333,  350,  39  L.  Ed.  17G, 
182,  15  Sup.  Ct.  136  (Receiver  ap- 
]iointed  to  receive  income,  but 
company  left  in  control  of  opera- 
tion.) Lauber  v.  Linch,  65  Misc. 
Rep.  209,  119  N.  Y.  Supp.  614 
(Another  company  operating  be- 
fore receiver  took  possession). 

In  Washington,  A.  &  G.  R.  Co.  v. 
Brown,  84  U.  S.  445,  21  L.  Ed.  675, 
it  appeared  that  a  railroad  was  op- 
erated on  the  joint  account  of  a 
receiver  of  part  of  it  and  lessees 


•  of  the  remaining  part,  and  that  the 
tickets  were  issued  by  the  railroad 
company,  and  an  injury  occurred 
to  a  passenger,  it  was  held  that 
the  operation  of  the  road  by  the 
lessees  did  not  change  the  relation 
of  the  original  company  to  the  pub- 
lic, and  the  company  was  respon- 
sible unless  it  appeared  that  the 
possession  of  the  receiver  was  ex- 
clusive, and  the  control  of  the  em- 
ployees exclusively  in  him.  And 
when  the  road  was  run  on  the 
joint  account  of  the  lessees  and 
receiver,  the  servants  being  em- 
ployed by  them  jointly,  both  were 
liable  for  the  injury  complained 
of  together  with  the  original  com- 
pany. 

2  See  Central  Trust  Co.  v.  East 
Tennessee,  etc.,  R.  Co.,  69  Fed. 
353;  Baltimore  Trust,  etc.,  Co.  v. 
Atlanta  Traction  Co.,  69  Fed.  358. 

3  United  States  v.  Bailey,  178 
Fed.  302.  In  this  case  a  receiver 
was  held  to  be  included  in  the 
term  "successor"  as  used  in  a  bond 
to  protect  the  government  against 


1128  LAW    OF    RECEIVERS. 

has  been  held  liable  under  provisions  of  a  contract.  But 
if  the  receiver  is  in  full  and  absolute  control,  he  is  liable 
on  general  common  law  principles  alone,  since  he  is  under 
such  circumstances,  a  common  carrier.  His  position 
is  not  like  that  of  a  public  political  official,  such  as  a 
state  or  municipal  officer,  wdio,  on  general  principles  or 
because  of  statutory  provision,  may  not  be  liable  for  the 
torts  of  his  agents ;  he  is  a  common  carrier  and  as  such 
is  liable  for  the  negligence  of  his  employees  just  as  the 
company  itself  would  be.^ 

If  the  receiver  is  in  absolute  control  of  the  property 
so  as  to  be  liable  for  the  injury  then  the  company  is  not 
liable.  Of  course,  as  far  as  a  claim  against  the  estate  is 
concerned,  a  judgment  against  the  receiver  is  of  higher 
rank  than  one  against  the  company ;  and  a  creditor,  being 
aware  of  this  rule,  would  not  sue  the  company  rather  than 
the  receiver,  if  he  was  in  a  legal  position  to  sue  the  latter, 
unless  he  desired  to  seek  payment  from  property  not 
involved  in  the  estate;  it  would  be  with  reference  to  this 
latter  phase  of  the  matter  that  the  company  Avould  be 
chiefly  interested  in  seeing  that  it  was  not  wrongfully 
sued.^ 

injury  from  the  operation  of  a  road  States  v.  Nixon,  235  U.  S.  231,  59 

over  a  certain  right  of  way.  L.  Ed.  207,  35  Sup.  Ct.  49. 

4  Barton  v.   Barbour,   104   U.   S.  "It  accords  with  sound  principle 

126,    26    L.    Ed.    672;    Continental  and   reason   that  a  receiver  exer- 

Trust  Co.  V.  Toledo,  etc.,  R.  Co.,  cising  the  franchise  of  a  railroad 

89  Fed.  637;  McNulta  v.  Lockridge,  company  shall  be  held  amenable, 

137  111.  270,  31  Am.  St.   Rep.  362,  in  his  official  capacity,  to  the  same 

27  N.  E.  452;   Rouse  v.  Harry,  55  rules    of   liability    that    are    appli- 

Kan.  589,  40  Pac.  1007;  Kinney  v.  cable  to  the  company  while  it  exer- 

Crocker.  18  Wis.  74;    Hill  v.  Bos-  cises  the  same  powers  of  operating 

ton,    122   Mass.   344,   23    Am.    Rep.  the  road."   Little  v.  Dusenberry,  46 

332.  X.  J.  L.  614,  50  Am.  Rep.  445. 

This  case  fully  discusses  the  5  Atlanta,  B.  &  A.  R.  Co.  v.  Mc- 
matter  and  reaches  the  conclusion  Gill,  194  Ala.  186,  69  So.  874;  Mem- 
stated  in  the  text.  phis,  etc.,  Ry.  Co.  v.  Stringfellow, 

Receivers    operating    a    railway  44    Ark.    322,    51    Am.    Rep.    598; 

are     common      carriers.       United  Tallulah  Falls  Ry.  Co.  v.  Ramey, 


EAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1129 


A  public  utility  company  can  not  escape  liability  for 
injuries  caused  through  the  negligent  maintenance  or 
operation  of  its  property  by  voluntarily  turning  over 
control  to  another,  such  as  a  lessee.*^  Since,  however,  a. 
lessee  would  not  be  liable  for  injuries  caused  during  the 
time  that  a  receiver  appointed  over  its  affairs  was  in  con- 
trol of  the  property,  the  lessor  would  not  be  liable  either.^ 
If  a  receiver  is  appointed  over  a  lessor  and  he  adopts  the 
lease  and  permits  the  lessee  to  remain  in  control  he  is 
liable  for  injuries  caused  during  the  period  of  the  re- 
ceivership.^ 

A  receiver  is  liable,  just  as  the  company  would  be,  for 
negligence  in  the  maintenance  or  operation  of  the  prop- 
erty or  for  an  injury  accruing  in  anyway  that  would  give 


137  Ga.  568,  73  S.  E.  838;  McNulta 
V.  Lockridge,  137  111.  270,  31  Am. 
St.  Rep.  362,  27  N.  E.  452;  Ohio 
&  M.  R.  Co.  V.  Davis,  23  Ind.  553, 
85  Am.  Dec.  477;  State  v.  Minne- 
apolis, etc.,  Ry.  Co.,  88  la.  689, 
56  N.  W.  400;  Slider  v.  Pere  Mar- 
quette R.  Co.,  194  Mich.  518,  161 
N.  W.  961;  Moore  v.  Metropolitan 
St.  Ry.  Co.,  189  Mo.  App.  555,  176 
S.  W.  1120;  Metz  v.  Buffalo,  C.  & 
P.  R.  Co.,  58  N.  Y.  61,  17  Am. 
Rep.  201;  Andrews  v.  Roberts,  et 
al.,  (Tex.  Civ.  App.)  192  S.  W.  569. 

It  is  a  well-settled  rule  of  law, 
that,  v.hen  a  railroad  is  being  op- 
erated by  a  receiver,  the  corpora- 
tion which  owns  the  railroad  is 
not  liable  for  injuries  caused  by 
the  negligence  of  the  receiver,  or 
those  who  are  acting  for  him  in 
the  operation  of  the  railroad.  Mis- 
souri, K.  &  T.  Ry.  Co.  v.  McFad- 
den,  89  Tex.  138,  33  S.  W.  853; 
Ft.  Worth  &  R.  G.  Ry.  Co.  v.  Bal- 
lon, (Tex.  Civ.)  174  S.  W.  337. 

International,    etc.,    Ry.    Co.    v. 


Dawson,  (Tex.  Civ.)  193  S.  W. 
1145  the  court  said:  "The  court 
erred  in  rendering  judgment 
against  the  railway  company,  be- 
cause the  evidence  shows  that  the 
damages  claimed  accrued  while 
the  railroad  was  in  the  hands  of 
a  receiver  appointed  by  the  federal 
court.  A  railway  company  is  not 
liable  for  damages  suffered  after 
its  property  has  passed  into  the 
possession  and  control  of  a  re- 
ceiver. St.  Louis,  B.  &  M.  Co.  v. 
Green,  (Tex.  Civ.)  183  S.  W.  829; 
Freeman  v.  Barry,  63  Tex.  Civ. 
295,  133  S.  W.  748." 

6  Washington  A.  &  G.  R.  Co.  v. 
Brown,  84  U.  S.  (17  Wall.)  445,  448, 
21  L.  Ed.  675.  See  Henning  v. 
Sampsell,  236  111.  375,  86  N.  E.  274. 

7  Chamberlain  v.  New  York,  etc., 
R.  Co.,  71  Fed.  636;  Henning  v. 
Sampsell,  236  111.  375,  86  N.  E.  274. 
See  Tandrup  v.  Sampsell,  234  111. 
526,  17  L.  R.  A.  (N.  S.)  852,  85 
N.  E.  331. 

8  Atkinson  v.  F.  S.  Dismuke  & 
Bro.,  11  Ga.  App.  521,  75  S.  E.  835. 


1130  LAW    OF   RECEIVERS. 

a  valid  cause  of  action  against  the  owner  of  tlio  propert\% 
if  the  owner  were  in  control.^ 

A  receiver  may,  because  of  direct  personal  knowledge 
.of  the  existence  of  dangerous  conditions  of  the  property 
or  of  the  incapacity  of  employees  or  for  some  like  reason, 
make  himself  personally  liable  for  injuries  caused  while 
he  is  in  control.^*'  But  where  there  is  no  element  present 
in  the  facts  to  warrant  imposing  the  liability  upon  tlie 
receiver  as  personal  liability  and  his  liability  is  due 
simply  to  the  fact  that  the  actionable  negligence  is  that 
of  his  employee,  the  liability  of  the  receiver  is  not  per- 
sonal, but  official.  The  rule  has  been  stated  as  follows: 
"A  receiver  of  a  railroad  company,  who  is  exercising  the 
franchises  of  such  company  and  operating  its  road,  is,  in 
his  official  capacity,  amenable  to  the  same  rules  of  lia- 
bility that  are  applicable  to  the  company  when  it  is  oper- 
ating the  road  by  virtue  of  the  same  franchises.  For 
torts  committed  by  his  servants  while  operating  the  rail- 

0  Central  Trust  Co.  v.  Wabash,  contsruction  of  a  crossing) ;  Mel- 
etc,  Ry.  Co.,  26  Fed.  12  (Receiver  endy  v.  Barbour,  78  Va.  544  (Re- 
liable for  statutory  double  damage  ceiver  liable  for  loss  of  freight), 
for  killing  stock) ;    Sheat  V.  Lusk,  Personal        injuries        inflicted 

98  Kan.  614,  L.  R.  A.  1916F,  1021,      through    the    negligence    of   a    re- 

ceiver  are  payable  from   the  cur 


159  Pac.  407    (Receiver  liable  for 
in.iury  caused  by  a  defect  in  a  cul- 


rent  receipts.    Texas  Pac.  Ry.  Co 

v.   .Johnson,   76   Tex.   421,   18   Am 

vert  that  had  existed  for  more  than  g^^  ^^^    g^    ^3  g   ^^    ^gg.  ^^^^  ^ 

a   year   under   his    management);  Hays,  62  Tex.  42;    Barton  v.  Bar 

Wall   V.   Piatt,   169    Mass.    398,   48  bour,  104  U.  S.  126,  130,  26  L.  Ed 

N.  E.  270    (Receiver  liable   under  672,  675;   Kain  v.  Smith,  80  N.  Y 

statute  for  fire  communicated  by  458,  470;    Hale  v.  Frost,  99   U.   S 

engines);    St.  Louis,  B.  &  M.  Ry.  389,  25  L.  Ed.  419. 

Co.    v.    Knowles,    (Tex.    Civ.)    171  In    receivership    proceedings    a 

S.  W.  245  (Receiver  liable  for  kill-  claim  for  personal  injuries  occur- 

ing  of  animal) ;   Yoakum  v.  Dunn,  ring  prior  to   the   receivership   is 

1  Tex.  Civ.  App.  524,  21  S.  W.  411  not  entitled  to  priority  over  a  prior 

(Receiver  liable  under  statute  for  mortgage.     Crawford     v.     Seattle, 

injury  to  freight) ;    Town  of  Rox-  etc.,    Ry.    Co.,    97   Wash.    651,    167 

bury   V.   Central  Vermont  R.   Co.,  Pac.  44. 

60   Vt.    121,   14   Atl.   92    (Receiver  lOErwin  v.  Davenport,  9  Heisk. 

liable  for  injury  due  to  negligent  (Tenn.)    44. 


TwYILROADS PUELIC    UTILITY    CORPORATIONS.  lll^1 

road  under  liis  management,  lie  is  responsible  upon  the 
principle  of  respondeat  superior.  The  liability,  however, 
is  not  a  personal  liability,  but  a  liability  in  his  official 
capacity  only;  and  the  damage  for  such  torts  are  not  to 
be  recovered  in  suits  against  him  personally  and  collected 
on  executions  against  his  individual  property,  but  re- 
covered in  suits  or  proceedings  in  which  he  is  named  or 
designated  as  receiver,  and  to  be  paid  only  out  of  the  fund 
or  property  which  the  court  appointing  him  has  placed 
in  his  possession  and  under  his  control.  "^^ 

The  reason  for  the  rule  is  stated  to  be  that  the  receiver 
is  an  officer  of  the  court  and  acts  entirely  in  pursuance 
of  its  orders  and  directions  so  that  his  acts  are,  in  a  sense, 
not  his  own  but  those  of  the  court.^-  Because  of  the  rule 
it  is  said  that  claims  of  this  character  against  the  receiver 
are  claims  against  the  receivership  fund  and  in  a  sense 
are  in  rem}^ 

Two  consequences  follow  from  the  rule  just  stated. 
(1)  In  the  first  place  a  successor  to  a  receiver,  upon  a 
vacancy  caused  by  resignation  or  otherwise,  is  in  the  same 
official  way  liable  for  the  torts  of  his  predecessor ;  he  may 
be  substituted  as  defendant  in  actions  already  pending 
or  may  be  made  defendant  in  new  actions. ^^  (2)  A  receiver 
may  not  be  sued  after  he  has  been  discharged  and  there 
no  longer  remains  in  his  possession  any  property  out  of 
which  he  could  satisfj^  a  judgment. ^^ 

11  McNnlta  v.  Lockridge,  137  111.  should     be     paid     from     income 

270,  31  Am.  St.  Rep.  362,  27  N.  E.  Meyer  Rubber  Co.  v.  Georgetown 

452.  etc.,   Ry.   Co.,   174   Fed.   731. 

i2Kain  v.  Smith,  80  N.  Y.  458.  ir.  Farmers'    Loan,    etc.,    Co.    v. 

13  Davis  V.  Duncan,  19  Fed.  477;  Central  R.  Co.,  7  Fed.  537,  2  Mc- 
Atlanta,  B.  &  A.  R.  Co.  v.  McGill,  Crary  181;  Ryan  v.  Hays,  62  Tex. 
194  Ala.  186,  69  So.  874;  Atlanta,  42.  See,  Erb  v.  Popritz,  59  Kan. 
B.  &  A.  R.  Co.  V.  McGill,  194  Ala.  264,  68  Am.  St.  Rep.  362,  52  Pac. 
186,  69  So.  874;  McNulta  v.  Lock-  871,  as  to  sufficiency  of  allegation 
ridge,  137  HI.  270,  31  Am.  St.  Rep.  that  the  property  and  fund  have 
362,  27  N.  E.  452.  passed  out  of  his  possession.    See, 

14  Damages  to  employees  are  Hovey  v.  Weaver,  (Tex.  Civ.)  175 
part    of    operating    expenses    and  S.   W.    1089.    A   statute   of   Texas 


132 


LAW   OF    RECEIVERS. 


When  tlie  claim,  founded  on  the  judgment,  is  presented 
to  the  receivership  court  for  allowance  and  payment,  in 
accordance  with  this  rule,  a  judgment  of  a  court  that  did 
not  have  jurisdiction  to  entertain  a  suit  against  the  re- 
ceiver because  of  lack  of  previous  necessary  consent  of 
the  receivership  court  is  not  binding  upon  that  court. ^^^ 
However,  under  the  United  States  statute  permitting  a 
federal  receiver  to  be  sued  respecting  his  management  of 
the  estate  without  the  previous  consent  of  the  receiver- 
ship court,  a  state  court  is  not  deprived  of  jurisdiction 
to  entertain  an  action  for  tort  against  a  federal  receiver 
because  of  the  clause  in  the  statute  to  the  effect  that 
''such  suits  shall  be  subject  to  the  general  equity  juris- 
diction" of  the  appointing  court.^'^ 

In  actions  against  a  receiver,  the  general  principles  of 
law  concerning  actions  based  on  torts  govern. ^^ 


provides  that  receivers  under  cer- 
tain circumstances  may  be  sued 
after  discliarge.  It  was  held  in  this 
case  that  the  statute  did  not  apply 
to  federal  receivers  and  that  there- 
fore it  was  necessary  for  a  plain- 
tiff seeking  redress  under  the  stat- 
ute to  allege  the  court  by  which 
the  receiver  had  been  discharged 
in  order  that  it  might  appear  on 
the  face  of  the  complaint  whether 
or  not  the  plaintiff  came  within 
the  provisions  of  this  statute  as 
to  this  point. 

16  Missouri  Pac.  R.  Co.  v.  Texas, 
etc.,  Ry.  Co.,  41  Fed.  311. 

17  Central  Trust  Co.  v.  St.  Louis, 
etc.,  Ry.  Co.,  41  Fed.  551. 

18  The  general  rules  of  pleading 
and  evidence  concerning  the  offi- 
cial character  of  the  defendant 
and  concerning  his  control  of  the 
property  apply.  Strain  v.  Superior 
Court,  168  Cal.  216,  142  Pac.  62; 
McNulta  V.  Ensch,  134  HI.  46,  24 
N.  E.  631;   McNulta  v.  Lockridge, 


137  111.  270,  31  Am.  St.  Rep.  362, 
27  N.  E.  452;  Henry  v.  Epstein. 
(Ind.  App.)  95  N.  E.  275;  Moore 
V.  Metropolitan  St.  Ry.  Co.,  189 
Mo.  App.  555,  176  S.  W.  1120; 
Davies  v.  Texas  C.  R.  Co.,  62  Tex. 
Civ.  599,  133  S.  W.  295;  Beaumont, 
S.,  etc.,  Ry.  Co.  v.  Daniel.  (Tex. 
Civ.)  186  S.  W.  383. 

Whether  or  not  receivers  come 
within  the  scope  of  special  stat- 
utes relating  to  liability  for  torts 
is  a  matter  of  statutory  construc- 
tion to  be  determined  by  the  prin- 
ciples governing  that  matter. 
Hampton  v.  Norfolk,  etc.,  R.  Co., 
127  Fed.  662,  62  C.  C.  A.  388  (A 
statute  providing  that  a  judgment 
based  on  a  tort  may  be  satisfied 
out  of  the  mortgaged  property  of 
a  corporation  does  not  apply  to  a 
judgment  against  a  lessee  whose 
lease  was  subsequent  to  the  mort- 
gage nor  give  the  judgment  owner 
a  prior  claim  upon  the  income  of 
the  lessee's  property  after  the  in- 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1133 


Where  railroad  receivers  were  appointed  in  the  Mis- 
souri district  and  also  in  the  Michigan  district  on  an 
ancillary  bill,  a  claim  arising  out  of  operations  in  Michi- 


come  has  been  impounded  for  the 
benefit  of  the  mortgagee  by  the 
appointment  of  a  receiver).  Bid- 
die  V.  Riley,  118  Ark.  206,  L.  R.  A. 
3915P,  992,  176  S.  W.  134  (Where 
the  lines  of  a  receiver  are  used 
by  a  mere  licensee,  the  receiver 
is  liable  for  injury  to  a  passenger, 
whether  his  agents  or  those  of 
the  licensee).  Lusk  v.  Eddington, 
(Okla.)  159  Pac.  491  (A  receiver 
using  the  line  of  another  company 
as  a  mere  licensee  Is  not  respon- 
sible for  the  absence  of  a  fence 
along  the  right  of  way).  Dilling- 
ham V.  Scales,  (Tex.  Civ.  App.)  24 
S.  W.  975  (A  receiver  is  not  a 
"proprietor,"  "owner,"  "charterer," 
or  "hirer"  in  the  sense  of  those 
terms  as  used  in  a  special  statute 
giving  a  cause  of  action  to  certain 
heirs  for  a  death  caused  by  negli- 
gence. See,  also,  Houston,  etc.,  Ry. 
Co.  V.  Roberts,  (Tex.)  19  S.  W. 
512;  Yoakum  v.  Selph,  83  Tex.  607, 
19  S.  W.  145.  See,  also,  Meara's 
Adm'r  v.  Holbrook,  20  Ohio  St. 
137,  5  Am.  Rep.  633;  Little  v. 
Dusenberry,  46  N.  J.  Law  614,  50 
Am.  Rep.  445,  and,  Lamphear  v. 
Buckingham,  33  Conn.  237,  238; 
Bammel  v.  Kirby,  19  Tex.  Civ.  198, 
47  S.  W.  392  (The  term  "any  rail- 
roads" includes  street  railroads) ; 
Hornsby  v.  Eddy,  56  Fed.  461,  5 
C.  C.  A.  560  (A  statute  depriving 
a  railroad  company  of  the  benefit 
of  the  fellow  servant  doctrine  in 
case  of  an  injury  to  an  employee 
applies  to  a  receiver.  See,  also, 
Allen  V.  Dillingham,  60  Fed.  176, 
8  C.  C.  A.  544;  Texas  &  P.  R.  Co. 
V.   Cox,   145   U.   S.   593,   36    L.    Ed. 


829,  12  Sup.  Ct.  905;  Rouse  v. 
Hornsby,  67  Fed.  219,  14  C.  C.  A. 
377;  Henderson  v.  Walker,  55  Ga. 
481;  Central  Trust  Co.  v.  East 
Tennessee,  ete.,  R.  Co.,  69  Fed. 
353). 

The  rule  as  to  the  degree  of 
care  is  the  same  for  the  receiver 
as  for  the  company.  Fullerton  v. 
Fordyce,  121  Mo.  1,  42  Am,  St.  Rep. 
516,  25  S.  W.  587. 

The  receiver  may  plead  the  stat- 
utes of  limitation.  Bartlett  v. 
Keim,  50  N.  J.  L.  260,  13  Atl.  7. 

The  verdict  must  be  in  accor- 
dance with  the  evidence,  and  the 
judgment  must  be  based  upon  the 
verdict.  San  Antonio,  etc.,  Ry.  Co. 
V.  McCammon,  (Tex.  Civ.)  181 
S.  W.  541. 

The  exception  made  to  the  com- 
mon-law rule  precluding  recovery 
from  a  master  for  injuries  sus- 
stained  through  the  negligence  of 
a  co-employee,  by  Ga.  Civ.  Code, 
§  2323,  in  case  of  injuries,  did  not, 
prior  to  the  passage  of  Ga.  act 
December  16,  1895,  extend  to  an 
employee  of  a  receiver  of  a  rail- 
road company;  and  a  recovery  can 
not  be  had  for  an  injury  sustained 
by  such  employee  before  the  pas- 
sage of  that  act.  Barry  v.  McGhee, 
100  Ga.  759,  28  S.  E.  455. 

A  receiver  of  a  railroad  is  a 
"fellow  servant"  under  Minn.  Gen. 
Stat.  1894,  §  2701,  and  is  liable  for 
an  injury  to  an  employee.  Mikkel- 
son  V.  Truesdale,  63  Minn.  137,  65 
N.  W.  260. 

An  action  against  a  receiver  of 
a  railroad  corporation  is  within 
the  provisions  of  Ohio  act  April  2, 


1134  T-''^W    OF    RECEIVERS. 

gan  should  be  presented  there,  if  that  court  was  ind('])('ii- 
dently  administering  the  property  in  its  jurisdiction,  but 
otherwise  to  the  Missouri  court.^^ 

§  410.     Liability  of  the  Purchaser  at  a  Receivership  Sale. 

The  purchaser  at  a  receivership  sale  is  not  of  course 
responsible  perj^onally  for  any  injury  caused  by  the. neg- 
ligent use  of  the  public  utility  property  either  by  the  com- 
pany or  the  receiver ;  but  we  have  seen  that,  for  the  pur- 
pose of  facilitating  the  administration  of  the  estate  and 
closing  up  the  receivership  promptly,  the  court  may,  in 
the  order  decreeing  a  sale  of  the  property  make  unpaid 
claims  for  damages  from  tortious  injuries  a  liability 
against  the  property.  An  order  of  that  character  is  con- 
clusive and  its  provisions  are  binding  upon  the  pur- 
chaser.^ And  where  a  liability  or  lien  for  damages  to 
shipments  is  created  by  a  statute,  provided  that  suit  is 
commenced  within  a  certain  time,  the  lien  is  not  enforce- 
able against  the  property  in  the  hands  of  a  purchaser 
unless  the  suit  was  commenced  within  the  prescribed 
time.  2 

§  411.     Liability  of  the  Company  if  the  Property  Is  Returned 
to  It. 

It  may  happen  that  pending  the  receivership  proceed- 
ing the  affairs  of  the  public  utility  company  take  such 

1890,    making    railroad    companies  176.     Chicago,  R.  I.  &  P.  Ry.  Co.  v. 

liable  in  certain  cases  for  the  neg-  Lopez  (Tex.  Civ.  App.),  209  S.  W. 

ligence  of  fellow  servants  or  em-  192,  was  an  instance  where  a  re- 

ployees  who  have  power  or  author-  organization  was  effected  and  an 

ity   to    direct   or   control   the   one  agreement  made  by  which  it  was 

injured.    Peirce  v.  Van  Dusen,  78  made    a    condition    that   the    com- 

Fed.  693,  24  C.  C.  A.  280,  47  U.  S.  pany  would  pay  all  claims  against 

App.  339.  the  receiver  arising  from  his   op- 

10  Equitable    Trust    Co.    v.    Wa-  eration.      Earnings    were    used    in 

bash  R.  Co.  (C.  C.  A.),  244  Fed.  66.  betterments.    See,  also,  chapter  on 

1  See  Houston  &  T.  C.  Ry.  Co.  v.  Sales. 

Crawford,  88  Tex.  277,  53  Am.  St.  2  Williams    v.   Missouri    Pac.    R. 

Rep.  752,  28  L.  R.  A,  761,  31  S.  W.  Co.,  134  Ark.  366,  203  S.  W.  1038. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1135 


shape  as  to  warrant  the  court  in  making  an  order  direct- 
ing that  the  property  be  restored  to  the  control  and  man- 
agement of  the  company.  In  such  a  circumstance  the 
property  may  be  liable  for  obligations  or  debts  of  the 
receiver  remaining  unpaid  at  the  time  of  the  restoration. 
If  the  receiver,  pending  his  control  and  management 
has  expended  from  his  income  money  for  improving  and 
bettering  the  property,  then  the  property,  in  the  hands 
of  the  company  after  restoration,  is  liable  for  claims 
against  the  receiver  to  the  amount  at  least  so  expended 
by  the  receiver.^ 


1  Texas  &  P.  Ry.  Co.  v.  Brick, 
83  Tex.  526,  29  Am.  St.  Rep.  675, 
18  S.  W.  947;  Texas  Pac.  Ry.  Co. 
V.  Johnson,  76  Tex.  421,  18  Am. 
St.  Rep.  60,  13  S.  W.  463;  Texas 
&  P.  R.  Co.  V.  Manton,  164  U.  S. 
-336,  41  L.  Ed.  580,  17  Sup  Ct.  216; 
Texas  P.  R.  Co.  v.  Bloom,  60  Fed. 
979,  9  C.  C.  A.  300;  Cozier  v.  An- 
drews,  (Tex.  Civ.)   206  S.  W.  975. 

In  Chicago,  R.  I.  &  P.  Ry.  Co.  v. 
Lopez  (Tex.  Civ.  App.),  209  S.  W. 
192,  the  court  said: 

"Appellee  was  Injured  while  an 
employee  of  the  receiver,  as  such, 
of  appellant's  railroad,  and  en- 
gaged in  operating  the  railroad. 
Damages  occurring  while  the  rail- 
road is  operated  by  the  receiver 
are  a  part  of  the  receiver's  ex- 
penses incurred  in  operating  the 
railroad  and  are  payable  out  ol 
the  current  earnings  of  the  road, 
which  earnings,  if  diverted  by  the 
receiver  and  placed  in  permanent 
improvements,  or  turned  over  to 
the  railroad  company  without  sale, 
make  said  company  liable  to  the 
extent  of  the  earnings  diverted  or 
turned  over  to  the  railroad  com- 
pany. Railway  Co.  v.  Johnson,  76 
Tex.  421,  13  S.  W.  463.  IS  Am.  St. 


Rep.  60,  and  same  case  on  appeal 
to  United  States  Supreme  Court, 
151  U.  S.  81,  14  Sup.  Ct.  250,  38 
L.  Ed.  81;  Holman  v.  G.,  H.  &  S. 
A.  Ry.  Co.,  14  Tex.  Civ.  App.  499, 
37  S.  W.  464;  I.  &  G.  N.  Ry.  Co.  v. 
Perkins,  185  S.  W.  657;  M.,  K.  & 
T.  Ry.  Co.  v.  Chilton,  7  Tex.  Civ. 
App.  183,  27  S.  W.  272.  At  the 
time  of  filing  this  suit,  the  receiver 
had  been  discharged,  and,  to  fix  a 
liability  for  his  cause  of  action  on 
the  appellant  railroad,  appellee  al- 
leged that  the  railroad  propeities 
had  been  returned  to  the  company 
with  betterments." 

In  Chicago,  R.  I.  &  P.  Ry.  Co.  v. 
McBride,  (Ark.)  206  S.  W.  149,  the 
court  said:  "Appellant  also  insists 
that  it  was  not  a  party  or  privy  in 
the  original  suit  and  not  bound  by 
the  judgment  rendered  therein. 
This  contention  is  based  upon  the 
general  rule  that  a  judgment  is 
conclusive  only  between  the  par- 
ties and  their  privies.  It  is  true, 
as  an  abstract  proposition  of  law, 
that  a  corporation  is  not  respon- 
sible for  the  negligent  acts  of  the 
servants  of  its  receiver  while  the 
receiver  is  in  possession  of  the 
property,  and  that  only  parties  and 


1136 


LAW    OF    RECEIVERS. 


Again,  the  court,  in  so  restoring  the  property  to  the 
company,  is  justified  in  making  it  a  condition  to  so  doing 
that  the  company  receive  the  property   subject  to   all 


privies  to  a  judgment  are  con- 
clusively bound  by  it.  But  the 
cause  of  action  stated  in  this  com- 
plaint and  admitted  by  the  demur- 
rer is  not  an  attempt  to  hold  the 
corporation  responsible  for  the 
negligence  of  the  employees  of  its 
receiver  nor  to  recover  from  the 
corporation  on  the  ground  that 
there  is  privity  between  the  cor- 
poration and  its  receiver.  This  is 
an  attempt  to  hold  appellant  on 
entirely  different  grounds.  The 
complaint  alleged,  and  tho  demur- 
rer admitted,  that  the  receiver  in 
the  instant  case  w^as  appointed 
with  the  acquiescence  and  consent 
of  appellant;  that  the  net  earnings 
of  the  receiver  while  he  had 
possession  of  the  road  amounted 
to  many  million  dollars,  a  part  of 
which  he  put  in  betterments,  a 
part  of  which  he  applied  to  the 
payment  of  interest  in  the  funded 
mortgage  indebtedness  of  the  road, 
and  a  large  part  of  which  he  paid 
to  the  corpoi-ation  when  he  re- 
turned the  property  to  it ;  that  that 
part  of  the  net  earnings  returned 
to  the  corporation  exceeded  all 
claims  incurred  during  the  re- 
ceivership, including  the  claim  of 
appellee;  that  the  property  deliv- 
ered to  the  receiver  when  ap- 
pointed was  not  sold  under  order 
of  court,  but  was  returned,  with 
betterments  and  additions  to  ap- 
pellant corporation,  together  with 
many  million  dollars  of  net  earn- 
ings. 

"It  will  be  observed  that  this  is 
an  attempt  to  recover  on  a  judg- 
ment In  favor  of  appellee  against 


the  receiver  of  appellant  corpora- 
tion, rendered  after  a  trial  of  the 
cause  on  its  merits,  out  of  the 
proceeds  earned  by  the  receiver 
and  transferred  by  the  receiver  to 
the  corporation  without  first  pay- 
ing the  valid  and  binding  indebt- 
edness of  the  receiver.  It  would 
be  inequitable  to  permit  the  cor- 
poration to  receive  and  hold  the 
earnings  of  the  leceiver  and  not 
pay  the  liabilities  incurred  by  him 
in  the  management  and  conduct 
of  the  business;  so  it  was  proper 
for  appellee  to  recover,  under  the 
alleged  and  admitted  facts,  on 
equitable  principles.  In  specifying 
the  ground  upon  which  the  corpo- 
ration was  held  liable  in  the  case 
of  Texas  &  Pacific  Ry.  Co.  v.  John- 
son, 151  U.  S.  81,  38  L.  Ed.  81,  14 
Sup.  Ct.  250,  a  case  quite  similar 
to  the  instant  case,  Mr.  Chief 
Justice  Fuller  said:  'The  company 
was  held  liable  upon  the  distinct 
ground  that  the  earnings  of  the 
road  were  subject  to  the  payment 
of  claims  for  damages,  and  that 
as,  in  this  instance,  such  earnings, 
to  an  extent  far  greater  than  suffi- 
cient to  pay  the  plaintiff,  had  been 
diverted  into  betterments,  of 
which  the  company  had  the  bene- 
fit, it  must  respond  directly  for 
the  claim.  This  was  so  by  reason 
of  the  statute  (Laws  Tex.  1887,  p. 
120,  ch.  131,  §  6),  and,  irrespective 
of  statute,  on  equitable  principles 
applicable  under  the  facts.' 

"In  the  case  of  Texas  &  Pacific 
Ry.  Co.  V.  Bloom's  Adm'r,  164 
U.  S.  636,  41  L.  Ed.  580,  17  Sup. 
Ct.   216,   after   reiterating   and   af- 


RAILROADS — PUBLIC    UTILITA'    CORPORATIONS. 


1137 


claims  against  the  receiver  and  it  is  the  general  practice 
to  incorporate  such  a  condition.  The  condition  is  binding 
and  any  rights  under  it  are  determined  entirely  by  the 
terms  of  the  order.   A  receipt  given  by  the  company  to 


firming  the  doctrine  announced  in 
Texas  &  Pacific  Ry.  v.  Comstock, 
S3  Tex.  537,  Justice  Shiras  said:  'It 
was  indisputably  shown  at  the 
trial,  by  the  testimony  of  the  re- 
ceiver himself,  that  the  earnings 
of  the  railroad  while  operated 
by  him  largely  exceeded  the  ex- 
penses, and  that  a  very  large  sum 
was  applied  by  him  to  improve- 
ments and  new  equipments,  so 
that  "the  road  was  turned  over  to 
the  company  in  far  better  condi- 
tion and  more  valuable  by  far  than 
when  placed  in  the  hands  of  the 
receiver."  Such  a  state  of  facts 
certainly  discloses  an  equitable 
claim  against  the  railroad  on  be- 
half of  the  plaintiff  below.' 

"The  same  doctrine  was  an- 
nounced in  the  case  of  Garrison 
V.  Texas  &  Pacific  Ry.  Co.,  10  Tex. 
Civ.  App.  136,  30  S.  W.  725,  quot- 
ing third  syllabus:  'Where  the 
receivers  are  subsequently  dis- 
charged, and  the  property  returned 
to  the  railway  company  with  bet- 
terments of  great  value  made  by 
them,  such  claim,  in  judgment 
against  the  receivers,  may  be  then 
enforced  by  suit  thereon  against 
the  company,  notwithstanding  its 
non-allowance  as  against  the  re- 
ceivers.' 

"In  the  case  of  Bartlett,  Adm'r 
V.  Cicero  Light,  Heat  &  Power  Co., 
177  111.  68,  69  Am.  St.  Rep.  206, 
42  L.  R.  A.  715,  52  N.  E.  339,  dam- 
ages for  injuries  to  persons  were 
classed  as  necessary  expenses  of 
the  receivership  and  Mr.  Justice 
IT  Rec— 72 


Magruder,  in  rendering  the  opin- 
ion, said:  'Where  the  net  income 
derived  from  the  business  during 
the  receivership  is  diverted  from 
the  payment  of  such  operating  ex- 
penses, and  applied  to  the  per- 
manent improvement  of  the  prop- 
erty of  the  corporation,  and  the 
receiver  is  afterwards  discharged, 
and  the  property  is  again  turned 
over  to  the  corporation,  in  such 
case  the  corporation  is  liable  for 
torts  during  the  receivership  to 
the  extent  of  the  net  income  so 
applied.'     .     .     . 

"We  have  not  overlooked  the  con- 
tention of  appellant  that  the  effect 
of  adopting  the  rule  announced  by 
the  authorities  cited  may  result 
in  preventing  the  original  corpo- 
ration, or  the  appellant  in  this 
case,  from  defending  the  suit  on 
its  merits.  As  we  see  it,  the  only 
thing  which  should  concern  ap- 
pellant is  whether  or  not  there  are 
sufficient  net  earnings  from  the 
receivership  in  its  hands  to  pay 
the  judgment  obtained  against  the 
receiver.  The  case  of  Garrison  v. 
Texas  &  P.  Ry.  Co.,  10  Tex  Civ. 
App.  136,  30  S.  W.  725,  was  a  case 
where  a  judgment  had  been  ren- 
dered against  the  receiver,  and, 
after  his  discharge,  a  suit  brought 
on  the  judgment  against  the  rail- 
way company.  The  court  said  in 
that  case:  'We  think  it  must  now 
be  accepted  as  settled  that  the  act 
of  Congress  which  authorizes  re- 
ceivers appointed  by  federal  courts 
to   be   sued   without  leave   of  the 


1138 


LAW   OF    RECEIVERS. 


the  receiver  accepting  the  property  upon  such  conditions 
is  based  upon  a  valuable  consideration  and  is  binding 
upon  the  company.- 

In  order  to  establish  a  lien  upon  the  restored  property 
a  claimant  must  both  allege  and  prove  that  one  or  the 
other  of  the  above  mentioned  conditions  exist.^ 

If  the  order  of  restoration  limits  liens  upon  the  prop- 
erty to  claims  that  would  be  valid  claims  against  the  re- 
ceiver in  the  recoiversliip  court,  then  only  such  claims 


court  making  the  appoinfaient 
has  the  effect  of  making  the  judg- 
ments rendered  in  suits  so  brought 
conclusive  as  to  the  amount 
thereof.' 

"The  declaration  of  the  court 
touching  upon  this  point  seems  to 
be  amply  supported  by  authorities. 
The  original  corporation  had  no 
right,  in  equity  and  good  con- 
science, to  have  more  out  of  the 
earnings  of  the  receivership  than 
\he  net  earnings  after  the  pay- 
ment of  all  just  and  valid  claims. 
Especially  is  that  true  where  it  is 
conceded  that  appellant  acqui- 
esced in  and  consented  to  the  re- 
ceiverships." 

2  In  an  order  restoring  the  prop- 
erty to  the  company  and  making 
it  liable  for  all  "lawful  liabilities 
and  obligations"  of  the  receiver, 
the  terms  liabilities  and  obliga- 
tions include  a  claim  for  damages 
for  personal  injuries  due  to  the 
negligence  of  the  receiver.  Van- 
dalia  Ry.  Co.  v.  Keys,  46  Ind.  App. 
353,  91  N.  E.  173. 

The  word  "obligations"  includes 
a  cause  of  action  for  injury  to  an 
employee.  St.  Louis,  B.  &  M.  Ry. 
Co.  v.  Webber,  (Tex.  Civ.  App.) 
202  S.  \\\  519. 

Such  a  receipt  as  is  mentioned 
in  the  text  is  a  promise  made  by 
one  person  to  another  for  the  bene- 


fit of  a  third  under  such  circum- 
stances that  the  third  party  can 
himself  enforce  it.    Idem. 

Although  the  receivership  court, 
after  the  return  of  the  property 
and  the  discharge  of  the  receiver 
retains,  pursuant  to  the  order  ol 
restoration,  jurisdiction  to  heai 
and  determine  all  claims  and 
to  order  them  fixed,  if  allowed,  by 
the  company,  a  claimant  need  not 
present  his  claim  to  the  receiver- 
ship court,  but  may  bring  suit 
upon  it  in  the  state  court,  and  that 
court  may  enforce  its  judgment 
against  the  property.  Kansas  City. 
etc.,  Ry.  Co.v.  Latham,  (Tex.  Civ. 
App.)   182  S.  ^V.  717. 

The  receiver  having  been  dis- 
charged and  not  being  personally 
liable  is  not  a  necessary  party  to 
such  an  action.     Idem. 

Where  the  property  was  restored 
to  the  company  upon  condition 
that  it  assume  all  obligations  cre- 
ated under  the  receivership,  a 
judgment  for  damages  to  a  pas- 
senger caused  by  the  tort  of  a 
conductor  becomes  a  liability. 
Beaumont,  S.  L.  &  W.  Ry.  Co.  v. 
Daniels,  (Tex.  Civ.)  204  S.  W.  4S1. 
3  Ft.  Worth  &  R.  G.  Ry.  Co.  v. 
Zidell,  (Tex.  Civ.  App.)  202  S.  W. 
351;  Honey  v.  Weaver,  (Tex.  Civ.) 
175  S.  W.  1089;  Beaumont,  S.  L. 
&  W.  Ry.  Co.  V.  Daniel,  (Tex  Civ. 


RAILROAD? — PUBLIC    UTILITY    CORPORATIONS.  1130 

may  be  enforced  against  tlie  property.  A  claim  for  tort 
against  the  company  prior  to  the  receivership,"'  or  a  claim 
based  upon  some  act  of  the  receiver  that  was  beyond  and 
not  necessary  to  the  proper  performance  of  the  powers 
bestowed  upon  him  by  the  courf^  could  not  be  so  enforced. 

6.    Presentation  and  AUoivance  of  Claims 
and  Their  Priorities. 

§  412.     General  Rules  Governing  Presentation  and  Allowance. 

In  the  matter  of  handling  claims  against  the  estate, 
federal  receiverships  of  public  utility  corporations  have, 
in  practice,  been  peculiar  and  different  from  receiver- 
ships of  other  corporations,  both  because  of  the  vast 
amount  of  business  involved  and  because  of  the  varied 
and  intricate  nature  of  the  claims  presented.  This  fact 
has  made  it  necessary  for  the  courts  to  work  out  and 
apply  a  special  set  of  rules  governing  the  matter  of  the 
provability  of  claims  against  the  estate.  Bankruptcy 
rules  are  not  available ;  nor  are  the  rules  established  by 
state  courts  with  reference  to  claims  against  insolvent 
or  dissolved  corporations.  These  rules  and  decisions 
concerning  them  are  of  use  only  in  so  far  as  they  appeal 
to  the  conscience  of  the  chancellor. 

The  fundamental  principle  governing  the  distribution 
of  the  assets  of  a  public  utility  corporation  under  re- 
ceivership— as  it  is  in  cases  of  other  corporations — ig 
that  equality  is  equity. 

Claims  against  the  corporation  which  are  in  such  shape 
that  at  the  beginning  of  the  receivership  they  constitute 
a  present  cause  of  action  against  the  company — such,  for 

App.)  195  S.  W.  625;  Kansas  City,  liam  Reese  Co.    (Tex.  Civ.  App.), 

M.  &  O.  Ry.  Co.  V.  Russell,   (Tex.  210  S.  W.  317. 

Civ    App)    184   S.  W.   299;    Texas  4  Foreman  v.  Central  Trust  Co., 

&  Pac.  Ry.  Co.  v.  Adams,  78  Tex.  71  Fed.  776,  18  C.  C.  A.  321. 

372,  22  Am.  St.  Rep.  56,  14  S.  W.  5  Kansas    City,   etc.,   Ry.   Co.   v. 


666. 


Weaver,  (Tex.  Civ.  App.)  191  S.  W. 


Eest  &  Russell  Cigar  Co.  v.  Wil-      591. 


1140  LAW   OF    RECEIVERS. 

instance,  as  a  matured  note  or  an  overdue  account — 
present  no  difficulty.     Neither  do  claims  that,  althougii 
constituting  direct  obligations  of  the  company,  have  not 
matured — such,  for  instance,  as  a  note  due  at  some  timo; 
in  the  future.     The  value  of  such  a  claim  at  any  time 
prior  to  its  maturity  may  be  determined  by  well-recog- 
nized methods  of  computation.    Likewise  claims  for  dam- 
ages growing  out  of  tortious  conduct  of  the  corporation 
which  have  not  been  liquidated  by  compromise  or  judg- 
ment present  no  particular  difficulty.     If  the  claim  is 
valid  the  liability  exists  at  the  time  the  receiver  is  ap- 
pointed.    The  only  thing  lacking  is  the  liquidation  of 
the  amount,  and  that  can  be  readily  accomplished.    Diffi- 
culties of  liquidation  are  not  objections  to  provability. 
The  difficulties  that  give  rise  to  the  rules  are  found 
in    connection    with    contingent    claims.      Not    all    such 
claims  are  difficult,  however.     One  class  of  contingent 
claims  grows  out  of  executory  contracts  of  the  company. 
The  receiver  may  elect  to  abide  by  them  or  abandon  them. 
He  is  entitled  to  a  reasonable  time  in  which  to  decide 
upon  his  course  in  that  respect.     If  he  finally  abandons 
it  there  arises  a  claim  for  damages  for  breach  of  the 
contract.    This  claim  was  contingent  at  the  outset  of  the 
receivership.     But,  since,  during  the  time  the  receiver 
was  experimenting  to  determine  his  policy,  he  was  really 
not  operating  under  the  contract,  the  breach,  wdienever  it 
happens,  is  counted  as  having  occurred  at  the  beginning 
of  the  receivership.     When  one  party  to  an  executory 
contract  places  himself  in  a  position  in  which  he  will  be 
unable  to  perform  his  part  while  the  other  party  remains 
able    and    willing    to    perform    his,    there    immediately 
accrues  to  the  latter  a  claim  against  the  former  for  dam- 
ages for  breach  of  the  contract.     Accordingly  when  a 
receiver  abandons  an  executory  contract  to  which  the 
corporation  was  a  party  there  accrues,  at  the  beginning 
of  the  receivership,  a  claim  on  the  part  of  the  other 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1141 

party.    Can  the  amount  of  damage  be  determined?    The 
answer  to  that  question  depends  upon  the  nature  of  the 
contract.    If  the  contract  was  to  furnish  to  the  company 
certain  material  used  by  it  in  its  operations,  the  total 
amount  and  the  cost  being  fixed,  and  it  being  covenanted 
that  the  material  shall  be  delivered  in  installments  as 
called  for  by  the  company  within  a  certain  period  of 
time;  if  the  company  has  already  received  a  portion  of 
the  material   and   the   receiver   refuses   to   call   for   or 
accept  the  balance,  although  the  seller  is  ready  to  deliver 
it,  the  amount  of  the  damage  is  easily  proved.     But  if 
the  contract  is  a  lease  of  a  railroad,  the  situation  is  dif- 
ferent.    Such  a  lease  is  not  like  the  lease  of  a  dwellino- 
house  in  a  city.i    The  matter  of  the  lease  of  a  railroad  is 
so  complicated  that  it  would  be  impossible  to  state  on 
what  terms  or  for  how  long  another  lease  could  be  made 
Not  until  the  end  of  the  lifetime  of  the  breached  lease 
could  the  amount  of  the  damages  due  to  the  breach  be 
determined  in  any  practical  way.     On  the  abandonment 
of  such  a  lease  by  the  receiver  we  have  a  contingent 
claim  that  has  become  certain,  as  if  the  time  of  the  begin- 
ning of  the  receivership,  in  so  far  as  its  character  is  con- 
cerned but  which  can  not  be  liquidated  as  to  amount 
except  through  the  lapse  of  time. 

Again,  the  contract  may  be  one  by  which  the  company 
has  become  a  guarantor— as,  for  instance,  the  guarantor 
to  bondholders  of  the  payment  of  interest  on  their  bonds 
as  it  accrues.  The  company  is  the  secondary  debtor,  the 
mortgagor  the  primary  debtor.  It  is  only  in  case  the 
primary  debtor  defaults  that  there  will  be  a  claim  against 
the  company.  The  claim  is  contingent  and  only  the^'lapse 
of  time  can  make  it  positive  either  in  character  or  amount. 

If  sufficient  time  was  allowed  to  elapse  all  of  these 
claims  would  become  fixed  and  then  there  could  be  abso- 
lute equality  of  distribution  among  all   the  claimants. 

1  See  §  219,  supra. 


1142  LAW    OF    RECEIVERS. 

Two  elements  militate  against  sucli  an  arrangement.    In 
tlie  first  place,  the  fact  that  the  court  is  not  well  equipped 
to  manage  and  conduct  a  complicated  business  makes  it 
desirable  that  the  receivership  should  be  wound  up  at  as 
early  a  date  as  is  compatible  with  just  treatment  of  all 
the  interests  involved.     In  the  second  place,  as  against 
the  equity  in  favor  of  claimants  who  will  be  shut  out 
altogether  if  not  allowed  time  in  which  to  establish  their 
claims,  is  the  countervailing  equity  in  favor  of  claimants 
v.ho  may  be  compelled  to  wait  unduly  for  their  money. 
These  considerations  lead  to  a  rule  to  the  effect  that  a 
definite  time  will  be  appointed  by  the  court  as  of  which 
claims  must  be  established.     Bankruptcy  laws  and  state 
statutes    concerning    the    dissolution    of    corporations 
usually  fix  the  date  of  the  appointment  of  the  receiver  or 
the  filing  of  the  complaint  or  the  adjudication  of  bank- 
ruptcy as  the  time  for  this  purpose.     In  federal  utility 
receiverships,  however,  it  has  been  considered  inequitable 
to  fix  the  time  at  such  an  early  stage  of  the  proceedings. 
No  harm  can  come  to  any  one  if  the  accounts  are  not 
made  up  until  it  has  become  possible  to  declare  a  divi- 
dend.   When  this  will  be  will  depend  entirely  upon  cir- 
cumstances and  can  be  known  as  well  by  the  judge  of  the 
receivership  court  as  by  any  one  else. 

We  have,  then,  the  rule  established  as  follows:  The 
court  will  make  an  order  fixing  a  date  as  of  which  all 
claims  must  be  proved ;  claims  which  are  certain  both  as 
to  character  and  amount  at  that  date  may  be  proved ; 
claims  which  are  not  certain  both  as  to  character  and 
amount  at  that  date  may  not  be  proved.  This  does  not 
mean  that  claims  must  necessarily  be  filed  at  that  date. 
The  court  will  allow  claims  to  be  filed  at  a  later  date  but 
nunc  pro  tunc  as  of  the  date  fixed  by  the  order.  As  stated 
above,  the  liquidation  of  the  claim  as  to  the  amount  may 
occur  as  of  any  subsequent  time.    In  special  cases,  where 


RAILROADS — rUBLIC    UTILITY    CORPORATIONS.  1143 

equitable  considerations  prompt  it  to  do  so,  the  court  may 
extend  tlio  time  for  proving  claims.^ 

§  413.     General  Liability  of  Receivership  for  Preferred  Claims. 
*'A  chancery  receiver  being  a  mere  holder,  his  appoint- 
ment does  not  change  the  title  to  the  property  in  his 
charge  nor  alter  any  lien  of  contract.  "^     '' Equality  is 
equity.  "2     The  foregoing  two  statements  were  made  in 
one  of  the  large  federal  receivership  cases,  that  com- 
monly known  as  The  Metropolitan  Railway  Receivership. 
The  first  may  be  recognized  as  the  statement  of  a  gen- 
eral principle  applicable  to  all  receiverships ;  the  second 
as^  a  general  statement  applicable  to  all  corporation  re- 
ceiverships of  corporations.^  In  this  very  same  receiver- 
ship we  find,  in  regard  to  these  two  rules,  numerous 
instances  where  they  were  not  applied.    Whether  or  not 
these  instances  shall  be  spoken  of  as  exceptions  to  the 
rules  or  as  indicating  rules  of  superior  force  is  merely  a 
matter  of  terms.    As  the  same  judge,  Judge  W.  C.  Noyes, 
of  the  Second  Circuit,  who  made  the  above  statements,' 
said  in  another  connection,^  if  these  instances  are  excep- 
tions to  the  rules,  then,  as  far  as  the  frequency  with  which 
they  are  applied  is  concerned,  'Hhe  exceptions  are  as 
broad  as  the  rules  themselves."   In  almost  every  public 
utility  receivership   case   occasion   arises   for   giving  a 
certain  class  of  unsecured,  or  general,  creditors  a  prefer- 

2  Pennsylvania  steel  Co.  V.  New  37    L.    Ed.    1085,    14    Sup.    Ct.    86- 

York  City  Ry.   Co.,   198   Fed.   721,  Dushane  v.   Beall,   IGl    U.    S.   Sls', 

117  C.  C.  A.  503,  517;  Pennsylvania  40    L.    Ed.    791,    16    Sup.    Ct.    637-' 

Steel   Co.   V.   New   York   City  Ry.  Central  Trust  Co.  v.  East  Tennes- 

Co.,  216  Fed.  458,  132  C.  C.  A.  518;  see  Land  Co.,  79  Fed.  19. 

New   York    Securitv    &    T.    Co.    v.  .  rj  ,        •     ^ 

T        I,     J    T         ^        r,o    ^    ,     ^,,„  Pennsylvania  Steel  Co   v   New 

Lombard    Inv.    Co.,    73    Fed.    537;  v^,.i     /-••*      r,       ^       .^^ 

T^.   ,  ^  York   City   Ry.   Co ,   198   Fed     ^'>^ 

Baker  v.   Central   Trust  Co.,   etc.,  ^^  n    n\    Lo  ' 

235    Fed.    17,    148    C.    C.    A.    511;  ^^'  ^^  ^^  ^^  ^^^■ 

Wheeling  &  L.  E.  R.  R.  Co.  v.  Car-  "  Pennsylvania  Steel  Co.  v.  New 

penter,   218   Fed.  273,   134   C.  C.  A.  ^°''^'^  ^^^^  ^•''-  ^o.,  supra. 

69;    United    States    Trust    Co.    v.  3  See  §  293,  supra. 

Wabash  W.  Ry.  Co.,  150  U.  S.  287,  4  See  §  304,  supra,  note  9, 


1144  LAW    OF    RECEIVERS. 

ence  over  other  unsecured  creditors  and  even  over  mort- 
gage claimants. 

An  attempt  to  state  a  general  rule  sufficiently  definite 
as  to  the  class  of  creditors  that  would  be  so  preferred 
and  the  fund  from  which  they  W'Ould  be  paid  to  furnish  an 
accurate  guide  for  saying  in  advance  what  the  decision  of 
a  court  would  be  in  any  given  case  w^ould  certainly  not 
be  without  difficulty.    Perhaps  tlie  best  that  can  be  said 
about  this  point  is,  as  was  said  in  the  first  case  in  which 
the  United  States  Supreme  Court  entered  an  opinion  on 
the  subject,^  that:    *'No  fixed  and  inflexible  rule  can  be 
laid  down  for  the  government  of  courts  in  all  cases. 
Each  case  will  necessarily  have  its   own  peculiarities 
which  must  to  a  greater   or  less   extent  influence  the 
Court  when  he  comes  to  act."     One  Circuit  Court  of 
Appeals  has  stated  that  the  decisions  of  those  courts 
are  in  ''hopeless  confusion."*^     In  one  case  the  United 
States  Supreme  Court  felt  it  necessary  to  admonish  the 
lower  federal  courts  not  to  carry  the  application  of  the 
principle  involved  to  an  unw^arranted  extent,  or,  rather, 
to  confine  its  application  to  narrow  limits,"^  Mr.  Justice 
Brewer  in  that  case  saying:     ''The  appointment  of  a 
receiver  vests  in  the  court  no  absolute  control  over  the 
property,  and  no  general  authority  to  displace  vested 
contract  liens.     Because  in  a  few  specified  and  limited 
cases  this  court  has  declared  that  unsecured  claims  were 
entitled  to  priority  over  mortgage  debts,  an  idea  seems 
to  have  obtained  that  a  court  appointing  a  receiver  ac- 
quires power  to  give   such  preference  to   any  general 
and  unsecured  claims.    It  has  been  assumed  that  a  court 
appointing  a  receiver  could  rightfully  burden  the  mort- 
gaged jjroperty  for  the  payment  of  any  unsecured  in- 
debtedness.    Indeed,  we  are  advised  that  some  courts 

5  Fosdick  V.  Schall,  99  U.  S.  235,  7  Knecland  v.  American  L.  &  T. 
252,  25  L.  Ed.  339,  342.  Co.,   136   U.    S.   89,   34    L.   Ed.   379, 

6  Moore    v.    Donahoo,    217    Fed.  10  Sup.  Ct.  950. 
177,  133  C.  C.  A.  171. 


RAILROADS PU.BLIC    UTILITY    CORPORATIONS,  1145 

lia^-e  made   the   appointment  of  a  receiver  conditional 
upon  tlie  payment  of  all  unsecured  indebtedness  in  pref- 
erence to  the  mortgage  liens  sought  to  be  enforced.    Can 
anything  be  conceived  which  more  tlioroughly  destroys 
the  sacredness  of  contract  obligations!     One  holding' a 
mortgage  debt  upon  a  railroad  has  the  same  right  to 
demand  and  expect  of  the  court  respect  for  his  vested 
and  contracted  priority  as  the  holder  of  a  mortgage  on 
a  farm  or  lot.     So,  when  the  court  appoints  a  receiver 
of  railroad  property  it  has  no  right  to  make  that  receiver- 
ship conditional  on  the  payment  of  other  than  those  few 
unsecured  claims  which  by  the  rulings  of  this  court  have 
been  declared  to  have  an  equitable  priority.     No  one  is 
bound  to  sell  to  a  railroad  company  or  to  work  for  it, 
and  wdioever  has  dealings  with  a  company  whose  prop- 
erty is  mortgaged  must  be  assumed  to  have  dealt  with 
it  on  the  faith  of  its  personal  responsibility,  and  not 
in  expectation  of  subsequently  displacing  the  priority  of 
the  mortgage  liens.    It  is  the  exception  and  not  the  rule 
that  such  priority  of  liens  can  be  displaced.     We  em- 
phasize this  fact  of  the  sacredness  of  contract  liens  for 
the  reason  that  there  seems  to  be  growing  an  idea  that 
the  chancellor,  in  the  exercise  of  his  equitable  powers, 
has  unlimited  discretion  in  this  matter  of  the  displace- 
ment of  vested  liens." 

A  period  of  twenty-six  years  (1879-1905)  elapsed  be- 
tween the  first  and  the  latest  decisions  of  the  United 
States  Supreme  Court  touching  the  subject,  and  during 
the  interval  that  court  had  been  called  upon  to  consider 
it  a  great  number  of  times. ^    The  latest  decision,  that  of 

8  The  following  are  some  of  the  20  Sup.  Ct.  363;   Southern  Ry.  Co. 

United      States      Supreme     Court  v.    Carnegie    Steel   Co.,    176    U.    S. 

cases   dealing  with   the   question:  257,  44  L.  Ed.  458,  20  Sup.  Ct.  347; 

Gregg  V.   Metropolitan  Trust  Co.,  Virginia  &  A.  Coal  Co.  v.  Central 

]97   U.    S.    183.   49    L.    Ed.    717,   25  R.  R.,   etc.,  Co.,   170  U.   S.   355,   42 

Sup.    Ct.    415;    Lackawanna    Iron,  L.     Ed.     1068,    18    Sup.    Ct.    657; 

etc.,   Co.   V.   Farmers'   Loan   &   T.  Thomas   v.  Western  Car  Co.,   149 

Co.,  176  U.   S.  298,  44   L.   Ed.  475,  U.  S.  95,  37  L.  Ed.  663,  13  Sup.  Ct. 


114G  LAW    OF    RECEIVERS. 

Gregg  V.  Metropolitan  Trust  Company,^  was  by  a  court 
divided  four  to  three  as  to  wliat  the  decision  should  be. 
Only  one  of  the  members  of  the  court  that  decided  the 
Fosdick  Case  w^as  a  member  of  the  court  that  decided 
the  Gregg  Case,  and  he,  Justice  Harlan,  sided  with  the 
minority.  It  may  be  stated,  in  passing,  that  the  Supreme 
Court  decision  affirmed  a  conclusion  reached  by  the  Cir- 
cuit Court  and  sustained  by  the  Circuit  Court  of  Appeals. 
In  a  comparatively  recent  case^*'  the  Circuit  Court  of 
Appeals  of  the  Eighth  Circuit  reached  a  decision  differ- 
ent from  that  of  the  majority  in  the  Gregg  Case  on  facts 
concerning  which  it  must  be  said  that  only  the  keenest 
power  of  judicial  analysis,  if  any  poAver  at  all,  could  per- 
ceive that  they  were  different  from  the  facts  involved 
in  that  case.  In  its  argument  the  court  reviews  several 
cases  dealing  with  the  ''preferred  claims"  doctrine,  and 
says  its  decision  is  not  contrary  to  anything  decided  in 
the  Gregg  Case,  and  repeated  this  statement  on  denying 
a  petition  for  a  rehearing  based  on  the  proposition  that 
its  decision  was  in  direct  conflict  with  the  Gregg  Case.^^ 

824;   Morgan's,  etc.,  Co.  v.  Texas,  596,  4   Sup.   Ct.  675;    Union  Trust 

etc.,  R.  Co.,  137  U.  S.  171,  34  L.  Ed.  Co.  v.   Souther,   107  U.   S.   591,  27 

625,   11   Sup.   Ct.   61;    Kneeland  v.  |__  ^d.  488,  2  Sup.  Ct.  295;  Union 

American  L.   &   T.  Co.,   136  U.   S.  ^rust  Co.  v.  Walker,  107  U.  S.  596, 

89,  34  L.  Ed.  379.  10  Sup.  Ct.  950;  ^7  L.  Ed.  490.  2  Sup.  Ct.  299;  Mil- 
Toledo,  etc.,  R.   Co.  v.  Hamilton, 


tenberger  v.  Logansport,  etc.,  Ry. 
Co.,  106  U.  S.  286,  27  L.  Ed.  117, 
1  Sup.  Ct.  140;  Fosdick  v.  Schall, 
99  U.  S.  235,  25  L.  Ed.  339;  Hale 
V.  Frost,  99  U.  S.  389,  25  L.  Ed. 
419;  Huidekoper  v.  Hinckley  Lo- 
comotive Wks.,  99  U.  S.  258,  25 
L.  Ed.  344. 


134   U.   S.   296,   33    L.    Ed.    905,    10 

Sup.  Ct.  546;  Wood  v.  Guarantee, 

etc.,    Co.,    128    U.    S.    416,    418,    32 

L.    Ed.    472,    9    Sup.    Ct.    131;     St. 

Louis,    etc.,   R.    Co.    v.    Cleveland, 

etc.,  R.  Co.,  125  U.  S.  658,  31  L.  Ed. 

832,  8  Sup.  Ct.  1011;   Union  Trust 

Co.  V.  Morrison,  125  U.  S.  591,  609, 

31  L.  Ed.  825,  8  Sup.  Ct.  1004;  For-  '^  ^'"^^^    ^-    Metropolitan    Trust 

ter  V.  Pittsburg  B.  Steel  Co.,  120      <^°-'  ^^^  U.  S.  183,  49   L.   Ed.  717, 

U.  S.  649,  30  L.  Ed.  830,  7  Sup.  Ct.       ^^  ^"P"  ^^-  ^^^• 

741;  Union  Trust  Co.  v.  Ulinois  M.  lo  United      States     &     Mexican 

Ry.  Co.,  117  U.  S.  434,  29   L.   Ed.      Trust  Co.  v.  Beaty,  240  Fed.  592. 

963,   6   Sup.   Ct.   809;    Burnham   v.       153   C.   C.  A.  396. 

Bowen,   111   U.   S.   776,   28    L.    Ed.  n  United     States     &     Mexican. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1147 

We  think  the  ground  for  the  decision  is  one  that  takes 
the  case  entirelj^  out  of  the  ''preferred  claims"  class; 
it  is,  however,  a  ground  upon  which  the  minority  branch 
of  the  court  held  that  the  Gregg  Case  might  have  been 
decided  and  a  ground  that  would  necessarily  have,  in 
that  case,  led  to  a  conclusion  different  from  that  reached 
by  the  majority.  The  majority  did  give  some  attention 
to  this  ground,  but  an  attention  that,  in  the  view  of  the 
minority,  was  altogether  too  cursory,  and  ruled  that  the 
instant  case  w^as  not  within  the  class  to  which  it  applied. 
It  must  be  said,  however,  that  the  minority  differed  from 
the  majority  as  to  the  proper  conclusion  to  be  reached 
even  on  the  ground  on  which  the  majority  based  its  con- 
clusion. In  two  very  similar  and  comparatively  recent 
cases  the  Circuit  Court  of  Appeals  of  the  Ninth  Circuit 
was  divided. ^^  The  majority  decided  against  giving  a 
preference  to  the  claims  involved  in  both  cases.  The 
majority  said  that  the  matter  might  have  been  regarded 
as  settled  by  the  Gregg  Case;  but  the  ground  o-n  which 
it  reached  the  conclusion  was  not,  in  either  case,  and 
could  not,  under  the  facts,  have  been  the  ground  on  which 
the  majority  decision  in  the  Gregg  Case  was  based.  The 
minority,  Judge  Gilbert,  observed  this  fact  and,  review- 
ing the  facts  of  the  instant  cases  from  the  point  of  view 
on  which  the  majority  conclusion  was  based,  reached  a 
different  result.  It  may  be  said  that  this  point  of  view 
is  one  which  sometimes  requires  the  drawing  of  a  very 
uncertain  line  between  preferred  and  unpreferred  claims, 
and  in  regard  to  which  it  may  be  said  that  when  a  case 
has  to  be  decided  with  reference  to  it,  the  court  must 
very  largely  be  guided  by  the  impression  made  on  its 
conscience  by  the  peculiar  facts  of  the  case.  In  these 
two  cases  in  the  Ninth  Circuit  there  was  a  point  of  view 

Trust  Co.  V.  Beaty,   243  Fed.   544,  John  A.   Roebling's   Sons  Co.,  etc. 

156   C.   C.  A.  242.  v.  Idaho  Ry.,  L.  &  P.  Co.,  243  Fed. 

12  Crane    Co.    v.    Fidelity    Trust  527,  156  C.  C.  A.  225. 
Co.,  238  Fed.  693,  151  C.  C.  A.  543; 


1148  LAW    OF    RECEIVERS. 

other  than  that  on  which  the  majority  conclusion  was 
expressly  based,  from  which  the  facts  could  be  consid- 
ered and  which  furnished  the  majority  with  a  support- 
ing ground  of  decision.  In  regard  to  this  point  of  view 
the  minority  judge  felt  that  it  did  not  necessarily  point 
to  a  conclusion  against  the  preference,  but  it  seems  prob- 
able that  if  the  decision  had  been  primarily  framed  from 
this  point  of  view,  it  might  have  been  unanimous. 

In  spite  of  the  situation  shown  by  the  above  facts,  a 
situation  existing  after  the  matter  has  been  receiving 
the  attention  of  the  federal  courts  for  more  than  forty 
years,  we  think  it  possible  to  state  generally  the  prin- 
ciples and  rules  governing  the  question  of  preferred 
claims  in  such  a  way  as  to  furnish  a  basis  for  a  fairly 
accurate  indication  of  what  the  conclusion  ought  to  be 
in  any  given  case,  except,  perhaps,  in  one  or  two  details 
calling  for  close  distinctions. 

§  414.     General  Rule  as  to  What  Constitutes  a  Preferred  Claim. 

Some  difficulty,  at  least,  will  be  avoided  if  care  is  taken 
to  have  in  mind  an  accurate  idea  of  the  meaning,  or 
scope,  of  the  term  ''preferred  claim."  We  get  some- 
thing of  such  an  idea  by  considering  what  is  not  a  pre- 
ferred claim.  A  preferred  claim  is  not  one  that  arises 
during  the  receivership  itself  or  out  of  the  operation 
of  the  business  of  the  corporation  by  the  receiver.  Such 
claims,  in  a  sense,  are  preferred  in  every  receivership. 
The  compensation  of  the  receiver  and  his  attorney  and 
expense  that  he  is  necessarily  put  to  in  protecting  the 
property  under  his  care  are  always  paid  before  the  debt 
of  the  party  at  whose  instance  the  appointment  is  made 
or  the  claim  of  any  other  person  before  the  court.  Ex- 
penses properly  incurred  by  any  receiver  in  conducting 
a  business  are  likewise  given  priority  in  distribution. 
But  a  ''preferred  claim,"  in  the  technical  sense  here 
being  considered,  is  peculiar  to  a  public  utility  receiver- 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1149 

ship.  ''The  payment  of  such  debts  stands,  prima  facie, 
on  a  different  basis  from  the  payment  of  claims  arising 
under  the  receivership. ' '^  A  receiver 's  claim  is  preferred 
to  a  "preferred  claim." 

Ag-ain,  a  preferred  claim  is  not  one  to  which  preferen- 
tial consideration  may  be  given  because  of  inherent  spe- 
cial equities  that  would  entitle  it  to  such  consideration 
in  any  receivership  case,  even  though,  arising  in  a  public 
utility  case,  it  might  possess  also  the  equities  of  a  pre- 
ferred claim.  Traffic  balances  owed  by  an  insolvent  rail- 
road company  are  usually  preferred  claims.  But  where 
the  bondholders  have  been  the  stockholders  of  or  other- 
wise in  control  of  the  corporation,  and  traffic  balances, 
because  of  practically  fraudulent  conduct  on  the  part 
of  the  bondholders,  remain  unpaid,  to  be  presented  as 
claims  to  the  receiver,  they  will,  if  necessary,  be  paid 
preferentially  out  of  the  proceeds  of  the  corpus  of  the 
property,  regardless  of  their  status  as  preferred  claims. - 

1  Miltenberger  v.  Logansport,  between  them,  a  balance  of  such 
etc.,  Ry.  Co.,  106  U.  S.  2S6,  27  account  in  favor  of  one  company 
L.  Ed.  117,  1  Sup.  Ct.  140.  See  is  not  entitled  to  priority  of  pay- 
Gregg  V.  Metropolitan  Trust  Co.,  ment  from  the  proceeds  of  the 
supra,  both  majority  and  minority  foreclosure  of  a  prior  mortgage 
opinions.  on  the  other,  in  preference  to  the 

•2  Central  Trust  Co.,  etc.  v.  Chi-  mortgage  bondholders.     Morgan's 

cago,   A.   &   U.   Ry.   Co.,   232   Fed.  Louisiana  &  T.  R.  &  S.  S.  Co.  v. 

936;    First  Trust   Co.   v.   Crooked  Texas  C.  R.  Co.,  137  U.  S.  171,  34 

Creek,  etc.,  Co.,  243  Fed.  450.  L.  Ed.  625,  11   Sup.  Ct.  61;    Penn 

Under  an  order  authorizing  re-  v.  Calhoun,  121  U.  S.  251,  30  L.  Ed, 

ceivers  to  pay  traffic  balances  due  915,   7   Sup.  Ct.   906;    Kneeland  \. 

other  railroads,   they   are   author-  American  Loan  &  T.  Co.,  136  U.  S. 

ized  to  pay  compensation  received  89,  34  L.  Ed.  379,  10  Sup.  Ct.  950; 

under    mail-carrying    contract    to  St.   Louis,   A.   &   T.  H.   R.   Co.   v. 

another  road,  which  did  the  carry-  Cleveland,  C.  C.  &  I.  R.  Co.,  125 

ing.     Equitable  Trust  Co.  of  New  U.  S.  658,  31  L.  Ed.  832,  8  Sup.  Ct. 

York  V.  Wabash  R.  Co.,  244  Fed.  1011. 
/)6   156  C.  C.  A.  494.  Neither  the  rental  nor  the  net 

Where   two   railroad   companies  earnings  of  such  lines  during  the 

bad    the    same    fiscal    agent,    who  time  they  are  in  the  receiver's  pos- 

received    the    earnings     of    both,  session  as  part  of  the  entire  rail- 

from  which  payments  were  made  road    system    can    be    claimed    by 

lor   each,   an   account   being   kept  creditors    of    such    lines    in    pre/ 


1150  LAW   OF    KECEIVERS. 

Again,  a  preferred  claim  is  not  one  of  sucli  inherent 
equity  that  the  court  might  have  made  its  payment  a 
condition  for  obtaining  the  appointment  of  a  receiver  in 
any  kind  of  a  case.  For  instance,  after  considerable 
I  negotiation,  a  claim  against  a  railroad  corporation  for 
damages  for  a  death  caused  by  an  accident  was  compro- 
mised and  the  claim  was  to  be  paid  on  a  certain  day ;  on 
that  day,  within  a  few  hours  in  the  morning,  a  complaint 
and  an  answer  were  filed,  and  a  receiver  appointed  over 
the  company's  property;  payment  of  the  claim  was  re- 
fused by  the  company  on  the  ground  that  it  was  under 
a  receivership.  Circumstances  and  the  evidence  showed 
that  the  receivership  had  been  in  contemplation  by  the 
company  for  some  time;  when  the  matter  was  called  to 
the  attention  of  the  court  the  claim  w^as  ordered  paid 
on  the  ground  that  its  payment  could  properly  have  been 
made  a  condition  of  the  appointment  if  the  court  had 
known  of  its  existence  at  the  time  the  appointing  order 
was  made.^  But  while  the  appointment  even  of  a  puljlic 
utility  receiver  is  strictly  not  a  matter  of  right  and  the 
appointment  of  such  a  receiver  may  be  made  on  condi- 
tions, a  court  may  not,  even  in  the  fully  recognized  ex- 
istence of  the  doctrine  of  preferred  claims,  make  the 
payment  of  any  and  every  claim,  on  the  theory  that  it 
is  preferred,  a  condition  of  the  appointment.^ 

Again  a  claim  that  is  given  certain  priority  because  of 
some  statutory  provision  is  not  a  preferred  claim.^ 

erence  to  the  general  mortgage  5  See  North  American  Co.  v.  St. 
creditors,  although,  the  trustee  of  Louis  &  S.  F.  R.  Co.,  246  Fed.  260, 
the  former  might,  under  sanction  in  which  it  was  held  that  a  judg- 
of  the  court,  have  terminated  the  ment  for  damages  caused  by  an 
right  of  the  receiver  by  demand-  accident  in  Missouri,  rendered  in 
ing  possession.  Central  Trust  Co.  favor  of  a  non-resident  by'  an  Ar- 
V.  Wabash,  St.  L.  &  P.  R.  Co.,  46  kansas  state  court,  after  a  fed- 
Fed.  26.  eral  receiver  of  the  company  had 

3  Harmon  v.  Blaskwell,  232  Fed.  been  appointed,  in  an  action  com- 
440,  146  C.  C.  A.  434.  menced    before    the    appointment, 

4  See  quotation  to  which  note  7,  constituted  a  claim  against  the 
§  413,  this  chapter,  is  appended.  company's    property    in   Arkansas 


RAILROADS PUBLIC    UTILITY    CORPORATIONS.  1151 

Claims  such  as  are  above  mentioned,  entitled  to  some 
priority  of  payment  on  the  grounds  mentioned,  are  not 
preferred  claims  as  that  term  is  used  to  describe  a  certain 
class  of  claims  peculiar  to  public  utility  corporation  re- 
ceivership cases.  Preferred  claims,  in  the  latter  sense,  are 
claims  accruing  or  growing  out  of  obligations  created 
before  the  receivership,  while  the  corporate  affairs  were 
under  the  control  of  and  being  managed  by  the  corpora- 
tion itself,  and  accorded  a  certain  preferential  standing 
because  of  equitable  considerations  based  upon  the 
peculiar  nature,  or  character,  of  a  public  utility  receiver- 
ship.^ 

§  415.     Characteristics,   and  Qualities,   Essential  to  Preferen- 
tiality. 

There  are  two  points  of  view  from  which  the  question 
ef  determining  what  claims  are  to  be  preferred  may  be 
approached.  The  underlying  equitable  reason  for  grant- 
ing the  preference  may  be  considered  with  a  view  toward 
reviewing  claims  and  determining  which  come  within  the 
reason.  On  the  other  hand,  assuming  the  equitable  juris- 
diction to  grant  preferences,  the  claims  themselves  may  be 
examined  for  the  purpose  of  determining  which  make 

superior,  under  a  state  statute,  to  action    by    the    receiver.      It    was 

mortgages  placed  after  the  statute  held     that     in     equity     this     fund 

was  passed.  should  be  used  to  pay  the  claims 

6  A   special   fund,   open   only  to  for  labor  and  materials  arising  out 

a  certain  class  of  creditors,  may  of   the   work,    and    should   not   be 

come  into  the  estate.    Prior  to  re-  open  to  general  creditors  or  mort- 

ceivership   a  lessee   company   did  gagees.    Such  claims  are  not  "pre- 

some      permanent      improvement  ferred"    in    the    technical    sense, 

work     on     the     leased     property.  Pennsylvania    Steel    Co.    v.    New 

Funds  were  to  have  been  obtained  York   City  Ry.   Co.,  206  Fed.   663, 

from    a  loan   that   had   been   con-  124    C.    C.    A.    463,    202    Fed.    607; 

tracted    for.      Many    of   the    labor  Miltenberger   v.   Logansport,   etc., 

and    material    bills    remained    un-  Ry.   Co.,   106  U.   S.  286,   27   L.   Ed. 

laid  at  the  time  the  lessee  went  117,   1   Sup.  Ct.  140.     See  Central 

into  receivership.     The  lender  re-  Trust  Co.,  etc.  v.  East  Tennessee, 

fused    to    advance    the    promised  V.   &    G.   R.   Co.,   80   Fed.    624,   2G 

money,  but  it  was  recovered  in  an  C.  C.  A.  30. 


1152  LAW    OF    RECEIVERS. 

such  a  strong  appeal  to  the  conscience  of  tlie  cliancellor 
that  tliey  ought  to  be  paid  in  any  event.  It  may  be  said 
in  a  general  way  that  the  earlier  opinions  are  much  con- 
cerned with  the  reasons  for  granting  a  preference,  the 
later  wdth  a  scrutiny  of  the  character  of  claims  presented 
for  a  preference.  Occasionally  we  get,  as  it  were,  a 
glimpse  behind  the  curtain  to  see  how,  as  a  practical 
proposition,  this  problem  came  to  be  worked  out  by  the 
courts. 

The  primary  purpose  of  the  receivership  in  the  mind 
of  the  court  always  was  to  keep  as  continuous  and  as  un- 
restricted as  possible  the  public  service  that  the  utility 
had  been  furnishing.  But  the  receiver  met  with  a  recalci- 
trant engineer  who  refused  to  enter  his  cab  unless  guar- 
anteed that  two  months'  arrerages  of  wages  would  be 
paid.  Coal — at  least  in  the  day  before  oil  burners  came 
into  vogue — could  not  be  obtained  by  the  receiver  on 
credit  unless  the  company's  back  bills  w^ere  paid.  Heeding 
the  appeals  of  the  receiver,  the  court  ordered  the  bills 
paid  and  then  looked  for  a  reason,  feeling  compelled  to 
this  latter  act  by  the  necessity  for  preserving  the  integrity 
of  the  law  as  a  science  and  bringing  his  instant  act  into 
proper  alignment  with  precedent.  In  the  Miltenberger 
case^  the  receiver  paid  ''because  creditors  threatened  not 

1  Both  the  Gregg  Case  and  the  "(1)    The  preference  of  the  re- 

Miltenberger  Case  are  reviewed  by  spondents,    if   any    they    have,    is 

Judge  Dietrich  in  Moore  v.  Dona-  limited  to  the  amount  of  income 

hoo,    217    Fed.    177,    133    C.    C.    A.  diverted,  namely,  $30,000. 

171,  wherein,  speaking  for  the  Cir-  "(2)  No  one  of  the  respondents 

cuit  Court  of  Appeals,  he  said:  is  entitled  to  priority,  because  the 

"Conceding    that   under    certain  trustee  did  not  commence  an  ac- 

circumstances  and  within  certain  tion   of  foreclosure  or  secure  the 

limitations  the  claim  of  a  general  appointment   of   the    receiver,    or, 

creditor  of  an   iilsolvent  railroad  as  is  claimed,  submit  itself  to  the 

corporation   may   be   preferred   to  operation  of  the  rule  that  he  who 

a  pre-existing   mortgage   lien,   ap-  seeks  equity  must  do  equity, 

pellants   contend   that  the   decree  "(3)  There  is  no  proof  that  any 

should  be  reversed  or  modified  for  current  income  was  diverted  dur- 

the  following  reasons:  ing  the   six   months'    period   after 


RAILROADS PUBLIC    UTILITY    CORPORATIONS. 


1153 


to  furnisli  any  more  supplies  on  credit  unless  they  were 


the  indebtedness  of  any  one  of 
the  respondents  had  become  pay- 
able. 

"1.    As    already    intimated,    the 
general   question   involved   in   the 
first    proposition    is    whether    we 
shall  give  place  to  what  is  known 
as  the  'net  income'  theory,  or  to 
the  'going  concern'  theory,  as  the 
basis  for  preferential  allowances. 
Are  claims,  such  as  those  of  the 
respondents   are    conceded   to   be, 
for'  current  supplies  and  services 
which  are  necessary  to  the  main- 
tenance of  the  property  of  a  pub- 
lic   service    corporation,    and    to 
keep   it  in   operation,   to   be    paid 
out  of  the  current  income  in  pref- 
ence     to     the     bonds,     upon     the 
assumption    that   the    lien   of   the 
mortgage    attaches    only    to    the 
residue   of  the   income   remaining 
after  the  payment  of  the  operat- 
ing expenses,  or  may  they  displace 
the   vested   lien   of  the   mortgage 
upon  the  corpus  of  the  estate,  be- 
cause the  claimants  by  their  labor 
and    supplies    rendered    necessary 
assistance    in    continuing    the    op- 
eration of  the  property,  thus   en- 
abling the  debtor  to  discharge  its 
obligations  to  the  public? 

"In  the  court  below,  as  we  have 
seen,  the  latter  view  prevailed. 
The  point  urged  by  the  appellants 
is,  not  that  an  incorrect  applica- 
tion of  the  principle  was  made, 
but  that  the  principle  itself  is 
inherently  incorrect.  The  question 
has  been  the  subject  of  frequent 
consideration  in  the  federal  courts, 
but  the  decisions  are  in  hopeless 
conflict.  Different  rules  have  pre- 
vailed in  the  several  circuits,  and 
in  some  instances  there  has  been 
an  apparent  lack  of  uniformity  in 
II  Rec— 73 


the  same  circuit.    Entertaining,  .is 
we  do,  the  opinion  that  the  point 
is   conclusively  ruled  by  Gregg  v. 
Metropolitan  Trust  Co.,  197  U.  S. 
183,  49  L.  Ed.  717,  25  Sup.  Ct.  415, 
we   do   not   deem   it  necessary   to 
review  or  attempt  to  classify  the 
numerous    decisions    cited    in    the 
briefs.      This    case    was    brought 
against    the    Columbus,    Sandusky 
&  Hocking  Railroad  Company  for 
foreclosure  of  two  mortgages,  and 
a  receiver  was  appointed.    Within 
the  six  months'  period  prior  to  the 
receivership,  Gregg,  in  pursuance 
of  the   terms   of  a  contract  Vith 
the    railroad    company,    furnished 
cross-ties  for  the  replacing  of  ties 
decayed  in  the  current  operaticu 
of  the   road.     A  large   proportion 
of   the  ties    were    on    hand   when 
the    receiver   was   appointed,    and 
used    by   him  in   maintaining  the 
roadway.    The  circumstances  indi- 
cated that  payment  would  be  made 
out  of  the  current  income.     Fur- 
thermore,  it   was   stipulated   that 
the  claim  was  for  'necessary  op- 
erating  expenses   in   keeping  and 
using  said  railroad  and  preserving 
said    property    in    a    fit    and    safe 
condition.' 

""The  case  stands,'  such  is  the 
language  of  Mr.  Justice  Holmes, 
speaking  for  the  court,  'as  one  in 
which  there  has  been  no  diversion 
of  income  by  which  the  mort- 
gagees have  profited,  or  otherwise, 
and  the  main  question  is  the  gen- 
eral one,  whether  in  such  a  case 
a  claim  for  necessary  supplies  fur- 
nished within  six  months  before 
the  receiver  was  appointed  should 
be  charged  on  the  corpus  of  the 
fund.  There  are  no  special  cir- 
cumstances affecting  the  claim  as 


1154 


LAW    OF    RECEIVERS. 


a  whole,  and  if  it  is  charged   on 
the  corpus  it  can  only  be  by  lay- 
ing down  a  general  rule  that  such 
claims  for  supplies  are  entitled  to 
precedence  over  a  lien  expressly 
created    by   a   mortgage   recorded 
before  the   contracts  for  supplies 
were  made.     An   impression  that 
such    a   general    rule    was    to   be 
deduced  from  the  decisions  of  this 
court  led  to  an   evidently   unwill- 
ing application  of  it  in  New  Eng- 
land R.  Co.  V.  Carnegie  Steel  Co., 
75   Fed.    54,    58,    21    C     C.    A.    219, 
and  perhaps  in  other  cases.     But 
we  are  of  opinion,  for  reasons  that 
need  no  further  statement  (Knee- 
land  V.   American   Loan   &    Trust 
Co.,  136  U.  S.  89,  97,  [34  L.  Ed.  379, 
10  Sup.  Ct.  950]),  that  the  general 
rule   is    the   other   way,   and   has 
been  recognized  as  being  the  other 
way  by  this  court.' 

"If  by  this  language  any  doubt 
were  possible  of  the  intention  of 
the  court  to  disapprove  of  the  'go- 
ing concern"  theory,  the  dissenting 
opinion  most  clearly  indicates  that 
it  was  this  precise  question  upon 
which  there  was  a  division. 

"It  is  pointed  out  by  respondents 
that  their  labor  and  supplies  'were 
necessary  to  the  business'  of  the 
road,  while  in  the  Gregg  Case, 
after  referring  to  certain  allow- 
ances sanctioned  in  Miltenberger 
V.  Logansport,  etc..  Railway  Co., 
106  U.  S.  286,  27  L.  Ed.  117,  1  Sup. 
Ct.  140,  the  following  language  is 
used: 

"  'The  ground  of  such  allowance 
as  was  made  was  not  merely  that 
the  supplies  were  necessary  for 
the  preservation  of  the  road,  but 
that  the  payment  was  necessary 
to  the  business  of  the  road  —  a 
very  different  proposition.' 

"Attention    is    also    directed    to 


that  part  of  the  opinion  where  it 
is  observed  that: 

"  The  payment  of  the  employees 
of  the  road  is  more  certain  to  be 
necessary  in  order  to  keep  it  run- 
ning than  the  payment  of  any 
other  class  of  previously  incurred 
debts.' 

"And  to  the  further  statement 
that: 

"  'We  already  have  intimated 
that  the  payment  of  railroad  hands 
might  stand  on  stronger  grounds 
than  the  payment  for  past  sup- 
plies, etc' 

"But  plainly  all  of  these  expres- 
sions have  reference  to  the  prin- 
ciple   underlying    an    exceptional 
class  of  preferences  considered  in 
the   Miltenberger  Case.     In   brief, 
this    principle    is   that   a    receiver 
may   sometimes   be   authorized   to 
pay    past    debts    and    charge    the 
same    against   the   corpus    of   the 
fund,  where  failure  to  make  such 
payment  would  result  in  injury  to, 
or  would  make  it  difficult  to  carry 
on  the  business  of,  the  estate.     If, 
for  illustration,  upon  the  appoint- 
ment of  a  receiver,  he  finds  that 
the  pay  of  the  enginemen  of  the 
railroad    is    in    arrears,    and    that 
they  are  unwilling  to  render  fur- 
ther  service   unless    their  "  claims 
are   paid,   the    receiver   may   very 
readily  conclude,  especially  where 
other  skilled  men  are  unavailable, 
that  payment  is  necessary  to  the 
business  of  the  road,  and  disburse- 
ments  so   made   may   be   held   to 
constitute  a   prior  lien,   upon   the 
theory  that  they  are  required  for 
the    preservation   of  the   value  of 
the  estate.     So  in  the  case  where 
there  is  only  one  available  source 
of  fuel  supply,  and  the  owner  de- 
clines to  furnish  the  receiver  with 
fuel    until    past   bills    are    paid,    a 


RAILKOADS— PUBLIC    UTILITY    CORPORATIONS. 


1155 


similar  course  may  be   taken   for 
like  reasons. 

"  'It   is    easy   to    see,'    said    the 
court    in    the    Miltenberger    Case, 
'that  the  payment  of  unpaid  debts 
for    operating    expenses,    accrued 
within  90  days,  due  by  a  railroad 
company  suddenly  deprived  of  the 
control  of  its  property,  due  to  op- 
eratives in  its  employ,  whose  ces- 
sation  from   work   simultaneously 
is  to  be  deprecated,  in  the  inter- 
ests both  of  the  property  and  the 
public,  and  the  payment  of  limited 
amounts  due  to  other  and  connect- 
ing lines  of  road  for  materials  and 
repairs  and  for  unpaid  ticket  and 
freight   balances,   the   outcome   of 
indispensable    business    relations, 
where  a  stoppage  of  the  continu- 
ance   of    such    business    relations 
would  be  a  probable  result,  in  case 
of  non-payment,   the  general  con- 
sequence   involving    largely,    also, 
the  interests   and  accommodation 
of    travel    and    traffic,    may    well 
place  such  payments  in  the  cate- 
gory of  payments  to  preserve  the 
mortgaged    property    in    a    large 
sense,    by    maintaining    the    good 
will    and    integrity    of    the    enter- 
prise,   and    entitled    them    to    be 
made  a  first  lien.' 

"In    such    cases    the    nature    or 
character  of  the  debts  which  the 
receiver  is  called  upon  to  pay  is 
comparatively     unimportant;     the 
controlling    consideration     is    the 
present  necessity  of  the  receiver. 
If    the   exigency   is   such    that   he 
must    pay    past    debts    before    he 
can  procure   indispensable   future 
supplies,  he  must,  in  deference  to 
his    paramount    duty    to    preserve 
the   value  of  the  estate,   yield   to 
the  necessity,  provided,  of  course, 
that  the  probable  loss   would   ex- 
ceed   the    required    payments.     It 


is  to  be  noted  that  in  the  language 
above  quoted  from  the  Gregg  Case 
a  distinction  Is  not  drawn  between 
supplies    necessary    for   the    pres- 
ervation of  the  road  and  suiplies 
necessary  to   the  business   of  the 
road;    it   is    difficult   to    see    how, 
upon  principle,  such  a  distinction 
could  be  made.    The  ground  of  the 
allowance,  says  the  court,  was  not 
merely    'that    the    supplies    were 
necessary,'  but  that  'the  payment 
[therefor]    was    necessary.'      The 
distinction    is     between     the     ne- 
cessity  of  past  supplies   and   the 
necessity     of     present      payment 
therefor.     Accordingly  it  was  fur- 
ther said  in  the  Gregg  Case  that: 
"  'The  payment  of  employees  of 
the    road    is    more    certain    to    be 
necessary  in  order  to  keep  It  run- 
ning   than    the    payment    of    any 
other  class  of  previously  incurred 
debts.' 

"Not  that  a  different  principle 
applies  to  labor  claims,  but  that 
they  are  more  likely  to  fall  within 
the  principle.  In  any  case  it  is 
a  question  of  business  necessity, 
and  such  necessity  is  more  likely 
to  arise  in  the  case  of  skilled  la- 
bor than  in  the  case  of  general 
supplies,  which,  if  they  cannot  be 
procured  from  one  source,  may  be 
gotten  from  another. 

"In  the  case  at  bar  the  receiver 
recognized   this   rule  of  necessity 
in  the  payment  of  a  limited  num- 
ber  of   claims    for    rentals    which 
are  not  here  in  controversy.     But 
very  clearly  it  was  not  made,  and 
under  the  facts  of  the  case  it  could 
not   properly    be   made,   the    basis 
of  the   allowance  of  respondents' 
claims.      So   far   as   appears,    the 
receiver  never  concluded  that,  as 
a  matter  of  business  policy,  it  was 
necessary  to  pay  these  claims,  and 


1156  LAW    OF    RECEIVERS. 

paid  the  arrears."  In  the  Fosdick  Case^  the  court  set 
forth  a  lengthy  statement  of  the  reasons  for  a  preferen- 
tial grant  in  order  to  justify  a  conclusion  that  the  claim 
under  discussion  was  not  entitled  to  a  preference.  In  the 
later  cases,  when  it  had  become  recognized  that  there 
could  and  would  be  such  a  thing  as  a  preferred  claim, 
creditors  found  it  unnecessary  to  use  compulsion  upon 
the  receiyer  and  courts  became  busy  scrutinizing  the 
claims  themselyes  in  order  to  head  off  the  crowd  trying' 
to  press  through  the  entrance  marked  ''preferred"  with- 
out the  proper  pass-word.  Much  the  same  thing  has  hap- 
pened as  happened  in  regard  to  the  question  of  the 
creation  of  a  receiyership  in  the  first  place.  The  earlier 
courts  felt  compelled  to  the  course  of  adopting  receiyer- 
ships  to  saye  an  important  and  essential  public  seryice 
from  the  impending  ruin  that  threatened  as  the  ineyitable 
result  of  the  then  preyalent,  and  perhaps  only  possible, 
method  of  financing  great  public  utility  enterprises ;  but 
they  were  likewise  embarrassed  by  what  they  considered 
the  necessity  of  giying  a  scientific  reason  for  the  remedy 
employed.  Later  courts  haye  taken  the  reason  for  granted 
and  haye  ordered  a  "judicial  moratorium"  as  a  matter 
of  course,  proyiding  only  the  practical  necessity  there- 
fore was  made  to  appear.^  This  history,  then,  reveals 
the  fact  that  we  will  get  a  better  understanding  of  what 
claims  may  be  preferred  by  considering  the  character 
of  claims  that  haye  been  preferred,  without  much  ref- 

no  order  was  ever  made  directing  is  no  evidence  that  any  one  of  the 
or    authorizing    him    to    pay    the  respondents    was    furnishing    sup- 
same.     There  are  no  facts  in  the  plies   or  performing  labor  at  the 
record   from  which   it  can   be   in-  time  the  receiver  was  appointed, 
telligently   inferred   that   any   one  or   thereafter   furnished   any   sup- 
of  the  claimants  continued  to  per-  plies  or  performed  any  labor." 
form  labor  for  or  to  furnish  sup-  2  Fosdick  v.  Schall,  99  U.  S.  235, 
plies  to  the  receiver  upon  the  con-  25  L.  Ed.  339. 
dition     or     assumption     that     his  3  See  §  378,  this  chapter, 
claim  would  be  paid.  Indeed,  there 


RAILROADS PUBLIC    UTILITY    CORPORATIONS.  13  57 

erence  to  the  reason  for  granting  the  priority,  than  by 
pursuing  an  opposite  plan. 

It  is  universally  held,  and  without  any  conflict  of 
opinion  on  the  matter  at  all,  that  to  be  classified  as  a  pre- 
ferred claim,  a  claim  must  have  two  essential  qualities,  or 
characteristics. 

§  416.     The  Consideration  as  an  Essential  Characteristic. 

The  first  of  these  qualities  relates  to  the  considera- 
tion for  the  claim.  It  is  essential  that  that  consideration 
should  have  been  the  rendering  to  the  corporation  of  a 
service — furnishing  personal  service  or  supplies  or  ma- 
terial— that  was  absolutely  necessary  to  the  mere  opera- 
tion of  the  public  utility  so  as  to  keep  it  a  going  concern. 
It  might  be  a  service  connected  with  the  actual  operation 
itself  or  connected  with  the  maintenance  of  the  property 
in  such  condition  as  to  be  safe  for  at  least  a  temporary 
operating.  ''Mere  operation"  is  here  used  in  contra- 
distinction to  long-continued  operation  as  a  permanent 
property.  Nothing  can  be  stated  as  to  whether  or  not 
a  claim  is  to  be  preferred  from  considering  simply  the 
service  that  forms  its  consideration.  Personal  service, 
such  as  that  of  a  locomotive  engineer  who  runs  trains  over 
the  line,  is  connected  with  mere  operation;  the  personal 
service  of  a  civil  engineer  who  surveys  a  new  branch  line 
is  not  connected  with  mere  operation.  Ties  furnished  for 
the  ordinary  constant  repairing  necessary  to  keep  the 
roadway  safe  for  traffic  are  connected  with  ''mere  opera- 
tion"; ties  furnished  for  the  construction  of  a  new  branch 
line  are  not  so  related  to  the  business  of  the  corporation. 

In  a  case  decided  by  the  United  States  Court  of  Appeals 
of  the  Eighth  Circuit,^  this  essential  quality,  or  consid- 

1  Illinois  Trust  &  Sav.  Bank  v.  Co.,    225    Fed.    940,    141    C.    C.    A. 

Doud,  105  Fed.  123,  44  C.  C.  A.  389,  64,  Judge  Sanborn,  after  referring 

52  L.  R.  A.  481.  to  the   series   of  earlier  cases   of 

In   Chicago    &   A.   R.   R.    Co.   v.  the  United  Spates  Supreme  Court 

United    States    &    Mexican    Trust  which     had     allowed    preferences 


1158 


LAW    OF    RECEIVEKS. 


eration,  of  a  preferred  claim  is  stated  as  follows:  ''The 
test  of  the  preferential  equity  of  a  claim  is  its  consider- 
ation. If  its  consideration  was  a  current  expense  of  the 
operation  of  the  mortgaged  property,  which  inured  to 
its  benefit,  and  which  was  incurred  in  the  ordinary  course 
of  its  business,  within  a  limited  time  anterior  to  the  ap- 
pointment of  the  receiver,  the  claim  may  be  preferred. 
The  Supreme  Court  has  refused  to  apply  the  principle 
of  the  civil  and  maritime  laws  of  aAvarding  priority  to 
the  last  creditor  who  furnished  necessary  repairs  and 
supplies  to  a  vessel  to  the  distribution  of  the  proceeds  of 
the  foreclosure  of  mortgages  of  quasi  public  corporations. 
Railroad  Co.  v.  Cowdrey,  11  Wall.  459,  474,  482,  20  L.  Ed. 
199 ;  Thompson  v.  Railroad  Co.,  132  U.  S.  68,  74,  10  Sup. 
Ct.  29  33  L.  Ed.  256.  If  the  consideration  of  a  claim  is 
not  a  part  of  the  current  expenses  of  the  ordinary  opera- 
tion of  the  mortgaged  property,  but  is  a  part  of  the 


upon  the  ground  that  the   neces- 
sity or  business  policy  demanded 
immediate    payment,    referred    to 
the    series    of   cases   commencing 
with  Kneeland  v.  American  Loan 
&  Trust  Co.,  136  U.  S.  89,  34  L.  Ed. 
379,   10   Sup.   Ct.   950,   and  ending 
with  Gregg  v.  Metropolitan  Trust 
Co.,  197  U.  S.  183,  49   L.  Ed.  717, 
25    Sup.   Ct.   415,   and  stated   that 
the  earlier  cases  were  largely  con- 
trolled by  the  element  of  estoppel. 
He     then     observed     that:        "A 
thoughtful  consideration  of  these 
cases  and  others  which  have  fol- 
lowed  them   and   of  the   opinions 
in  the  later  cases  in  the  Supreme 
Court  which  have  been  cited,  con- 
vinces that  if  claims  of  the  nature 
of  those  allowed  as  preferential  in 
the  Miltenberger  and  Union  Trust 
Company    cases    were    now    pre- 
sented,  under   objection   of   bond- 
holders under  no  estoppel,  to  the 


Supreme  Court,  they  would  be  de- 
nied   preference    over    the    claims 
of  the  bondholders  in  payment  out 
of   the    corpus    of   the    mortgaged 
property.   Again,  if  a  claim  for  the 
current   expenses   of   the   necessi- 
ties of  this  operation  of  a  railroad 
is    payable    in    preference    to    the 
claims  of  secured  bondholders  out 
of  the   corpus  of  the  property  in 
any  case  in  the  absence  of  diver- 
sion of  the  income  from  such  ex- 
penses, it  is  only  when  such  pref- 
erential payment  is  necessary  to 
keep  the  railroad  a  going  concern, 
or  when  its  preferential  payment 
is  necessary  to  prevent  a  loss  at 
least  equal  to  the  amount  of  the 
payment.     Gregg  v.   Metropolitan 
Trust  Co.,  197  U.  S.  183,  1S6,  187, 
49    L.    Ed.    717,    25    Sup.    Ct.    415; 
Moore  v.  Donahoo,   217  Fed.   177, 
181-183,  133  C.  C.  A.  171;  Taylor  v. 
Delaware    &    E.   R.    Co.,    213    Fed. 
622,  624,  130  C.  C.  A.  214." 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1159 

expense  of  constructing  a  permanent  addition  or  improve- 
ment to  it,  out  of  the  ordinary  course  of  its  operation, 
neither  the  fact  that  it  tended  to  conserve  and  improve 
the  property  and  increase  the  security  of  the  mortgagee, 
nor  the  fact  that  it  was  necessary  to  keep  tlie  mortgagor 
a  going  concern,  nor  the  fact  that  the  mortgagor  pledged 
or  mortgaged  the  current  income  to  secure  it,  will  give 
the  claim  a  preferential  equity  over  the  lien  of  a  prior 
mortgage. ' ' 

It  will  be  observed  from  the  last  sentence  in  the  above 
quotation  that  the  court  was  there  stating  not  the  general 
rule  but  the  rule  as  related  to  a  particular  fund,  namely 
a  fund  in  which  a  mortgagee  was  interested.  We  are  here, 
however,  stating  the  rule  with  reference  to  a  preference 
as  to  any  fund  at  all  that  may  be  in  the  receiver's  hands. 
For  that  purpose  the  above  quotation  is  too  narrow  and 
the  second  sentence  should  be  read  without  the  clause, 
"which  inured  to  its  benefit."  In  the  Gregg  case-  the 
majority  opinion  was  based  on  the  ground  that  the  claim 
involved  did  not  have  a  preference  as  to  the  only  fund 
in  which  there  was  any  money  in  the  hands  of  the  re- 
ceiver; for  the  purpose  of  making  this  point  clear,  it 
was  admitted  that,  as  far  as  its  consideration  was  con- 
cerned, the  claim  came  within  the  general  class  of  pre- 
ferred claims  and  it  was  stated  that  the  claim  was  for 
"necessary  operating  expense  in  keeping  and  using  said 
railroad  and  preserving  said  property  in  a  fit  and  safe 
condition."  Frequently,  for  the  purpose  of  saving  time, 
stipulations  as  to  the  facts  of  the  case  are  made,  and 
the  stipulations  are  so  drawn  as  to  show  as  clearly  as 
possible  the  exact  point  in  issue.  In  the  two  cases  from 
the  Ninth  Circuit  above  referred  to,^  it  was  stipulated 

2  Gregg  V.  Metropolitan  Trust  Co.  v.  Fidelity  Trust  Co.,  238  Fed. 
Co.,  197  U.  S.  183,  49  L.  Ed.  717,  G93,  151  C.  C.  A.  543;  John  A. 
25  Sup.  Ct.  415.  Roebling's  Sons  Co.,  etc.  v.  Idaho 

See  §  413,  this  chapter.  Ry.,  L.  &  P.  Co.,  243  Fed.  527,  156 

3  See  §  413,  this  chapter.     Crane      C.  C.  A.  225. 


1160  LAW    OF 'receivers. 

tliat  there  was  money  on  hand  in  a  fund  to  which  any  pre- 
ferred claim  woidd  be  entitled ;  but  it  was  not  stipulated 
that  the  disputed  claims  possessed  the  essential  quality 
now  under  review^,  and  the  facts  about  the  claims — the 
material  supplied  and  the  use  made  of  it  by  the  com- 
pany— w^ere  set  forth  in  the  stipulation,  leaving  it  for 
the  court  to  determine  what  the  character  of  the  claims 
was.  The  material  had  been  principally  used  to  enable 
the  company  to  extend  its  service, — furnishing  water,  gas, 
and  electric  light  and  power, — to  new  customers ;  the  ma- 
jority ruled  that  the  claim  was  not  "for  the  current 
expense  of  the  necessities  of  the  operation  of"  the  public 
utility;  and  that,  on  the  score  of  its  consideration  alone, 
the  claim  was  not  a  preferred  claim. 

§  417.     The  Source  of  Payment  as  an  Essential  Characteristic. 

The  second  quality,  or  characteristic,  which  it  is  essen- 
tial that  a  claim  should  possess  in  order  to  give  it  prefer- 
ential status  is  related  to  the  source  from  which  payment 
is  intended  or  expected  to  be  made,  or  from  which  it  would 
in  the  ordinary  course  of  business  be  made.  If  the 
claimant  has  accepted  security  or  something  in  the  nature 
of  security,  as,  for  instance,  on  the  part  of  a  lessor,  the 
right  to  reenter  in  case  of  default  in  payment  of  the  rent, 
the  claim  has  not  this  quality.  If  the  creditor  relies  on 
the  personal,  financial,  responsibility  of  the  company,  its 
ability,  for  instance,  through  the  possession  of  quick 
assets  or  borrowing  strength,  to  raise  ready  cash  in  an 
emergency,  he  is  not  entitled  to  be  a  preferred  creditor. 
It  must  be  expected  and  intended,  or  in  accordance  with 
ordinary  business  practices,  that  the  claim  will  be  counted 
among  the  claims,  or  expenses,  that  the  company  will  first 
pay  out  of  its  current  gross  income  before  any  other  calls 
upon  its  treasury  receive  attention.^  This  matter  has 
been  expressed  as  follows:     ''Neither  the  fact  that  the 

1  Fosdick  V.  Schall,  99  U.  S.  235,  25  L.  Ed.  339, 


RAILROADS— PUBLIC    UTILITY   CORPORATIONS.  1161 

consideration  of  a  claim  conserved  the  property  of  the 
railroad  and  increased  the  security  of  the  mortgao-.es 
nor  the  fact  that  it  was  necessary  to  keep  the  mortgagor 
a  going  concern  and  to  continue  its  business,  will  raise  a 
preferential  equity  in  its  favor,  if  its  consideration  was 
not  a  part  of  the  current  expenses  of  the  ordinary  opera- 
tion of  the  mortgagor.  "2 

In  regard  to  this  quality,  or  characteristic  of  the  claim 
It  is  not  necessary  that  the  parties  should  have  stipulated 
tor  payment  out  of  current  income  nor  even  that  the 
claimant  should  have  had  consciously  in  mind  the  source 
trom  which  payment  was  to  come  or  the  fact  that  there 
was  a  rule  of  equity  concerning  the  matter.    ^'Everv  one 
IS  assumed  to  know  the  law,  however  ignorant  he^  may 
really  be  of  its  provisions.    This  assumption  has  resulted 
m  many  cases  of  great  hardship  to  the  individual;  there 
IS  no  reason  why  it  should  not  be  applied  when  the  result 
will  give  him  a  benefit.     If  as  matter  of  public  policy 
claims  of  this  character  are  accorded  a  special  equity, 
they  should  have  it  whether  the  vendor  at  the  time  of  sale 
did  or  did  not  know  that  he  was  entitled  to  it. '  '^    The  fact 
that  a  claim  possesses  this  characteristic  may  be  inferred 
by  the  court  from  the  surrounding  circumstances,  as  was 
stated  by  the  court  in  the  New  York  Citv  Eailwav  Re- 
ceivership Case^  wherein  the  court  said :    '"'The  next  con- 
tention is  that  the  sale  of  materials  and  supplies  must 
have  been  made  upon  the  understanding,  tacit  or  ex- 
pressed, that  current  earnings  would  be  appropriated  to 
the  payment  therefor,  and  that  they  were  for  operating 
purposes.    It  is  in  effect  urged  that  the  burden  is  on  the 
claimant  of  establishing  this,  and  that  this  they  have  not 

2  Rodger     Ballast     Car     Co.     v.      vendor  a  vendor's  lien  even  where 

^^r    n  T'l.-  ''''■'  '''  ^'^-  ''''  '''  '''  "°^  ^^°^  t^^t  ^«  ^as  en- 

83  a  C.  A    403.  titled  to  one,  if  he  brings  himself 

3  Pennsylvania  Steel  Co.  v.  New  otherwise    with   the   requirements 
York  City  R.  Co.,  208  Fed.  ICS.  for  one. 

The   principle   set   forth    in    the  4  Pennsylvania  Steel  Co   v   New 

text   is    also   applied    in    giving   a      York,  etc.,  Co.,  208  Fed.  173 


1162  I-^W    OF    RECEIVl^nS. 

done.  The  truth  is,  however,  that  where  materials  such 
as  oil,  coal,  lamp  wicks,  lauterns,  and  sand  are  delivered 
to  a  railroad  company  on  its  order  at  such  times,  in  such 
quantities  and  at  such  places  as  those  here  were,  there 
can  be  but  one  inference,  and  that  is  not  only  that  they 
were  intended  for  operating  purposes,  but  that  tliey  were 
ordered  on  the  faith  of  the  security  that  the  law  accords 
to  claims  for  such  materials  so  ordered,  and  delivered  in 
the  absence  of  anything  to  indicate  a  contrary  intent.  The 
case  of  the  Southern  Railway  Co.  v.  Carnegie  Steel  Co., 
176  U.  S.  257,  20  Sup.  Ct.  347,  44  L.  Ed.  458,  admits  of  no 
other  conclusion.  In  fact  the  conclusion  in  this  regard, 
that  the  court  may  draw  from  the  circumstances  sur- 
rounding a  claim  may  have  even  greater  weight  than  th(? 
declaration  of  the  claimant  himself.^ 

A  claim  will  not  be  taken  out  of  the  *' current  expense'* 
class  simply  because  a  promissory  note  is  given  for  it  ;^ 
but,  if  a  secured  note  is  given,  it  has  been  held  it  will  not 
be  regarded  as  coming  Avithin  that  class.'^  It  has  been 
held  that  where  an  extended  credit  was  given  on  a  claim 
it  could  not  be  said  that  the  claim  was  entitled  to  be  paid 
from  the  current  income  during  the  extension.^ 

If  an  issue  is  raised  as  to  Avhether  or  not  the  receiver 
has  any  money  in  the  "current  expense"  fund,  the  burden 
of  proof  is  upon  the  claimant ;  but  the  fact  is  to  be  proved, 
as  any  other  fact,  under  the  ordinary  rules  of  evidence. 

5  John  A.  Roebling's  Sons  Co.  v.  remarked    that    the    claim    might 

Idaho  Ry.,  etc.,  Co.,  243  Fed.  527,  very    well    have    been    considered 

156  C.  C.  A.  225.     In  this  case,  as  as  not  coming  within  the  class  of 

to  one  of  the  claims,  it  was  stipu-  "current  expense"  claims, 

lated  that  the  material  had  been  6  Southern  Ry.   Co.  v.   Carnegie 

sold   "in  the  belief  and  intention  Steel  Co.,  176  U.  S.  257,  44  L.  Ed. 

that,    unless    otherwise    provided  458,  20  Sup.  Ct.  347. 

for,  payment  would  be  out  of  the  t  Ohio    Falls    Car    Mfg.    Co.    v. 

operating    or    current    income    of  Central    Trust    Co.,    71    Fed.    916, 

the    railway    company."      Though  18  C.  C.  A.  386. 

the    decision    against    preference  8  Bound   v.    South   Carolina    Ry. 

was  on  another  ground,  the  court  Co.,  58  Fed.  473,  7  C.  C.  A.  32t 


RAILROADS — PUBLIC    UTILITY    CORrORATIONS.  1163 

Siicli  questions  as  the  mingling  of  funds  are  treated  as 
they  wonki  be  in  any  other  kind  of  a  case.^ 

§  418.     Time  of  Accrual  of  Claim  as  an  Essential  Condition  to 
Its  Preference— The  "Six  Months  Rule." 

Besides  the  requirement  tliat,  to  be  preferred,  a  claim 
must  have  both  of  the  qualities,  or  characteristics,  above 
mentioned,  it  is  also  essential  that  it  shall  satisfy  a  certain 
condition  with  reference  to  the  time  when  it  accrued. 
This  point  has  been  stated  as  follows :  ''It  is  only  neces- 
sary to  show  that  the  supplies  that  were  furnished  con- 
tributed to  the  creation  of  the  current  income,  that  it  is 
looked  to  by  the  creditor,  and  that  there  was  income  in 
facf  received  by  the  railroad  company  equal  in  amount 
to  what  it  currently  cost  to  operate  the  railroad.  There 
can  be  no  net  income  until  the  current  expense  claims 
have  first  been  deducted  from  the  receipts  of  operation, 
and,  as  the  security  of  the  mortgagee  is  limited  to  net 
income,  it  follows  that  it  has  no  equitable  claim  upon 
the  receipts  of  operation  until  the  supply  creditors,  v.ho 
have  contributed  to  the  creation  of  such  receipts,  have 
been  paid  in  full  out  of  them.  The  equity  of  the  rule 
lies  in  the  manifest  justice  of  paying  those  whose  labor 
or  material  Avent  to  create  the  income  which  the  mort- 
gagee claims  as  part  of  his  security,  before  the  mortgagee 
receives  it  in  payment  of  his  debt.  If  the  current  expense 
could  be  specifically  traced  to  the  current  income  it  cre- 
ates, the  application  of  the  rule  would  be  easy  and  defi- 
nite. The  impossibility  of  tracing  each  dollar  of  expense 
into  the  corresponding  dollar  of  income  created  by  it 
has  made  it  necessary  for  the  courts  to  fix  an  arbitrary 
period  beyond  which  it  will  not  be  presumed  that  labor 
and  material  furnished  the  railroad  will  continue  to  pro- 
duce income."^ 

9  See  Pennsylvania  Steel  Co.  v.  i  Texas    Co.   v.    International   & 

New  York  City  Ry,  Co.,  20S  Fed.      G.   N.   Ry.   Co.,  237  Fed.   921,   150 
ITS.  C.  C.  A.  571. 


1164  LAW    OF    RECEIVERS. 

Tlie  above  statement  has  reference  only  to  priority 
over  mortgagees,  and  in  that  respect  is  too  narrow.  More- 
over, the  word  ''arbitrary"  in  the  last  sentence  must 
not  be  taken  as  meaning  that  the  same  period  is  fixed 
for  all  cases.     The  statement,  however,  clearly  shows  a 
reason  for  the  rule  and  indicates  clearly  what  the  rule 
is.     Current  expense  claims  for  a  consideration  bearing 
directly  upon  operation  are  accorded  a  preference  because 
it  is  assumed  that  they  directly  contributed  toward  pro- 
ducing the  current  income  of  the  company,  and  would 
be  paid  out  of  that,  income  if  the  company  continued 
to  manage  its  own  affairs.     Necessarily  the  influence  of 
any  particular  consideration  upon  the  current  income 
would  cease  at  some  time,  and  after  that  the  claim  based 
on  that  consideration  would,  in  theory,  not  share  in  the 
current  income,  because  either  it  had  been  fully  paid 
or  had  not  earned  its  own  worth.     The  receiver  simply 
takes  the  place  of  the  company,  and  in  theory  he  should 
do  what  the  company  would  do.     There  is  a  point  of 
time  anterior  to   the  time   of  the   appointment  of  the 
receiver  in  regard  to  which  it  can  be  said  that  any  claim 
that  accrued  prior  to  it  will  not  participate  in  producing 
any  of  the  income  that  will  come  into  the  hands  of  the 
receiver.    This  point  of  time  cannot  be  accurately  deter- 
mined by  the  court  mth  reference  to  any  one  claim  and, 
as  a  matter  of  pure  convenience,  a  single  time  has  to 
be  set  for  all  claims.     The  court  therefore  must,  arbi- 
trarily in  one  sense,  but  reasonably  in  another,  fix  a  cer- 
tain date  and  order  that  only  current  expense  claims 
that  accrued  between  that  date  and  the  date  of  the  ap- 
pointment of  the  receiver  shall  be  placed  as  preferred.^ 
Perhaps  the  most  common  period  that  has  been  chosen 
as  the  interval  between  these  two  dates  is  six  months, 
and  the   rule  has  become  known  as   the  "six  months 

2  Central  Trust  Co.  v.  East  Tennessee,  etc.,  R.  Co.,  80  Fed.  624,  26 
C.  C.  A.  30. 


RAILROADS PUBLIC    UTILITY    CORPORATIONS.  1165 

rule.  "3     When  it  was   considered  necessary,   however, 
it  was  said  that  ''there  is  no  six  months  rule,"  in  the 
sense  that  no  claim  older  than  six  months  before  the 
date  of  the  receivership  could  be  preferred.''    Even  when 
the  court  makes  a  general  order  fixing  the  period  under 
this  rule  for  a  case  it  may,  under  compulsion  of  some 
special  equity,  give  preference  to  an  older  claim.^    It  is 
probable,  in  fact,  that  the  elaborate  theory  worked  out 
m  the  ab^ve  quotation  is  not  necessary  to  explain  the 
rule.     More  likely  the  rule  is  simply  a  corollary  of  the 
rule  requiring  a  preferred  claim  to  be  a  current  expense 
claim.     If  it  was  not  paid  in  a  certain  time,  three,  four, 
or  six  months,  according  to  the  usual  practice  of  the 
particular  company  involved  in  the  case,  or  according 
to  the  usual  extent  of  time  given  for  paying  what  mi-ht 
be  called  current  bills,  then  the  inference  would  be  that 
it  was  not  to  be  paid  out  of  current  income.     But  this 
inference  might  be  offset  by  some  special  fact-some 
dispute  about  the  claim  or  some  unusual  delay  in  the 
company's  payment  of  current  expenses.     In  the  case 
cited  m  the  last  note  it  is  said:     -He  [the  trial  iudo-e] 
recognized  it  as  a  condition  that  the  creditors  shall  not 

3  Title    Insurance    &    Trust    Co.      Kansas  City.  W.  &  N    W    R    Co 
V.  Home  Telephone  Co.  of  Puget       33  Fed.  182  '      ' 

Sound,  200  Fed.  263.  5  Pennsylvania  Steel  Co.  v.  Ne^ 

It  has  been  said  that  six  months  ^^'"^  City  Ry.  Co.,  208  Fed.  173, 
has  been  commonly  chosen  as  the  ^^^  ^^^-  ^^^'  132  C.  C.  A.  518.  In 
limit  anterior  to  the  receivership  referring  to  this  case  we  have 
in    which    preferred    claims    must      ^''^^^^^t^y  directed  our  citation  to 

have  accrued  because  of  the  fact  ISf.  ''^^°''*  °^  "'^  special  master, 

that  interest  on   bonds  Is  usually  J        !^   ^°''  *^^   '^^'°"   "'^*  *^^<^ 

made    payable    semi-annually   and  IT"""^  ^^''^  ^  ^^'^  ^""  ^""^  e^t^'^- 

mortgages    frequently    require    at  T       ''!,^T  °'  *^"  '""''  ^"^  **^^ 

the   time  of  interest  payment  an  l^^^  ,\"^  l''\''^%  ^^^^"^t  Judge 

assurance  that  current  debts  have  Z.     4.«      °TV^^.    '"''"''    ^^^^ 

all    been   paid.     Crane   Co    v.    Fi-  f^'  '  1      ^^    ^^    ^^    ^'^^'    *° 

delity  Trust  Co..  238  Fed    693    151  f"'''"''^^    ^^^     ''ePort,     contented 

C.  C.  A.  543.     See  Thomas  v   Peo-  *f ^f  ^^^«  ^f  brief  statements 
ria,  etc..  R.  Co.,  36  Fed    808  '  '''''  ^""^  ^  reference  to  the 

.-n,  ,  r  n      '        '  master  s   report  for  further  infor- 

4  Farmers'  Loan  &  Trust  Co.  v.  mation. 


1166  LAW    OF    RECEIVERS. 

have  relied  merely  on  the  personal  credit  of  the  com- 
pany. Thoy  [the  claims]  must  be  of  such  a  quantity  and 
to  he  paid  for  at  such  times  as  to  indicate  that  they  are 
necessary  for  current  operations  and  are  to  be  met  out 
of  current  earnings.  The  court  may  draw  the  inference 
that  this  was  the  expectation  of  the  parties  from  the  cir- 
cumstances surrounding  the  transaction."*' 

§  419.     Funds  to  Which  Preferred  Claims  Attach. 

The  orderly  process  through  which  a  court  passes  in 
considering  the  matter  of  preferred  claims  in  any  case 
is,  first,  to  examine  claims  presented  for  payment  to  de- 
termine which  of  them  are  entitled  to  preferential  status, 
and,  second,  to  examine  the  condition  of  the  estate  for 
the  purpose  of  finding  the  money  with  which  to  pay 
them.i  As  was  suggested  above,  tliis  is  perhaps  the 
order  in  which,  historically,  the  whole  matter  of  pre- 
ferred claims  was  called  to  the  attention  of  courts  as 
a  practical  problem ;  the  court  came  in  contact  with  claims 
that  practically  had  to  be  paid,  and  then  found  the  money 
to  pay  them,  and  then  stated  the  judicial  reasons  for 
doing  so. 2     It  is  to  be  remembered  that  the  matter  of 

6  Following    are    some    of    the  53   Fed.    182,   18    months.     Where 

cases    in    vvhich    preference    was  wages     for  -labor    were     paid     in 

allowed  to  claims  older  than  the  script  of  a  water  company  to  be 

time    fixed    in    the    general    order  ^^^d   in  payment  of  water   rights 


on  the  subject:    Southern  Ry.  Co. 
V.   Carnegie   Steel   Co.,   176   U.    S. 


along  parts  of  its  canal  still  to  be 

constructed,    the    claim    based    on 

the   script  is   not   a   current   debt 
257,  44  L.  Ed.  458,  20  Sup.  Ct.  347,       ^,^.^^^     ^^^^^^.^  ^^^^^^  ^^   ^  ^^^^. 

8  to  11  months;   Hale  v.  Frost,  99  ^^..^^^  ^^^^^^  ^^^^  ^^^  .9  P^^   501 

U.S.  389,  25  L.  Ed.  419,  33  months;  -pj^g    period    has    been    fixed    by 

Bumham  v.  Bowen,  111  U.  S.  776,  analogy    to    a    state    statute    with 

28   L.   Ed.  596,  4   Sup.  Ct.  675,  11  reference  to  liens  upon  a  railroad 

months;  Virginia  &  A.,  etc.,  Co.  v.  for  work  and  material.     Turner  v. 

Central  R.  R.,  etc.,  Co.,  170  U.  S.  Indianapolis    B.,    etc.,    Ry.    Co.,    8 

355,   42    L.    Ed.   1068,   18    Sup.    Ct.  Biss.  315,  Fed.  Cas.  No.  14258. 

657,  8  months;    Central  Trust  Co.  1  See  Pennsylvania  Steel  Co.  v. 

V.  St.  Louis,  etc.,  Ry.  Co.,  41  Fed.  New  York  City  Ry.  Co.,  208  Fed. 

551,  1  year;   Farmers'  Loan  &  T.  at  page  172. 

Co.  V.  Kansas  City,  etc.,  Ry.  Co.,  -'  See  §  413  of  this  chapter. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1167 

settling'  claims  against  a  receivership  estate  is  not  in 
personam,  but  in  rem.  A  claim  is  considered  with  ref- 
erence to  its  qualities,  or  characteristics,  and  without 
reference  to  the  individual  who  owns  it.  The  standing- 
of  a  claim  before  the  estate  is  not  affected  by  a  change 
in  its  ownership.^  Having  considered  the  conditions, 
or  circumstances,  that  entitle  claims  to  prefei'ence,  we 
come  now  to  inquire  what  funds  in  the  estate  may  be 
employed  to  pay  them  in  a  preferential  way. 

§  420.     Unmortgaged  Assets,   Including  Current  Income  Not 
Covered  by  Mortgage,  as  a  Payment  Fund. 

The  public  utility  mortgages  that  are  involved  in 
almost  every  utility  receivership  cover  all  the  property 
of  the  company,  both  that  owned  at  the  time  the  mort- 
gage is  made  and  that  to  be  acquired  subsequently,  to- 
gether with  the  income,  profits,  etc.  It  has  seldom 
happened,  therefore,  that  there  has  been  in  the  estate 
any  unmortgaged  assets.  In  one  instance,  however, 
spoken  of  at  the  time  (1907)  as  unique,  there  were  such 
assets.  They  were  the  assets  of  the  New^  York  City 
Eailway  Company,  involved  in  the  Metropolitan  Railway 
Receivership  Case.  The  New  York  City  Company  had 
never  issued  a  mortgage.^ 

It  has  occasionally  happened  that  there  has  come  into 
the  possession  of  the  receiver  at  the  outset  of  the  receiver- 
ship cash  from  the  current  revenue  of  the  company. 
Moreover,  the  receivers  have  usually  been  appointed  at 
the  instance  of  creditors,  and  the  mortgage  foreclosures, 
Avith  accompanying  extensions  of  the  receiverships  to  the 
foreclosures,  instituted  at  some  later  period. 

3  Union  Trust  Co.  v.  Walker,  107  Where  the  current  income  is  in- 

TJ.  S.  596,  27  L.  Ed.  490,  2  Sup.  Ct.  sufficient,   resort   may    be   had   to 

299;    Northern  Pac.  R.  Co.  v.  La-  the  unmortgaged  assets  of  the  cor- 

mont,  69  Fed.  23,  16  C.  C.  A.  364  poration.     Pennsylvania  Steel  Co. 

1  Pennsylvania  Steel  Co.  v.  New  v.  New  York  City  Ry.  Co.,  216  Fed. 

York  City  Ry.  Co.,  208  Fed.  173,  458  (at  page  471),  132  C.  C.  A.  518. 
216  Fed.  458,  132  C.  C.  A.  518. 


1168  LAW   OF    RECEIVERS. 

It  is  to  be  remembered  that,  even  though  a  mortgage 
pledges  the  income,  the  mortgagee  has  no  lien  upon  it 
until  he  takes  steps  to  secure  one  through  the  appoint- 
ment of  a  receiver.  Up  to  that  time  tlie  company,  if 
managing  its  own  affairs,  may  use  tlie  income  as  it 
pleases,  and  such  income  as  comes  into  the  hands  of  the 
receiver  goes  into  the  general  fund.^  It  is  to  be  remem- 
bered also  that  if  the  mortgagee  shares  in  the  unmort- 
gaged assets  or  income  on  the  basis  of  a  deficiency 
judgment,  he  does  so  simply  as  a  general  creditor.^ 

The  general  fund,  made  up  from  such  sources  as  above 
mentioned,  belongs  to  the  general  creditors,  except  in 
so  far  as  it  is  used  to  pay  expenses  of  the  receivership 
itself.  As  above  stated,  simply  because  of  the  fortuitous 
circumstance  that  the  estates  did  not  contain  such  a  fund, 
it  has  seldom  happened  that  the  question  as  to  the  pri- 
ority of  preferred  claims  over  the  claims  of  other  gen- 
eral creditors  as  to  participation  in  this  fund  has  arisen. 
The  question,  however,  has  been  determined  in  favor  of 
the  preferred  claims.  In  the  case  just  mentioned  the 
point  was  very  ably  discussed  by  Special  Master  Turner 
as  follows:  ''In  the  Whelan  Case'^  Judge  Lowell  says 
in  effect  that  it  may  seem  anomalous  that  a  claim  superior 
to  a  mortgage  debt  is  not  preferred  over  general  cred- 
itors, but  that  the  priority  rests  on  the  duty  of  the  mort- 
gagee to  contribute,  and  not  upon  priority  in  general 
distribution.  In  that  case,  in  wdiich  the  affairs  of  an 
insolvent  steamship  company  were  adjusted  by  the  court, 
preference  over  general  creditors  was  denied  to  a  traf^c 
balance  due  a  connecting  steamship  line  accruing  prior  to 
the  receivership — a  debt  necessary  to  the  business  of  the 

2  Gilman    v.    minois,    etc.,    Co.,  3  Westinghouse    Electric    &    M. 

91  IT.  S.  603,  23   L.   Ed.  405;    Gal-  Co.    v.    Idaho    Ry.,    etc.,    Co.,    228 

veston,  etc.,  R.  R.  Co.  v.  Cowdrey,  Fed.  972. 

11  Wall.  459,  20  L.  Ed.  199;  Freed-  4  Whelan    v.    Enterprise    Trans- 
man's    Saving,    etc.,    Co.    v.    Shep-  portation  Co.,  175  Fed.  212. 
herd,  127  U.  S.  494,  32  L.  Ed.  1G3, 
8  Sup.  Ct.  1250. 


RAILROADS PUBLIC    UTILITY    CORPORATIONS,  1169 

company,  which,  even  under  the  narrowed  rule  laid  down 
in  Gregg  v.  Metropolitan,  197  U.  S.  183,  25  Sup.  Ct.  415, 
49  L.  Ed.  717,  by  a  sharply  divided  court,  is  with  claims 
for  labor  held  entitled  to  go  against  the  corpus  without 
proof  of  diversion  of  current  income  for  its  benefit.     It 
was  a  claim  superior  even  to  claims  for  supplies  neces- 
sary to  current  operation,  which  emphasizes  the  anomaly. 
But  surely  the  fact  that  by  the  slow  process  of  judicial 
development  there  has  been  evolved  a  doctrine  which 
displaces  vested  liens  in  favor  of  supply  creditors  does 
not  mean  that  the  duty  which  lienors  may  be  under  is 
exclusive,  and  that  general  creditors  who  have  contracted 
solely  on  the  personal  credit  of  the  company  are  in  a 
superior  position.    It  implies  the  contrary.    It  is  impos- 
sible to  read  the  cases  cited  in  the  prevailing  and  dis- 
senting opinions  in  the  Gregg  Case  without  concluding 
that  their   necessary  implication   is   that   unmortgaged 
assets  not  only  may  but  must  be  resorted  to  before  any 
attempt  by  supply  creditors  to  displace  liens  created  long 
prior  to  their  debts  can  be  made.     The  reason  for  the 
preference  lies  in  the  necessity  of  fulfilling  a  duty  to 
the  public  by  keeping  a  railroad  in  operation,  and  that 
necessity  is  as  present  and  as  urgent  in  the  case  of  the 
railroad  company  with  a  large  unsecured  indebtedness 
as  in  the  case  of  a  company  whose  property  is  wholly 
covered  by  liens.    If  the  doctrine  in  the  Whelan  Case  is 
to  be  applied  to  railroad  receiverships,  a  court  charged 
with  a  duty  to  the  public  of  keeping  the  railroad  of  an 
insolvent  company  in  operation  might  be  wholly  unable 
to  discharge  it,  for  it  would  be  unable  to  use  the  cash 
and  quick  assets  of  the  insolvent  in  payment  of  old  and 
new  debts  for  supplies  which  are  as  essential  .to  operation 
as  labor  itself.     The  opinion  in  the  Whelan  Case  points 
to  a  possible  distinction  between  a  steamship  and  a  rail- 
road company  receivership  without  deciding  it.     Since 
that  decision  the  court  in  the  same  circuit  has  decided 
that  supply  creditors  are  preferred  over  general  cred- 

II  r.ec— 74 


1170  LAW    OF   RECEIVERS. 

itors  and  lias  clone  it  in  a  steamship  receiversliip,  but 
without  referring  to  the  prior  decision,  and  it  has  been 
affirmed  on  appeal.  Berwind  White  Coal  Co.  v.  Metro- 
politan Steamship  Co.  (C.  C),  183  Fed.  250;  American 
Trust  Co.  V.  Same,  190  Fed.  113,  111  C.  C.  A.  376."^ 

This  report  vv^as  confirmed  by  the  District  Court  and 
its  judgment  affirmed  by  the  Circuit  Court  of  Appeals.*' 

Another  possible  source  of  revenue  for  the  general 
fund  also  appears  in  this  same  case.  The  New  York  City 
Raihvay  Company  had  been  the  lessee  of  the  Metropolitan 
System.  During  the  period  that  the  receiver  of  the  City 
Company  was  operating  the  Metropolitan  System  to  de- 
termine whether  or  not  he  should  ado])t  the  lease,  he  had 
expended  certain  sums  for  construction  work  on  lines 
belonging  to  the  Metropolitan.  It  was  held  that  the  New- 
York  City  Railway  Company  was  entitled  to  be  reim- 
bursed for  this  expenditure,  and  in  so  far  as  the  expendi- 
ture had  been  made  from  current  income  or  unmortgaged 
assets  the  reimbursement  should  be  credited  by  the  re- 
ceiver to  the  general  fund.^ 

§  421.     What  Constitutes  Mortgaged  Assets. 

In  the  history  of  the  doctrine  of  preferred  claims  the 
chief  difficulties  that  have  confronted  the  courts,  due  to 
the  condition  in  wiiich  the  receivership  estates  have,  finan- 
cially, happened  to  be,  have  been  in  connection  with  pro- 
viding for  their  payment  from  funds  that,  as  a  matter 
of  law,  belonged  in  priority  to  mortgagees.  These  funds 
are  current  income  produced  by  the  receiver  in  his  opera- 
tion of  the  utility  and  the  proceeds  of  the  corpus  of  the 
property.^ 

5  Pennsylvania  Steel  Co.  v.  New  v.  North  American  Co.,  229  Fed. 
York  City  Ry.  Co.,  208  Fed.  at  175.       103,  143  C.  C.  A.  379. 


7  Pennsylvania  Steel  Co.  v.  New 
York  City  Ry.  Co.,  190  Fed.  609. 
1  See  discussion  under  following 
132  C.  C.  A.  518.     See,  also.  Love      section 


6  Pennsylvania  Steel  Co.  v.  New 
York   City   Ry.   Co.,   216   Fed.   458, 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1171 

§  422.     Status  of  Current  Income  from  Operation  of    the  Re- 
ceivership Property. 

As  to  the  current  income  produced  by  the  operation  of 
the  property  while  under  the  control  of  the  company  >ve 
Jiave  seen  that,  as  a  matter  of  law,  the  company  had  the 
right  to  use  that  as  it  saw  fit,  as  far  as  the  mortgagee 
was  concerned,  and  therefore  had  the  right  to  pay  cur- 
rent expense  debts  out  of  its  current  income  without 
giving  cause  for  complaint  on  the  part  of  the  mortgagee.^ 
It  was  comparatively  easy,  therefore,  for  the  courts  to 
liold  that  the  mortgagee  did  not  have  a  prior  claim  to 
such  of  the  funds  that  came  into  the  hands  of  the  receiver 
as  were  belated  collections  of  money  actually  earned  by 
the  company  before  the  receivership  began,  or  such  as 
were  earned  by  the  receiver  himself  before  his  protec- 
tion was  extended  to  the  interest  of  the  mortgagee.  The 
next  step  was  to  apply  to  the  receiver's  current  income, 
derived  from  his  operating  of  the  public  utility,  the  same 
practice,  with  the  modification,  however,  that  this  re- 
ceiver's income  might  be  used,  not  to  pay  the  receiver's 
own  current  expenses,  simply,  but  those  of  the  company 

1  We  are  not  unmindful  of  the  giving  the  trustee  the  right,  in  the 
proposition  that  it  may  be  held  event  of  a  default,  to  take  posses- 
that  a  mortgagee  may  never  be  en-  sion  and  continue  the  business,  op- 
titled  to  a  lien  on  income,  but  we  erates  to  give  the  mortgagee  a  lien 
are  not  mentioning  it  because,  gen-  on  the  receiver's  income  if  the 
erally  speaking,  courts  do  not  have  trustee  elects  to  foreclose.  Cen- 
occasion  to  consider  it  in  a  utility  tral  Trust  Co.  v.  Chattanooga  R. 
receivership  case.  If  it  arose  and  &  C,  etc.,  Co.,  94  Fed.  275,  36 
it  was  decided  that  the  mortgagee  C.  C.  A.  241.  Where  there  has 
did  not  have  a  lien  on  the  re-  been  a  diversion  of  income  during 
ceiver's  income,  that  income,  as  receivership,  a  reimbursement  of 
far  as  preferred  claims  are  con-  fund  for  payment  of  operating  ex- 
cerned,  would  probably  be  thrown  penses  is  required,  but  otherwise, 
into  the  general  fund.  See  §  247  and  in  the  absence  of  any  surplus 
et  seq.,  supra.  It  has  been  held  income,  bondholders  are  protected 
that,  though  a  mortgage  does  not  by  their  contractual  rights.  Love- 
expressly  pledge  the  income  of  land  &  Hinyan  Co.  v.  Blair,  222 
the  utility  as  security,  a  provision  Fed.  207. 


1172  LAW    OF    RECEIVERS. 

as  well  arising  within  a  limited  period  i^rior  to  tlie  re- 
ceivership. An  explanation  of  this  point  is  given  in  the 
same  opinion  from  which  w^e  quoted  above  to  show  how 
the  *'six  months  rule"  has  sometimes  been  accounted 
for.2  District  Judge  Grubb,  w^riting  for  the  Circuit  Court 
of  Appeals,  continued  the  argument  begun  in  that  quota- 
tion as  follows:  ''This  accounts  for  the  arbitrary  period 
of  six  months  fixed  by  rule  of  court.  It  depends  upon 
the  assumption  that  the  period  over  which  labor  and  sup- 
plies used  by  a  railroad  will  continue  to  contribute  to 
its  earnings  is  a  period  of  not  exceeding  six  months. 
Under  this  rule,  if  a  railroad  ceased  to  be  operated  upon 
the  appointment  of  a  receiver,  supplies  and  labor  fur- 
nished at  any  time  within  six  months  prior  thereto  would 
share  in  earnings  up  to  the  time  the  receiver  was  ap- 
pointed. If  operations  are  continued  by  the  receiver  it 
would  seem  proper  to  assume  that  labor  and  supplies 
furnished  the  railroad  company,  during  at  least  some 
period  prior  to  the  receivership,  would  continue  to  con- 
tribute to  create  earnings  under  the  receivership;  for  it 
is  clear  that  if  the  company's  operations  had  not  been 
interrupted  by  a  receivership,  such  labor  and  supplies 
would  have  entered  into  future  earnings  as  a  creating* 
factor.  If  the  mortgagee  is  permitted  to  subject  the 
entire  surplus  earnings  of  the  receivership  to  his  security, 
to  the  exclusion  of  labor  and  supply  claimants,  wdio  fur- 
nished the  railroad  labor  and  material  prior  to  the  re- 
ceivership, he  would  be  receiving,  in  part  at  least,  'that 
which  in  equity  belongs  to  the  wdiole  or  a  part  of  the 
general  creditors.'  He  would  be  receiving  as  net  income 
what  would  not  be  properly  net  income;  the  claims  of 
the  labor  and  supply  creditors  who  contributed  to  its 
creation  not  having  been  deducted  from  it.  He  would 
in  that  event  receive  the  benefit  of  the  earnings  of  the 

2  Texas    Co.   v.    International    &    G.    N,   Ry.    Co.,    237    Fed.    921,    150 
C.  C.  A.  571. 

See  §  418,  tliis  chapter. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1173 

receivership,  without  paying  the  incidental  burden  of  the 
expense  by  which  they  were  created.  If  there  had  been 
no  receivership,  the  supply  creditors  would  receive  pay- 
ment, from  the  railroad  compau}^,  out  of  the  same  earn- 
ings that  went  to  the  receiver  after  his  appointment.  It 
is  inequitable  that  the  mortgagee  should  profit  in  this 
respect  at  the  expense  of  supply  and  labor  claimants, 
through  the  placing  of  the  mortgaged  property  in  the 
hands  of  a  receiver.  The  bondholders  also  profit  by  re- 
ceiving the  earnings  of  the  railroad  company  on  hand 
when  the  receiver  was  appointed,  as  well  as  earnings 
earned  before  the  receivership  and  subsequently  collected 
by  the  receiver,  all  of  which  would  have  gone  to  the  sup- 
ply and  labor  claimants  but  for  the  interruption  of  the 
company's  operation  by  the  receiver."  The  same  point 
is  put  in  the  following  form  by  Judge  Dietrich  in  the 
United  States  Circuit  Court  of  Appeals  of  the  Ninth 
Circuit:  ''The  equity  of  a  person  who  has  furnished 
labor  or  supplies  necessary  to  operating  an  insolvent 
railroad  company  to  preference  over  a  prior  mortgage 
flows  from  the  fact  that,  in  the  ordinary  course  of  busi- 
ness, he  has  performed  labor  or  furnished  necessary 
supplies  to  the  company,  with  the  reasonable  expectation 
of  being  paid  therefor  from  certain  funds.  His  power 
to  enforce  his  rights  should  not  be  made  contingent  upon 
the  possibility  that  the  secured  creditor  may  apply  to  a 
court  for  the  appointment  of  a  receiver  or  for  other 
equitable  relief,  a  circumstance  wdiolly  fortuitous,  or  at 
least  one  over  w^hich  he  exercises  no  control.  The  real 
basis  upon  which  the  preference  rests  is  the  implied 
understanding  on  the  part  of  all  parties  that  such  debts 
are  to  be  paid  out  of  the  current  income  before  the  mort- 
gagee has  any  claim  thereto."^ 

3  Moore    v.    Donahoo,    217    Fed.  R.  R.,   etc.,  Co.,  170  U.   S.  355,  42 

177,   133   C.   C.  A.   171.     See,  also,  L.  Ed.  1068,  18  Sup.  Ct.  657;   First 

Burnham  v.  Bowen,  111  U.  S.  776,  Trust  Co.  v.  111.  Cent.  R.  Co.,  252 

28  L.  Ed.  596,  4  Sup.  Ct.  675;   Vir-  Fed.  965,  164  C.  C.  A.  473. 
ginia    &    A.    Coal    Co.    v.    Central 


1174  LAW   OF   RECEIVERS. 

§423.    Resort  to  the  Corpus  of  the  Mortgaged  Property  to 
Replace  Diversions  from  Current  Income. 

Thus  far  in  the  analysis  of  the  preferred  claims  doc- 
trine we  have  found  the  following  funds  out  of  wliich 
such  claims  might  be  paid:  (1)  Unmortgaged  assets  of 
the  company;  (2)  special  funds  to  replace  expenditures 
by  the  receiver  from  his  own  funds,  unmortgaged  assets 
or  income,  to  the  benefit  of  some  interest  other  than 
that  of  his  own  utility;  (3)  remnants  of  the  current 
income  of  the  public  utility  turned  over  to  the  receiver 
upon  his  appointment  or  subsequently  collected  by  liim ; 
(4)  current  income  of  the  receiver  earned  before  the 
mortgagee  obtained  an  equitable  lien  upon  income;  (5) 
receiver's  current  income  after  the  mortgagee  had  be- 
come interested  therein.  Using  these  funds  involved  very 
slight,  if  any,  encroachment  upon  the  strict  legal  rights 
of  the  mortgagee,  as  they  would  be  regarded  in  any 
other  kind  of  a  receivership,  except  the  last.  These 
funds,  however,  were  seldom  adequate  for  the  purpose. 
The  next  step  to  find  money  for  the  preferred  claims 
required  a  real  encroachment  upon  the  mortgagee's  I'ights 
as  they  were  usually  regarded  to  be.  It  involved  a  fur- 
ther scrutiny  of  the  financial  practices  of  public  utilities 
in  times  of  financial  stress.  The  following  facts  were 
observed.  The  effort  to  save  a  struggling  concern  caused 
two  things.  To  head  off  absolute  disaster,  fixed  charges 
like  interest  and  taxes  had  to  be  met,  and  likewise  litig- 
ious and  insistent  creditors.  Perhaps  the  prospects 
were  that  a  struggling  concern  could  be  turned  into  a 
strong  institution  by  securing  an  increase  of  business. 
Additional  equipment  to  handle  more  business  in  the  ter- 
ritory already  being  served  or  extensions  of  ser^dce  to 
new  territory  might  be  effective.  A  strong  financial  con- 
cern could  meet  these  charges  without  trouble,  but  a 
weak  one,  choosing  between  evils,  had  to  let  some  ob- 
ligations  go.     General   claims,    among   them   preferred 


RAILROADS PUBLIC    UTILITY    CORPORATIONS.  1175 

claims,  had  to  be  neglected.  Money  that  would  other- 
wise have  gone  to  pay  preferred  claims  was  turned  into 
other  channels.  For  the  most  part,  however,,  these 
expenditures  inured  to  the  benefit  of  the  mortgagee.  If 
disaster  came  his  claim  was  smaller  than  it  would  have 
been  because  interest  had  been  paid,  and  perhaps  less 
complicated  because  litigious  creditors  had  been  paid. 
Since  his  mortgage  covered  after-acquired  property,  his 
security  was  greater  than  it  would  have  been  if  new 
equipment  had  not  been  acquired  and  new  construction 
made.  These  advantages  to  the  mortgagee  were  acquired 
at  the  expense  of  the  preferred  claims.  Hence  the  ex- 
penditures that  created  them  were  called  diversions  of 
current  income. 

Even  under  the  management  of  the  court  it  is  often 
considered  advisable  to  make  expenditures  from  the 
receiver's  current  income  that,  as  far  as  preferred  claims 
are  concerned,  constitute  diversions  of  current  income. 

If  the  condition  of  the  estate  makes  it  necessary  to 
do  so,  these  diversions  are  restored  to  the  current  income 
fund  from  the  proceeds  of  the  property  itself,  in  order 
to  pay  preferred  claims. ^ 

1  Union  Trust  Co.  v.  Souther,  107  purpose  of  heading  off  foreclosure 

U.  S.  591,  27  L.  Ed.  488,  2  Sup.  Ct.  of  those  bonds,  if  such  policy  tends 

295;   Burnham  v.  Bowen,  111  U.S.  to  delay   payment  of  a  preferred 

776,  28  L.  Ed.  596,  4  Sup.  Ct.  675;  claim    and    to    make    it    probable 

Morgan's    L.    &    T.,    etc.,    Co.    v.  that,  if  continued,  the  policy  will 

Texas,  etc.,  R.  Co.,  137  U.  S.  171,  make  necessary  resort  to  the  cor- 

34  L.  Ed.  625,  11  Sup.  Ct.  61;  Vir-  pus   to  pay  such  preferred  claim, 

ginia    &    A.    Coal    Co.    v.    Central  Texas    Co.    v.    International,    etc., 

R.  R.,  etc.,  Co.,  170  U.   S.  355,  42  Ry.  Co.,  237  Fed.  921,  150  C.  C   A.' 

L.  Ed.  1068,  18  Sup.  Ct.  657;  South-  571. 

ern  Ry.  Co.  v.  Carnegie  Steel  Co.,  In  this  case  it  was  also  held  that 
176  U.  S.  257,  44  L.  Ed.  458,  20  Sup.  the  receiver  might  recover  from 
Ct.  347.  Pending  foreclosure  of  the  bondholders'  trustee  money 
a  second  mortgage,  the  receiver's  already  paid  him  if  he  had  not 
current  income  may  not,  as  a  set-  distributed  it  among  the  bond- 
tied  policy  of  the  court,  be  di-  holders.  When,  pending  foreclos- 
verted  to  the  payment  of  interest  ure  of  a  second  mortgage,  diver- 
on    first   mortgage    bonds    for   the  sions     of    receiver's     income    are 


1176 


LAW    OF    RECEIVERS. 


In  this  matter  of  reestablishing  the  current  income 
fmid  by  restoration  of  diversions,  several  details  are  to 
be  noticed. 

If,  without  any  restoration  of  diversions,  there  is  money 
on  hand  in  the  current  income  fund,  even  though  it  be 
from  earnings  of  the  receiver  after  the  extension  of 
the  receivership  to  the  mortgagee's  interest,  the  access 
of  preferred  claims  to  the  fund  is  not  limited,  in  the 
interest  of  the  mortgagee,  by  the  fact  that  there  may 
have  been,  under  the  company's  regime,  diversions  that 
did  not  inure  to  the  benefit  of  the  mortgagee.  Notwith- 
standing the  fact  that  because  of  such  diversions  the 
current  income  fund  is  less  than  it  otherwise  w^ould 
have  been,  preferred  claims,  as  against  the  mortgage, 
are  entitled  to  all  of  it.- 

Diversions  occur  only  when  current  income  is  spent 
for  other  than  current  debts.     They  do  not  occur  when 


being  made  to  the  benefit  of  the 
first  mortgagee  and  the  disadvan- 
tage of  a  preferred  claimant,  the 
first  mortgagee  not  being  a  party  to 
the  receiversliip  proceedings,  said 
claimant  may  commence  an  inde- 
pendent action,  joining  the  first 
mortgage  as  defendant,  to  enjoin 
such  diversions,  the  necessity  for 
bringing  in  the  first  mortgagee  as 
a  party  being  the  basis  of  the  right 
to  an  independent  action  as  com- 
pared with  a  motion  in  the  pro- 
ceedings themselves.  As  affecting 
the  rights  of  a  second  mortgagee, 
foreclosing,  a  diversion  to  pre- 
serve the  unity  of  the  system,  as, 
for  instance,  to  prevent  foreclos- 
ure of  a  mechanic's  lien  upon  a 
portion  of  the  road,  might  be 
justifiable;  but  a  diversion  to 
forestall  foreclosure  by  a  first 
mortgagee,  which  would  not  have 


a  tendency  to  dismember  the  road, 
simply  to  enhance  the  security  of 
the  second  mortgagee,  is  not  jus- 
tifiable.    Idem. 

2  Virginia  &  A.  Coal  Co.  v.  Cen- 
tral R.  R.,  etc.,  Co.,  170  U.  S.  355, 
42  L.  Ed.  1068,  18  Sup.  Ct.  657. 

In  Southern  Ry.  Co.  v.  Carnegie 
Steel  Co.,  176  U.  S.  257,  44  L.  Ed. 
458,  20  Sup.  Ct.  347,  Mr.  Justice 
Harlan,  while  holding  that  each 
case  must  depend  on  its  own  spe- 
cial facts,  said:  "That  a  railroad 
mortgagee,  when  accepting  his  se- 
curity, impliedly  agrees  that  the 
current  debts  of  a  railroad  com- 
pany contracted  in  the  ordinary 
course  of  its  business  shall  be 
paid  out  of  the  current  receipts 
before  he  has  any  claim  upon  such 
income." 

In  this  connection  see  Moore  v. 
Donahoo,  217  Fed.  177,  133  C.  C.  A. 
171. 


RAILROADS — rUBLIC    UTILITY    CORPORATIONS.  1177 

such  other  debts  are  paid  without  recourse  to  current 
income,  as,  for  instance,  from  borrowed  money  or  un- 
mortgaged assets.  The  burden  of  showing  the  fact  of 
diversions  is  on  the  preferred  claimant.  If  diversions 
occur,  but  the  amounts  are  restored  to  the  current  income 
fund  from  moneys  derived  from  another  source,  the  diver- 
sions are  offset.^ 

The  alleged  diversion  must  have  occurred  during  the 
''six  months"  period,  or  wiiatever  period  is  established 
as  the  one  during  which  current  expense  claims  must 
have  accrued  to  be  preferred.  A  diversion  during  that 
period  calls  for  restoration  in  favor  of  any  claim  accru- 
ing during  the  period ;  a  diversion  antedating  the  period 
does  not.  As  to  any  claim  in  behalf  of  which  the  fixed 
period  is,  for  special  reasons,  extended,  a  diversion,  to 
call  for  restoration,  must  have  occurred  after,  and 
not  before,  the  accruing  of  the  claim.  Current  debts 
are  not  affected  by  the  use  the  utility  makes  of  its  cur- 
rent income  before  they  come  into  being.^ 

The  restoration  is  limited  to  the  extent  of  the  diver- 
sion. Restoration  is  not  for  the  benefit  of  general  cred- 
itors and  is  resorted  to  only  when  preferred  claims 
can  not  be  entirely  satisfied  out  of  other  funds  to  which 
they  have  access.^ 

3  St.  Louis,  etc.,  R.  Co.  v.  Cleve-  Trust  Co.  v.  East  Tennessee,  etc., 
land,  etc.,  R.  Co.,  125  U.  S.  658,  R.  Co.,  80  Fed.  624,  26  C.  C.  A.  30. 
31  L.  Ed.  832,  8  Sup.  Ct.  1011;  5  Fosdick  v.  Schall,  supra;  Chi. 
Central  Trust  Co.  v.  East  Ten-  cago  &  A.,  etc.,  R.  Co.  v.  United 
nessee,  etc.,  Co.,  80  Fed.  624,  26  States  &  Mexican  Trust  Co.,  225 
C.  C.  A.  30;  Pennsylvania  Steel  Fed.  940,  941,  141  C.  C.  A.  64; 
Co.  V.  New  York  City  Ry.  Co.,  Pennsylvania  Steel  Co.  v.  New 
208  Fed.  at  178;  Gregg  v.  Metro-  York  City  Ry.  Co.,  216  Fed.  458, 
politan  Trust  Co.,  124  Fed.  721,  59  132  C.  C.  A.  518;  Finance  Co.  of 
C.  C.  A.  637.  Pennsylvania  v.    Charleston,   etc., 

4  John    A.    Roebling's    Sons    Co.  R.  Co.,  48  Fed.  188. 

v.   Idaho   Ry.,    etq.,   Co.,    243    Fed.  Payments  of  interest  to  a  mort- 

527,    156    C.    C.    A.    225;    Pennsyl-  gagee,  and  for  equipment  and  con- 

vania  Steel  Co.  v.  New  York  City  struction    not    necessary    to    con- 

Ry.    Co.,    208    Fed.    180;     Central  tinue  the  existing  business  of  the 


1178 


LAW    OP    RECEIVEP.S. 


To  call  for  restoration  it  is  essential  that  a  diversion 
must  have  inured  to  the  benefit  of  the  mortgagee.^ 

company   temporarily,   but   to   in- 
sure  its   permanence   or  increase 
it,  inure  to  the  benefit  of  the  mort- 
gagee;   the    issuing    of    receivers' 
certificates  having  priority  over  a 
preferred  claim  for  the  purpose  of 
borrowing    money    to    make    such 
payments  is,  as  far  as  such  pre- 
ferred claim  is  concerned,  equiva- 
lent   to   payment.      Texas    Co.    v. 
International,     etc.,     R.     Co.,     237 
Fed.  921,  150  C.  C.  A.  571.      Pay- 
ment of  taxes   does  not  inure  to 
the    benefit    of    a    mortgagee    any 
more  than  to  the  benefit  of  a  pre- 
ferred claimant,  since  all  parties 
are   interested   in   preventing   the 
danger  to  continued  operation  that 
failure  to  pay  taxes  would  create. 
Idem. 

6  Purchase   of   an    extension    of 
right  of  way  inures  to  benefit  of 
mortgagee.      Burnham    v.    Bowen, 
111    U.    S.    776,    28    L.    Ed.    596,    4 
Sup.  Ct.  675.     Where  a  system  is 
made  up  of  a  number  of  companies 
consisting  of  a  primary  company, 
others    owned    by    that    company, 
and  others  leased  by  it,  payment 
of   interest   on    the    bonds   of   the 
subsidiary  companies,  or  of  rentals 
to  the  leased  companies,  consist- 
ing in  part  of  interest  on  bonds  of 
the  leased  companies,  all  of  which 
bonds  are  secured  by  a  mortgage 
prior  to  the  mortgage  being  fore- 
closed   and    covering   the    system, 
such  payments  being  made  for  the 
primary  purpose  of  preserving  the 
unity  of  the  system,  inure  to  the 
benefit  of  the   general   mortgage. 
Pennsylvania    Steel    Co.    v.    New 
York  City  Ry.  Co.,  208  Fed.  173; 
Southern  Ry.  Co.  v.  Carnegie  Steel 
Co.,  176  U.  S.  257,  44   U   Ed.  458. 


20  Sup.  Ct.  347.  But  see  St.  Louis, 
etc.,  R.  Co.  V.  Cleveland,  etc.,  R. 
Co.,  125  U.  S.  658,  31  L.  Ed.  832, 
8  Sup.  Ct.  1011.  See  United  States 
&  Mexican  Trust  Co.  v.  Beaty,  240 
Fed.  592,  153  C.  C.  A.  396. 

In    Chicago    &   Alton   R.    Co.   v. 
United    States    &    Mexican    Trust 
Co.,  225  Fed.  940,  141  C.  C.  A.  64, 
the   court,    speaking   through   Cir- 
cuit Judge  Sanborn,  said:      "It  is 
true  that  a  mortgagee  of  the  prop- 
erty  and  income  of  an  operating 
railroad  company  impliedly  agrees 
that  the  current  expenses  of  the 
ordinary  operation  of  the  railroad 
for  wages,  supplies,  materials  and 
such  necessities   of  operation  for 
six  months  before  the  impounding 
of  the  income  for  its  benefit  may  be 
first  paid  out  of  the  gross  income 
of   operation,   before   that   net  in- 
come arises  which  the  mortgagee's 
lien  holds   fast,  and  that  a  court 
of    equity    administering    railroad 
property  in  a  foreclosure  suit  may 
prefer  unpaid  claims  for  such  cur- 
rent expenses  incurred  within  six 
months  before  the  impounding  of 
the  income  to  the  claims  of  bond- 
holders secured  by  a  prior  mort- 
gage in  its  distribution  of  the  sur- 
plus income  of  the  property,  and 
that  if  income  has  been  diverted 
from  the  payment  of  such  current 
expenses,    leaving   some    of   them 
unpaid,   to   the   payment  of   other 
debts  of  the  mortgagor  not  in  this 
preferential   class,   the  court  may 
restore  from  the  proceeds  of  the 
corpus  of  the  property  the  amount 
thus  diverted  and  apply  it  to  the 
payment  of  such  current  expenses. 
But   if   there   has   been    no   diver- 
sion there  can  be  no  restoratioa. 


RxULROADS — PUBLIC    UTILITY    COIiPORATIONS. 


1179 


§  424.     Resort  to  the  Corpus  of  the  Property  to  an  Amount 
Greater  Than  That  of  Diversions. 

Up  to  the  point  that  we  have  now  reached,  we  think 
that  there  has  not  been  any  serious  conflict  of  opinion 
among  the  decisions  as  far  as  the  principles  of  the  doc- 
trine of  preferred  claims  are  concerned.  We  think  there 
is  no  w^ell-considered  opinion  tiiat  has  denied  that  cur- 
rent expense  claims — that  is,  claims  that  accrued  within 
a  reasonable  time  prior  to  the  receivership,  and  whose 
consideration  was  directly  related  to  the  operation  of 
the  utility  as  a  going  concern  or  to  the  maintenance  of 
its  property  in  a  condition  safe  for  operation,  and  whose 
jjayment  ought  to  have  bcf^n  made  from  current  revenue 
coming  to  hand  very  shortly  after  the  claims  accrued — 
remaining  unpaid  at  the  time  of  the  appointment  of  the 
receiver,  are  not  entitled  to  preferential  treatment  against 
other  general  creditors  as  to  unmortgaged  assets  or  other 


and  the  amount  of  the  restoration 
can  not  exceed  the  amount  of  the 
diversion.  Conceding,  without  ad- 
mitting, that  the  consideration  of 
the  claim  of  the  intervener  is  a 
part  of  the  current  expenses  of 
the  ordinary  operation  of  the  rail- 
road for  necessities  of  operation, 
such  as  wages  and  supplies,  so 
that  it  might  be  preferred  in  pay- 
ment out  of  surplus  Income,  or 
out  of  moneys  taken  from  the  pro- 
ceeds of  the  corpus  of  the  prop- 
erty and  restored  to  the  place  of 
moneys  diverted  from  the  payment 
of  current  expenses,  yet  there  is 
no  such  surplus  income  in  this 
case,  and  there  was  no  such  di- 
version, therefore  there  can  be 
no  restoration  and  no  payment  of 
this  claim  out  of  the  proceeds  of 
the  sale  of  the  property.  It  is 
only  when  current  income  has 
been   diverted   from  the   paymcr.t 


of  current  expenses  of  the  ordi- 
nary operation  of  the  railroad  for 
wages,  supplies  and  such  necessi- 
ties of  operation,  leaving  a  part 
of  such  current  expenses  unpaid, 
and  applied  to  the  payment  of 
interest  on  bonds,  or  of  claims 
for  construction,  or  for  unneces- 
sary betterments  and  the  like, 
which  inure  to  the  benefit  of  the 
bondholders,  that  claims  for  such 
current  expenses  may  be  paid  out 
of  the  proceeds  of  the  body  of  the 
property.  Gregg  v.  Metropolitan 
Trust  Co.,  197  U.  S.  183,  190,  49 
L.  Ed.  717,  25  Sup.  Ct.  415;  Car- 
bon F\iel  Co.  V.  Chicago  C.  &  L.  R. 
Co.,  202  Fed.  172,  174,  120  C.  C.  A. 
460:  Illinois  Trust  &  Savings  Bank 
V.  Doud,  105  Fed.  123,  131,  132,  148, 
44  C.  C.  A.  389,  52  L.  R.  A.  4S1: 
Rodger  Ballast  Car  Co.  v.  Omaha, 
K.  C.  &  E.  R.  Co.,  154  Fed.  629, 
C32,  83  C.  C.  A.  403." 


1180  LAW    OF    RECEIVERS. 

funds  on  Avhicli  the  mortgagee  lias  no  lien;  and,  against 
the  mortgagee,  as  to  the  current  income  fund  in   the 
hands  of  the  receiver,  derived  under  the  regime  of  the 
company  or  the  receiver,  as  that  fund  is  made  complete 
by  restoration  to  it,  so  far  as  necessary,  from  the  corpus 
of  the  property,  of  amounts  diverted,  for  the  benefit  of 
the   mortgagee,    from    the    current   incom^e    during   the 
administration  of  the  receiver  or  during  a  reasonably 
limited  period   of  the   administration   of   the   company 
immediately  preceding  the  receivership.     There  may,  of 
course,  at  any  time  arise  a  difference  of  opinion  as  to 
whether  a  certain  expenditure  was  for  operating  or  per- 
manent   maintenance;  -whether    a    certain    expenditure 
inured  to  the  benefit  of  the  mortgagee  or  of  some  other 
interest,  and  other  like  matters.^     But  these  are  differ- 
ences of  opinion  as  to  fact,  not  as  to  principle  or  laAv. 
For  the  most  part  they  grow  out  of  differences  of  opinion 
as  to  the  weight  or  proper  interpretation  of  evidence 
or  of  the  equitable  consideration  to  be  given  to  special 
circumstances,  and  do  not  relate  to  the  underlying  rules 
upon  which  decisions  are  based  or  by  which  they  are 
controlled. 

But  it  sometimes  happens  that  the  application  of  the 
doctrine  of  preferred  claims  up  to  the  limit  so  far  reached 
does  not  satisfy  in  full  all  claims  of  that  class,  and  to 
accomplish  this  purpose  it  is  necessary  to  resort  to  the 
corpus  of  the  property  to  a  greater  extent  than  is  suffi- 
cient simply  to  complete  the  current  income  fund  by 
restorations  on  account  of  diversions,  or  to  resort  to 
the  corpus  when  there  have  been  no  diversions  either 

1  See     majority     and     minority  20  Sup.  Ct.  347,  with  Lackawanna 

opinions,    Crane    Co.    v.    Fidelity  Iron,  etc.,  Co.  v.  Farmers'  Loan  & 

Trust  Co.,  238  Fed.  693,  151  C.  C.  A.  T.  Co.,  176  U.  S.  298,  44  L.  Ed.  475, 

543,  and  John  A.  Roebling's  Sons  20  Sup.  Ct.  363;  also  Southern  Ry. 

Co.  V.  Idaho  Ry.,  etc.,  Co.,  243  Fed.  Co.   v.   Carnegie   Steel   Co.,   supra, 

527,  156  C.  C.  A.  225.  Compare  also  with  St.  Louis,  etc.,  R.  Co.  v.  Cleve- 

Sonthern  Ry.  Co.  v.  Carnegie  Steel  land,   etc.,   R.   Co.,   125   U.   S.   658, 

Co.,   176  U.  S.   257,  44   L.   Ed.  458,  31  L.  Ed.  832,  8  Sup.  Ct.  1011. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1181 

under  the  company  or  under  tlie  receiver.  Can  this  relief 
be  accorded  to  preferred  claimants,  or  are  mortgagees 
protected  against  this  further  intrusion  upon  their  legal 
rights  f 

It  was  on  this  point  that  the  United  States  Supreme 
Court  divided,  by  a  majority  of  one,  in  the  Gregg  Case,- 
and  it  is  the  Gregg  Case  tliat  has  caused  most  of  the 
difficulty  for  the  lower  courts.  In  that  case  the  majority 
of  the  court  spoke  with  approval  of  the  preceding  cases 
that  had  gone  to  the  length  of  restoring  to  the  current 
debt  fund,  for  the  purpose  of  paying  preferred  claims, 
sufficient  money  to  make  up  for  previous  diversions  and 
expressly  declared  that  if  the  claimant  in  the  instant 
case  could  in  that  way  find  money  for  his  claim  he  was 
entitled  to  it.  Since  that  case,  however,  lower  courts 
have  frequently  declared  that  it  restricted  the  doctrine 
within  narrower  limits  than  had  formerly  been  consid- 
ered necessary,  and,  following  the  admonition  given  to 
lower  courts  in  the  Kneeland  Case,^  it  has  undoubtedly 
made  lower  courts  somewhat  timid  in  carrying  the  doc- 
trine even  to  the  extent  recognized  by  the  case  itself. 
It  may  be  repeated,  in  passing,  that  the  majority  decision 
affirmed  a  ruling  of  a  court  of  appeals  that  in  this  very 
case  itself  boasted  that,  no  matter  what  other  courts 
may  have  done,  it  had  always  followed  the  decisions  of 
the  United  States  Supreme  Court. ^ 

§  425.     Discussion  of  the  Gregg  Case  and  Its  Results. 

Two  things  are  necessary  to  be  said  about  the  Gregg 
Case.^ 

•-'  Gregg    V.    Metropolitan    Trust  i  Gregg    v.    Metropolitan    Trust 

Co.,  197  U.  S.  183,  49  L.  Ed.  717,  25  Co.,  197  U.  S.  183,  49  L.  Ed.  717,  25 

Sup.  Ct.  415.  Sup.  Ct.  415. 

3  Kneeland  v.  American  L.  «S:  T.  In  connection  with  the  Gregg 
Co..  136  U.  S.  S9,  34  L.  Ed.  379,  10  Case  see  the  following  cases:  Tay- 
Sup.  Ct.  950.  lor  v.  Delaware  &  E.  R.  Co.,  213 

4  Gregg  V.  Metropolitan  Trust  Fed.  622,  130  C.  C.  A.  214;  Penn- 
Co..  121  Fed.  721,  59  C.  C.  A.  637.  sylvania    Steel    Co.   v.    New    York 


1182  LAW    OF    RECEIVERS. 

The  claim  was  for  coal  that  had  been  ordered  by  the 
company.  The  entire  order  amounted  to  something  over 
four  thousand  dollars.  It  had  been  delivered  during  the 
last  month  or  so  of  the  company's  regime,  and  part  of 
it  the  day  on  which  the  receiver  was  appointed.  Some- 
thing over  three  thousand  dollars'  worth  was  on  hand 
when  the  receiver  took  possession,  including  the  amount 
delivered  the  day  he  was  appointed,  and  he  used  it  in 
operating  the  road. 

The  claim  was  treated  expressly  as  one  accruing  before 
the  receivership,  as  a  ''very  meritorious  claim,"-  and  as 
one  fully  entitled  to  be  paid  out  of  current  income,  either 
of  the  company  or  of  the  receiver  or  of  restorations  for 
diversions.  There  was  not  any  current  income  fund  and 
there  had  not  been  any  diversions  from  that  fund  either 
by  the  company  or  by  the  receiver.  To  pay  it  money 
would  have  to  be  taken  from  the  corpus  of  the  property 
even  in  the  absence  of  diversion.  The  majority  opinion 
says:  ''The  case  stands  as  one  in  which  there  has  been 
no  diversion  of  income  by  which  the  mortgagees  have 
profited,  or  otherwise,  and  the  main  question  is  the  general 
one,  whether  in  such  a  case,  a  claim  for  necessary  sup- 
plies furnished  within  six  months  before  the  receiver  was 
appointed  should  be  charged  on  the  corpus  of  the  fund. 
There  are  no  special  circumstances  affecting  the  claim 
as  a  whole  and  if  it  is  charged  on  the  corpus  it  can  be 
only  by  laying  down  a  general  rule  that  such  claims  for 
supplies  are  entitled  to  precedence  over  a  lien  expressly 
created  by  a  mortgage  recorded  before  the  contracts  for 
supplies  w^ere  made." 

The  minority  were  of  the  opinion  that  the  gates  should 

City    Ry.    Co.    216    Fed.    558,    132  Co.   v.   Detroit,   etc.,   Ry.    Co.,   251 

C.  C.  A.  518;    Texas  Co.  v.  Inter-  Fed.  514,  163  C.  C.  A.  508. 

national,  etc.,  Ry.  Co.,  237  Fed.  921,  2  See     Gregg     v.     Metropolitan 

150  C.    C.    A.    571;    Crane    Co.    v.  Trust  Co.,  124  Fed.  721,  59  C.  C.  A. 
Fidelity   Trust  Co.,   238   Fed.   693,  637. 

151  C.  C.  A.  543;  New  York  Trust 


RAILROADS PUBLIC    UTILITY    CORPORATIONS.  1183 

60  llirown  wide  open  and  that  there  was  no  substantial 
equitable  support  at  all  for  the  doctrine  of  preferred 
claims  unless  it  could  be  carried  to  the  extreme  limit  of 
paying  all  preferred  claims  before  the  mortgagee  re- 
ceived anything  at  all  from  the  estate.  The  majority 
ruled  that  the  doctrine  should  be  and  always  had  been, 
stopped  short  of  this  final  inroad  upon  the  legal  rights 
of  the  mortgagee.  Preference  to  the  claim  in  issue  over 
the  rights  of  the  mortgagee  in  the  corpus  in  the  absence 
of  beneficial  diversions  from  the  current  income  was 
denied. 

It  is  to  be  noticed  that  the  majority  ruled  that  such  w^as 
the  general  rule  and  held  that  there  was  in  the  instant 
claim  no  circumstance  that  gave  it  an  enhanced  equity  as 
conipared  with  current  debt  claims  in  general.  There  is 
in  this  ruling  at  least  an  inference  that  special  equities 
might  give  such  a  claim  a  right  to  payment  out  of  the 
corpus  of  the  fund.  This  inference  is  strengthened  by 
the  way  in  which  the  majority  referred  to  contain  former 
decisions  of  the  court. 

Of  the  Supreme  Court  preferred  claim  cases,  prior  to 
the  Gregg  Case,  we  have  observed  only  two  in  which  pay- 
ment'of  claims  out  of  the  corpus  of  the  fund  had  been 
involved  and  in  both  of  these  the  payment  had  been  ap- 
proved.^ In  the  later  one  of  them  a  few  small  claims  for 
labor  had  been  favorably  included,  without  special  men- 
tion, in  an  order  directing  the  paj^ment  of  a  number  of 
receiver's  claims,  to  the  proper  equitable  payment  of 
which  the  court  had  given  practically  all  of  its  consid- 
eration in  its  opinion.  Concerning  the  preferential  pay- 
ment of  these  labor  claims  the  majority  in  the  Gregg  Case 
said :  ' '  The  payment  of  the  employees  of  the  road  is  more 
certain  to  be  necessary  in  order  to  keep  it  running  than 
the  payment  of  any  other  class  of  previously  incurred 

3  Union  Trust  Co.  v.  Illinois  M.  Logansiiort,  etc.,  Ry.  Co.,  106  U.  S. 
Ry.  Co.,  117  U.  S.  434,  29  L.  Ed.  963,  286,  27  L.  Ed.  117,  1  Sup.  Ct.  140. 
6    Sup.    Ct.    809;    Miltenberger    v. 


1184:  LAW   OF    RECEIVERS. 

debts."  As  to  this  suggestion  the  minority  conld  not  see 
that,  in  equity,  as  far  as  their  necessity  to  the  business 
of  the  road  is  concerned,  there  is  any  difference  between 
the  engineer  in  the  cab  of  the  locomotive  and  the  coal  in 
its  tender.  We  think  it  must  be  said  on  this  point  that 
the  minority  were  right,  unless  equitable  consideration 
is  to  be  given  to  the  compelling  force  of  such  a  thing  as 
a  threatened  or  anticipated  labor  strike,  a  matter,  how- 
ever, wdiich  the  majority  did  not  mention.  Quoting  the 
majority's  explanation  of  the  payment  of  these  labor 
claims  a  lower  court  subsequently  remarked,  parentheti- 
cally, ''But  for  what  reason  is  not  stated."  We  think 
that  holding  that  there  was  a  limit  to  taking  money  from 
the  corpus  of  the  fund  for  paying  current  debt  funds,  the 
majority  should  have  said  that  the  earlier  payment  of 
labor  claims  was  through  inadvertence — that  the  claims 
got  through  by  reason  of  mass  of  detail. 

The  same  explanation  that  was  given  for  the  approved 
payment  of  these  labor  claims  could  not  be  used  with 
reference  to  the  claims  involved  in  the  other  early  case, 
the  Miltenberger  Case,  for  the  reason  that  in  that  case  the 
Supreme  Court  had  expressly  given  a  reason  for  its  ap- 
proval of  the  payment.  This  reason,  according  to  the 
majority,  was  ''not  merely  that  the  supplies  were  neces- 
sary for  the  preservation  of  the  road,  but  that  the  pay- 
ment was  necessary  to  the  business  of  the  road — a  very 
different  proposition."  It  is  also  said:  "In  the  later 
cases  the  wholly  exceptional  character  of  the  allowance 
is  observed  and  marked;"  but  in  none  of  the  cases  men- 
tioned in  connection  with  this  statement  was  anything 
said  about  the  Miltenberger  Case  necessary  to  the  deci- 
sion. There  is  to  be  noticed  in  our  first  quotation  from 
the  majority  opinion  in  the  Gregg  Case,  in  which  was 
stated  the  precise  question  before  the  court,  the  state- 
ment: "There  are  no  special  circumstances  affecting 
the  case  as  a  whole. "  Of  course  the  minority  of  the  court, 
under  its  view"  of  the  extreme  limit  to  wdiich  the  doctrine 


RAILROADS PUBLIC    UTILITY    CORPORATIONS.  1185 

should  be  extended,  would  have  had  no  difficulty  in  ex- 
pressly approving  the  Miltenberger  Case.  The  majority 
certainly  did  not  do  that.  Did  it  approve  that  case  in- 
ferentiallyf  It  has  been  said  that  it,  at  least,  did  not 
overrule  that  case,  though  it  limited  the  doctrine  as  there 
laid  down.^  But  we  find  this  statement  about  the  matter 
in  one  of  the  later  cases, ^  the  court  saying:  *' Moreover, 
there  are  two  grounds — (1)  the  diversion  of  income;  and 
(2)  the  necessity  or  business  policy  of  immediate  pay- 
ment— on  which  claims  for  current  expenses  for  necessi- 
ties of  operation  have  been  paid  out  of  the  corpus  of  the 
property.  Miltenberger  v.  Logansport  Railway  Co.,  106 
U.  S.  286,  308,  311,  1  Sup.  Ct.  140,  27  L.  Ed.  117 ;  Union 
Trust  Co.  V.  Illinois  Midland  Co.,  117  U.  S.  434,  457,  6 
Sup.  Ct.  809,  29  L.  Ed.  963.  But  the  decisions  of  the 
Supreme  Court  in  the  cases  in  which  such  claims  were 
allowed  on  the  second  ground  were  rendered  more  than 
15  years  ago,  before  the  series  of  decisions  found  in 
Kneeland  v.  American  Loan  &  Trust  Co.,  136  U.  S.  89,  98, 

10  Sup.  Ct.  950,  34  L.  Ed.  379 ;  Morgan's  Co.  v.  Texas  Cen- 
tral Railway,  137  U.  S.  171,  196,  198,  11  Sup.  Ct.  61,  34 
L.  Ed.  625 ;  Thompson  v.  Valley  Railroad  Co.,  132  U.  S. 
68,  71,  73,  10  Sup.  Ct.  29,  33  L.  Ed.  256;  Thomas  v. 
Western  Car  Co.,  149  U.  S.  95,  110,  13  Sup.  Ct.  824,  37 
L.  Ed.  663 ;  Southern  Railway  Co.  v.  Carnegie  Steel  Co., 
176  U.  S.  257,  296,  20  Sup.  Ct.  347,  44  L.  Ed.  458;  Lacka- 
wanna Iron  &  Coal  Co.  v.  Farmers'  Loan  &  Trust  Co., 
176  U.  S.  298,  315,  20  Sup.  Ct.  363,  44  L.  Ed.  475 ;  and 
Gregg  V.  Metropolitan  Trust  Co.,  197  U.  S.  183,  190,  25 
Sup.  Ct.  415,  49  L.  Ed.  717,  which  so  narrowly  limit  and 
clearly  define  preferential  claims,  were  rendered,  and  the 
earlier  cases  were  largely  controlled  by  the  element  of 
estoppel.  A  thoughtful  consideration  of  those  cases  and 
others  which  have  followed  them,  and  of  the  opinions  in 

4  United     States     and  Mexican          5  Chicago   &   A.,   etc.,   R.   Co.  v. 

Trust  Co.  V.  Beaty,  243  Fed.  544,      United    States    &    Mexican    Trust 

156  C.  C.  A.  242.  Co.,  225  Fed.  940;  141  C.  C.  A.  64. 

11  Rec— 75 


1186  LAW    OF    RECEIVERS. 

the  later  cases  in  the  Supreme  Court  which  have  been 
cited,  convinces  that  if  claims  of  the  nature  of  those  al- 
lowed as  preferential  in  the  Miltenberger  and  Union 
Trust  Company  cases  were  now^  presented,  under  objec- 
tion of  bondholders  under  no  estoppel,  to  the  Supreme 
Court,  they  would  be  denied  preference  over  the  claims 
of  the  bondholders  in  payment  out  of  the  corpus  of  the 
mortgaged  property. 

**  Again,  if  a  claim  for  the  current  expenses  of  the  neces- 
sities of  the  operation  of  a  railroad  is  payable  in  prefer- 
ence to  the  claims  of  secured  bondholders  out  of  the 
corpus  of  the  property  in  any  case  in  the  absence  of  diver- 
sion of  the  income  from  such  expenses,  it  is  only  when 
such  preferential  payment  is  necessary  to  keep  the  rail- 
road a  going  concern,  or  when  its  preferential  payment  is 
necessary  to  prevent  a  loss  at  least  equal  to  the  amount 
of  the  payment.  Gregg  v.  Metropolitan  Trust  Co.,  197 
IT.  S.  186,  187,  25  Sup.  Ct.  415,  49  L.  Ed.  717 ;  Moore  v. 
Donahoo,  217  Fed.  177,  181-183,  133  C.  C.  A.  171 ;  Taylor 
V.  Delaware  &  E.  R.  Co.,  213  Fed.  622,  624,  130  C.  C.  A. 
214.  The  evidence  in  this  case  goes  no  farther  than  the 
testimony  of  one  witness  that  it  was  not  necessary  for 
the  mortgagor  company,  or  the  receivers,  to  ship  freight 
on  the  railroads  of  other  companies,  but  that  they  could 
take  it  on  junction  settlement,  instead  of  on  interstate 
account,  although  they  generally  have  such  interline  ac- 
counts with  connecting  carriers  as  that  out  of  which  the 
intervener's  claim  for  the  balances  arose,  and  that  if 
these  claims  for  balances  were  unpaid,  and  the  connecting 
carriers  refused  to  carry  their  freight,  this  would  disrupt 
their  freight,  and  be  a  serious  detriment  to  their  business. 
This  evidence  falls  far  short  of  proof  that  the  preferential 
payment  of  the  intervener's  claim  w^as  either  necessary 
to  keep  the  Orient  Company  a  going  concern  or  to  prevent 
a  loss  at  least  equal  to  the  amount  of  the  payment."  It 
is  evident  that  this  coui't  did  think  that  the  Gregg  Case 
overruled  the  Miltenberger  Case  as  far  as  its  particular 


r.VILROADS PUBLIC    UTILITY    CORPORATIONS.  1187 

facts  are  concerned,  but  that  it  did  not  overrule  it  in  the 
sense  of  holding  that  no  claim  could  arise  of  sufficient 
equity  to  warrant  its  being  paid  out  of  the  corpus  of  the 
fund  in  the  absence  of  diversion.  In  the  case  from  which 
we  have  just  quoted  it  was  held  that  claims  for  the 
''balances  for  car  repairs,  loss  and  damage  claims,  and 
overcharges"  arising  through  interchange  of  business 
between  two  roads  can  not  be  paid  out  of  the  corpus  of 
the  fund.  The  statement  is  made  that  such  items  are  not 
traffic  balances,  although  the  claims  there  involved  are  in 
another  case  decided  by  the  same  Circuit  Court  of  Ap- 
peals stated  to  have  been  for  traffic  balances.^  We  might 
add  also  that  we  do  not  see  anything  in  the  Gregg  Case 
that  can  be  translated  into  the  proposition  that  a  claim 
can  not  be  paid  out  of  the  corpus  of  the  fund  unless  its 
payment  ''is  necessary  to  prevent  a  loss  at  least  equal 
to  the  amount  of  the  payment." 

In  the  last  case  cited  in  the  above  quotation,  it  was  con- 
tended, on  behalf  of  a  claim  for  coal,  that,  on  the  principle 
that  equality  is  equity,  it  should  be  preferred  because  cer- 
tain claims  for  "wages,  station  rentals  and  balances  due 
connecting  lines"  had  been  paid,  the  contention  being  that 
"these  charges  were  entitled  to  no  greater  consideration 
than  was  the  bill  for  coal. ' '    The  court  responded :    * '  This 
may  be  so,  but  it  is  entirely  within  the  discretion  of  the 
court  to  determine  which,  if  any,  of  such  claims  shall  be 
paid  by  receivers,  and  it  is   those  which  are  not  only 
necessary  but  whose  payment  is  necessary  to  keep  the 
road  a  going  concern  which  should  be  paid  out  of  the 
corpus  of  the  property  [citing  Gregg  Case].   It  is  to  be 
presumed  that  the  court  found  payment  of  these  claims 
necessary."     We  think  there  is  nothing  in  the  Gregg 
Case  that  placed  the  matter  of  carrying  the  preferred 
claims  doctrine  to  the  extreme  limit  in  the  discretion  of 

6  United    States   &   Mexican   Trust   Co.   v.   Beaty,   240   Fed    592    153 
C.  C.  A.  396. 


1188  LAW   OF    RECEIVERS. 

the  court;  and  we  think  that,  if  the  Gregg  Case  is  to  be 
followed,  it  might  better  have  been  said  in  this  Delaware 
Case,"  at  least  as  far  as  the  claim  for  wages  was  con- 
cerned, as  was  said  in  effect  in  the  Gregg  Case,  in  answer 
to  a  similar  contention,  that  tw^o  wrongs  do  not  make  a 
right.  Certainly  the  Gregg  and  the  Delaware  cases  are 
not  identical  because  both  ruled  that  claims  for  coal  could 
not  be  preferred. 

We  think,  however,  that  the  Gregg  Case  did  not  over- 
rule the  Miltenberger  Case  and  that,  without  going  as  far 
as  the  minority  of  the  court  did  in  the  Gregg  Case,  it  may 
be  said  that  there  is  a  class  of  claims  that  could  be  paid 
out  of  the  corpus  of  the  fund  without  going  contrary  to 
anything  said  by  the  majority  in  the  Gregg  Case.  We 
think  that  if,  contrary  to  the  holding  of  the  minority  in 
that  case,  preferred  claims  may  be  compared  among 
themselves  in  respect  to  their  equitable  power,  there  is 
a  class  of  claims  having  greater  force  than  the  ordinary 
claims  for  labor,  supplies,  or  material;  and  that  the 
line  between  this  class  and  the  others  can  be  as  distinctly 
drawn  as  it  is  possible  sometimes  to  draw  the  line  between 
operating  repairs  and  permanent  construction. 

In  a  recent  case  in  a  United  States  District  Court  in 
Kansas,^  a  claim  was  presented  by  the  State  Public-  Ser- 
vice Commission,  on  behalf  of  shippers,  for  an  excess  in 
freight  rates  that  had  been  collected  by  the  company  over 
and  above  those  that  had  been  established  by  the  com- 
mission, pending  litigation  over  an  order  of  the  com- 
mission reducing  rates  below  those  being  charged  by  the 
company.  The  claim  was  for  the  excess  that  had  been 
collected  by  the  company  prior  to  the  receivership,  the 
order  of  the  commission  having  been  sustained.  The 
matter  was  treated  as  a  preferred  claims  case.     In  an 

T  Taylor  v.  Delaware  &  E.  R.  Co.,  s  United  States  &  Mexican  Trust 

213  Fed.  622,  130  C.  C.  A.  214.  Co.  v.  Kansas  City,  etc.,  Co.,  supra. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1183 

earlier  case^  the  court  had  found  it  easy  to  allow  an 
identical  claim,  based  on  the  same  order  of  the  commis- 
sion, for  the  reason  that  there  happened  to  be  money  in 
the  current  income  fund.  In  the  instant  case  there  was 
no  money  in  any  fund  except  the  corpus  fund  and  there 
had  been  no  diversions  and  the  court  felt  compelled  to 
say  that  there  was  no  basis  for  a  preferential  treatment 
of  the  claim  unless  a  ''right  to  preferential  payment 
inheres  in  the  very  nature  of  the  claim  itself."  How- 
ever, the  court  found  in  an  argiiment  employed  in  the 
other  case,  sufficient  ground  to  warrant  a  decree  pre- 
ferring the  claim  to  that  of  the  bondholders.  It  quoted 
as  follows:  "(2)  There  is  another  aspect  in  which  peti- 
tioners' equity  appears  equally  strong.  The  railroad 
company  got  this  money  into  its  treasury  by  superseding 
rates  that  were  fixed  by  authority  of  the  state.  When 
those  rates  were  sustained,  the  carrier  was  bound  to  re- 
store its  excessive  exactions.  This  was  a  duty  not  only  to 
the  shippers.  It  was  a  public  duty  owing  to  the  state 
whose  orders  had  been  superseded.  It  is  a  duty  which 
this  court  and  the  Supreme  Court  have  always  been 
scrupulously  careful  to  safeguard  when  superseding 
rates  pending  judicial  inquiry  as  to  their  validity.  It  is 
a  duty  which  a  court  of  equity,  that  has  taken  over  the 
business  of  the  public  carrier  by  means  of  a  receivership, 
ought  to  be  equally  careful  to  enforce. 

"(3)  Petitioners'  claim  also  comes  M-ithin  the  rule 
which  underlies  the  right  to  a  preferential  payment. 
Freight  rates  are  the  lifeblood  of  a  railroad  operation. 
It  mil  not  be  contradicted  that  if  there  were  no  freight 
rates  paid  in  the  United  States,  not  a  wheel  would  turn  on 
any  road.  What  does  the  law  say  in  regard  to  the  allow- 
ance of  preferences!  We  accept  the  law  as  established 
by  the  Supreme  Court  of  the  United  States,  and  by  this 
court,  as  follows:     The  class  of  claims  which  under  the 

9  Love  V.  North  American  Co.,  229  Fed.  103,  143  C.  C.  A.  379. 


1190  LAW    OF    RECEIVERS. 

decisions  of  the  Supreme  Court  may  lawfuly  receive  an 
equitable  preference  in  payment  out  of  tlie  income  or  out 
of  the  corpus  of  the  property  of  a  mortgaged  railroad 
over  the  bondholders  secured  by  a  prior  mortgage  is 
limited  to  claims  incurred  for  the  current  expenses  of  the 
ordinary  operation   of  the  mortgaged  property  in  the 
usual  course  of  the  business  of  the  mortgagor.    The  test 
of  the  preferential  equity  of  a  claim  is  its  consideration. 
If  its  consideration  was  a  current  expense  of  the  ordinary 
operation  of  the  property  of  the  mortgagor  incurred  in 
the  usual  course  of  its  business,  for  labor,  supplies,  and 
like  things,  necessary  for  the  operation  of  the  railroad, 
within  a  limited  time,  usually  not  exceeding  six  months 
anterior  to  the  appointment  of  the  receiver,  the  claim 
may  be  preferred  in  payment,  otherwise  it  rnay  not  be. 
Illinois  Trust  &  Savings  Bank  v.  Doud,  105  Fed.  123,  124, 
129,  44  C.  C.  A.  389,  390,  395,  52  L.  R.  A.  481 ;  Rodger 
Ballast  Car  Co.  v.  Omaha,  K.  C.  &  E.  R.  Co.,  154  Fed.  629, 
632,  83  C.  C.  A.  403,  406;  Blair  v.  R.  R.  Co.  (C.  C),  23  Fed. 
523 ;  Whiteley  v.  Central  Trust  Co.,  76  Fed.  74,  75,  77,  22 
C.  C.  A.  67,  34  L.  R.  A.  303 ;  Gay  v.  Hudson  River  Electric 
Power  Co.  (C.  C),  182  Fed.  904,  907,  909;  Penn.  Steel 
Co.  V.  New  York  City  R.  Co.   (C.  C),  165  Fed.  485; 
Farmers'  Loan  &  Trust  Co.  v.  Northern  P.  R.  R.  Co. 
(C.  C),  68  Fed.  36,  41,  42;  Fordyce  v.  Omaha  City  &  E. 
Ry.    Co.  (C.  C),  145  Fed.  544,  556,  557;  Chicago  &  A.  R. 
Co.  V.  U.  S.  &  Mex.  Trust  Co.,  225  Fed.  940,  141  C.  C.  A. 
64;  Martin  Metal  Mfg.  Co.  v.  Same,  225  Fed.  961,  141 
C.  C.  A.  85. 

"We  think  that  what  has  been  heretofore  said  estab- 
lishes that  the  claim  of  the  shippers  is  a  claim  incurred 
'for  the  current  expenses  of  the  ordinary  operation  of 
the  railroad  in  the  usual  course  of  business  of  the  road. ' 
On  principal  it  can  not  be  distinguished  from  payments 
to  sureties  who  have  signed  bonds  to  stay  the  execution 
of  judgments  and  claims  for  holders  of  unused  tickets 
for  refunds,   and  many  other   like   charges   which   are 


R.ULROADS — PUBLIC    UTILITY    CORPORATIONS.  1191 

babitiially  allowed,  and  have  been  allowed  in  the  receiv- 
ership of  the  Frisco  Company. ' ' 

We  think  a  better  view  of  the  underlying  equities  of 
the  matter  may  be  obtained  in  another  way.  At  the 
outset  the  court,  in  permitting  the  company  to  collect  the 
excess  rates  pending  the  litigation  over  the  commission's 
order,  had  exacted  a  bond  from  the  company  to  secure 
the  repayment  of  the  money  to  the  shippers  in  the  event 
that  the  order  was  sustained.  It  turned  out  tliat  the  bond 
was  seriously  inadequate  in  amount.  The  court  might, 
however,  have  ordered  the  entire  excess  collections  to 
have  been  impounded  in  some  depositary  until  the  con- 
troversy was  settled. i<^  In  that  event  the  actual  money 
would  have  been  on  hand  for  the  party  declared  to  be  the 
real  owner,  and  there  probably  would  have  been  on  hand 
at  least  some  of  the  interest  allowed  by  the  court  to  the 
real  owner.  In  other  words  when  the  company  was 
spending  the  excess  collections,  it  was  spending  money 
that  did  not  belong  to  it  and  that,  strictly  speaking,  was 
not  part  of  its  own  current  income  but  a  trust  fund. 

Part  of  the  claims  preferred  in  the  Miltenberger  Case 
were  for  traffic  balances.  In  theory,  when  two  roads 
operate  under  an  interchange  of  traffic  agreement,  the 
initial  carrier  collecting  the  charge  for  the  through 
service,  that  carrier  should  immediately  turn  over  to  the 
connecting  company  the  latter 's  share  of  the  collection 
or  at  least  hold  the  money  until  it  had  been  offset  by  a 
like  amount  in  the  hands  of  the  connecting  line  collected 
on  business  going  the  other  way.  If  the  initial  line 
pursues  a  different  policy  and  uses  the  entire  collections 
before  an  accounting  is  had  it  is  using  money,  if  the 
balance  turns  out  to  be  against  it,  that  is  not  its  own  and 
does  not  belong  to  its  own  current  income.    In  two  recent 

10  Spring  Valley  Water  Co.  v.  City  and  County  of  San  Francisco,  225 
Fed.  728,  140  C.  C.  A.  209. 


1192  LAW    OF    RECEIVERS. 

cases^^  claims  for  traffic  balances  arose,  growing  out  of 
business  during  a  time  when  the  bondholders  were  in 
control  of  the  insolvent  company  and  when  they  diverted 
the  traffic  balances  to  improving  the  road  in  a  manner 
that  inured  to  their  own  benefit.  These  cases  w^ere  de- 
termined on  principles  not  related  to  the  doctrine  of  pre- 
ferred claims  but  on  principles  relating  to  fraud  in  gen- 
eral. However,  in  one  of  the  cases^-  it  is  said:  ** Though 
there  may  have  been  no  diversion  by  the  Anamosa  Com- 
pany of  its  own  current  income  during  the  time  Myers 
and  Caldwell  were  so  operating  the  road,  it  is  not  dis- 
puted that  it  did  during  such  time  receive  and  use  the 
intervener's  share  of  its  earnings  and  appropriate  the 
same  to  the  improvement  and  betterment  of  the  Anamosa 
road  to  keep  it  in  a  safe  condition  for  operating." 

In  other  w^ords  the  insolvent  company  had  been  using 
money  not  its  own.  In  the  ordinary  case,  when  such 
claims  as  excess  rates  and  traffic  balances  arise,  there  are 
inot  special  equities  present  to  take  the  case  outside  of 
iprinciples  peculiar  to  public  utility  receiverships,  and  the 
matter  has  to  be  determined,  as  it  was  in  the  Miltenberger 
.Case  and  the  excess  rates  cases  above  mentioned,  within 
the  scope  of  the  preferred  claims  doctrine.  If,  within 
that  doctrine,  a  reason  has  to  be  given  for  according 
such  claims  a  preference  as  to  the  corpus  fund  .that 
would  not  be  extended  to  the  ordinary  supplies  and  ma- 
terial claims,  the  reason  would  be  that  the  court  deter- 
mines the  matter  on  much  the  same  grounds  on  which  a 
court  of  equity  always  reasons  when  it  places  a  necessary 
loss  upon  one  of  two  innocent  parties  rather  than  the 
other. 

Just  how  far  in  regard  to  matters  covered  by  inter- 
change of  traffic  arrangements  shall  this  rule  be  carried? 

11  Central  Trust  Co.  v.  Chicago  12  Central  Trust  Co.  v.  Chicago 

A.  &  N.  R.  Co.,  232  Fed.  936;  First      &  A.,  etc.,  R.  Co.,  supra. 
Trust    Co.    V.    Crooked    Creek   R., 
etc.,  Co.,  243  Fed.  450. 


RAILROADS — PUBLIC    UTILITY   CORPORATIONS.  1193 

In  the  Delaware  Case/^  preferment  of  claims  for  station 
rents  was  justified— after  the  event.    In  the  Chicago  and 
Alton  Case,  supra,  claims  for  loss  of  and  damage  to 
freight,  car  repairs,  and  over-charges,  not  being  con- 
sidered as  traffic  balances,  were  denied  preference.    It  is 
true  that,  as  between  the  insolvent  company  and  a  party 
injured  by  its  carelessness,  a  tort  claimant  is  not  allowed 
any  preference  at  all,   let  alone   access   to   the   corpus 
fund.i^     But  a  balance  in  favor  of  one  company  against 
another,  when  the  two  under  an  interchange  of  traffic 
arrangement,  have  been  mutually  paying  one  another's 
bills,  would  seem  to  stand  on  a  different  basis.     It  has 
been  held  that  a  petition  seeking  preference  for  a  claim 
against  an  insolvent  company  for  its  share  of  the  cost  of 
maintaining  a  crossing  and  the  wages  of  a  flagman  at 
the  crossing,  which  had  been  paid  in  full  by  the  claimant 
company,  is  not  obnoxious  to  general  demurrer  when  the 
petition  alleges  diversions.!^    It  does  not  sound  equitable 
to  say  that  the  preferential  status  of  these  claims  shall 
in  each  case  be  determined  by  the  mere  fortuity  as  to 
whether  or  not  the  receiver,  being  compelled  to  operate 
his  road  on  a  through  service  basis,  can  avoid  payment 
by  arranging  for  the  through  service  on  a  plan  different 
from  the  one  that  had  been  employed  by  the  company 
and  which  has  been  in  general  vogue.     Translating  the 
matter  into  the  terms  usually  employed  by  the  courts 
in  talking  of  the  equities  of  preferred  claims  we  think 
that  it  can  very  well  be  said  that  the  matters  usually 
covered  by  interchange  of  traffic  arrangements  and  such 
a  matter  as  the  collection  of  excessive  fares  as  involved 
in  the  cases  above  referred  to  are  more  intimately  con- 
nected with  the  mere  operation  of  a  railroad  than  is  the 

13  Taylor  v.   Delaware   &   E.   R.  i5  Missouri    K.    &    T.    R.   Co.   v 
Co.,  213  Fed.  622,  130  C.  C.  A.  214.  City   Trust   Co.,  209   Fed.   45,   126 

14  Pennsylvania  Steel  Co.  v.  New  C.  C.  A.  187. 
York  City  Ry.   Co.,  216  Fed.  458, 

132  C.  C.  A.  518. 


1194  LAW   OF    RECEIVERS. 

fnrnisliing  of  ordinary  operating  supplies  and  material, 
or  even  of  operating  personal  service.  We  think  the  Mil- 
tenberger  Case  was  not  inferentially  overruled  by  the 
Gregg  Case,  though  it  may  have  been  necessary  to  issue 
a  warning  against  adopting  the  broad  view  suggested  by 
the  minority  of  the  court  by  withholding  express  ap- 
proval of  it. 

We  come  now  to  consider  another  view  of  the  Gregg 
Case.  As  stated  above  the  claim  involved  was  presented 
to  the  court  as  one  accruing  before  the  receivership.  That 
it  was  presented  as  such  is  shown  by  the  fact  that  the 
petitioner  waived,  as  far  as  this  particular  application 
was  concerned,  a  claim  for  coal  delivered  on  each  of  the 
two  days  respectively  immediately  after  the  appointment 
of  the  receiver.  However,  the  coal  was  actually  used  by 
the  receiver  and  if  the  claim  could  have  been  considered 
as  arising  under  the  receivership  it  certainly  would  have 
been  paid  out  of  the  corpus  fund.^*^  A  suggestion  that  it 
might  be  so  considered  was  reviewed  by  the  majority  of 
the  court  with  the  remark  that  possibly  the  seller  had  the 
right  to  take  the  coal  back  but  had  not  done  so,  and  that 
the  coal  belonged  to  the  company  and  that  it  was  not  only 
the  right  but  even  the  duty  of  the  receiver  to  use  it.  The 
minority  considered  this  treatment  of  the  suggestion  as 
altogether  inadequate  and  held  that  the  fact  that  the 
receiver  had  used  the  coal  was  controlling.  In  a  later 
case  it  was  held  that  a  claim  for  material  on  hand  at  the 
time  of  the  appointment  and  used  by  the  receiver  is  an 
operating  claim  in  the  sense  that  it  arises  under  the  com- 
pany.^" But  in  this  case,  as  well  as  the  one  cited  in  sup- 
port of  the  holding,  the  point  was  immaterial  because  the 
claims  were  protected  by  the  fact  that  there  was  money  in 
the  current  income  fund  and  resort  to  the  corpus  fund 

16  Wallace  v.  Loomis,  97  U.  S.  citing  Virginia  &  A.  Coal  Co.  v. 
146,  24  L.  Ed.  895.  Central  R.  R.,  etc.,  Co.,  170  U.  S. 

17  Pennsylvania  Steel  Co.  v.  New  355,  42  L.  Ed.  1068,  18  Sup.  Ct.  657. 
York   City  Ry.  Co.,   208   Fed.   173. 


RAILROADS PUBLIC    UTILITY    CORPORATIOXS.  1195 

was  not  necessary.  A  later  case^''  presents  a  clear  cut 
ruling  opposite  to  that  of  the  majority  in  the  Gregg  Case. 
The  claim  was  for  coal.  The  following  stipulation  was 
entered  into:  '^n  order  to  dispense  with  the  taking  of 
evidence,  it  is  agreed  between  the  receivers  of  the  8ans 
Bois  Coal  Company  and  the  defendant,  the  Kansas  City, 
Mexico  &  Orient  Railway  Company,  and  complainant,  as 
follows : 

''  (1)  Said  receivers  have  the  legal  title  to  the  claim  (of 
the  Sans  Bois  Coal  Company)  set  up  in  their  intervening 
petition,  and  the  right  to  recover  whatever  may  be  due 
thereon. 

''(2)  Between  November  15,  1911,  and  March  7,  1912, 
the  Sans  Bois  Coal  Company  sold  and  delivered  to  said 
defendant  railway  company  the  cars  of  coal  shown  in 
Exhibit  A  attached  to  the  intervening  petition  of  said  re- 
ceivers, of  the  price  and  value  of  $27,388.44,  no  part  of 
which  has  been  paid. 

''(3)  Said  coal  was  sold  and  delivered  by  said  coal 
company  to  the  defendant  railway  company  for  use  as 
fuel  in  the  daily  operation  of  its  locomotives  and  shops, 
and  was  necessary  to  the  continued  operation  of  said  rail- 
way company  as  a  going  concern.  All  said  coal  was  so 
used  by  said  railway  company  during  the  time  herein- 
before mentioned,  except  92  cars  thereof,  which  was  on 
hand,  unused,  on  March  7,  1912.  Said  92  cars  were  taken 
possession  of  by  the  receivers  of  said  defendant  railway 
company,  and  were  used  by  such  receivers  in  their  opera- 
tion of  the  railroad  of  said  Kansas  City,  Mexico  &  Orient 
Railway  Company,  subsequent  to  said  March  7,  1912,  and 
were  of  the  value  of  $6900. 

''  (4)  Said  coal  was  furnished  under  a  contract  in  writ- 
ing (which  has  been  lost)  providing  in  substance  that  the 

IS  United     States     &     Mexican      rehearing,  243  Fed.  544,  156  C.  C. 
Trust  Co.  V.  Beaty,  240  Fed.  592,      A.  242. 
153   C.   C.  A.   396;    on   petition   for 


111)6  LAW    OF   RECEIVERS. 

coal  company,  beginning  with  June  1,  1911,  and  ending 
with  July  31,  1912,  should  furnish  to  said  railway  com- 
pany such  quantities  of  screen  lump  coal  (describing  it 
and  naming  the  price  per  ton)  all  f.  o.  b.  cars  at  Mc- 
Curtain,  Okla.,  as  the  railway  company  might  order  for 

its  use.    Payments  for  said  coal  to  be  made  on  the j 

day  of  each  month  for  coal  furnished  during  the  calendar, 
month  preceding.  The  92  cars  mentioned  had  been  de- 
livered to  the  railway  company  at  McCurtain  prior  to' 
said  March  7,  1912,  and  were  either  en  route  or  had 
actually  reached  the  line  of  said  Kansas  company."  The 
receiver  was  appointed  on  the  7th  day  of  March,  1912. 
Concerning  the  claim  for  the  coal  used  by  the  receiver 
the  court  says :  ''We  come,  then,  to  consider  the  question 
directly  involved  in  this  appeal:  Was  the  $6900  of  the 
interveners'  claim  allowed  as  prior  in  point  of  equity 
to  the  claim  of  the  bondholders  such  a  claim  as  might 
properly  be  allowed  as  an  operating  expense  of  the  re- 
ceivership under  the  facts  shown  by  this  record?"  In 
answering  the  question  the  court  quotes  from  a  Supreme 
Court  case  dealing  exclusively  with  claims  arising  under 
the  receiver  ;^^  quotes  from  two  Circuit  Courts  of  Appeal 
cases  and  cites  another  dealing  with  claims  arising  under 
the  company.-*^  The  quotations  simply  state  the  doctrine 
of  preferred  claims  but  include  the  proposition,  in  a  gen- 
eral way,  that  preferred  claims  ''may,  in  proper  cases 
be  paid  out  of  .  .  .  the  proceeds  of  the  sale  of  the 
mortgaged  property  in  preference  to  the  mortgage  debt." 
The  case  cited  simply  gave  a  claim  for  excess  freight 
rates  preferential  priorit}^  in  the  distribution  of  the  cur- 
rent income,  but  the  opinion  contained  statements  to  the 
effect  that  resort  might  be  had,  if  necessary,  to  the  corpus 

19  Wallace  v.  Loomis,  97  U.   S.  Co.  v.  Doud,  105  Fed.  123,  44  C.  C. 
146,  24  L.  Ed.  895.  A.   389,   52    L.   R.   A.  481;    Love   v. 

20  St.  Louis  Trust  Co.  v.  Riley,  North  American  Co.,  229  Fed.  103. 
70    Fed.    32,    16    C.    C.    A.    610,    30  143  C.  C.  A.  379. 

L.   R.  A.  456;    Illinois  Trust,  etc., 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1197 

fiind.-^     The  court  then  says:    ''There  has  been  no  de- 
parture, so  far  as  we  can  discover,  from  the  principles 
so  announced  by  the  Supreme  Court  and  the  Court  of 
Appeals  for  this  circuit,  especially  where  the  claim  is 
for  wages,  or  supplies  necessary  to  keep  a  road  in  the 
hands  of  a  receiver  in  operation  as  a  going  concern,  and 
the  earnings  of  the  receivership  are  insufficient  to  pay 
such  claims.    Certainly  Gregg  v.  Metropolitan  Trust  Co. 
does  not  go  to  that  extent."  This  is  the  only  reference  to 
the  Gregg  Case  in  this  part  of  the  original  opinion.    In 
considering  the  claim  for  the  coal  that  had  been  used  by 
the  receiver  the  court  quotes,  with  approval,  from  the 
opinion  of  the  District  Court  on  the  matter  as  follows  ; 
''In  many  matters  heretofore  submitted  and  decreed  on 
the  same  proofs  as  now  before  the  court  in  this  case,  it 
bas  been  held  there  was  in  this  case  no  diversion 'of 
income  derived  from  the  operation  out  of  which  the  claim 
of  the  intervener  could  or  should  have  been  paid  prior  to 
the  receivership,   and  this  for  the  all-sufficient  reason 
that  there  was  no  such  income  from  operation  derived  by 
the  road  to  divert;  on  the  contrary,  the  property,  as 
operated  by  the  railway  company  prior  to  receivership, 
was   a  losing  venture.     Since   receivership  intervened,' 
when  the  receivers  at  any  time  have  secured  from  oper- 
ation more  than  the  actual  cost  thereof,  they  have  been 
compelled  to  expend  the  same  at  once  in  the  protection  of 
the  property  from  an  entire  loss  through  fixed  liens  rest- 
ing on  the  personal  property  of  the  road  at  the  date  of 
their    appointment,    taxes,    charges,    assessments,    and 
burdens  laid  on  them  by  the  states  through  which  the  road 
runs,  or  in  protecting  the  road  from  the  ravages  of  floods 
and  other  disasters.    Hence  there  is  in  this  case  no  room 
for  the  application  of  the  rule  of  diversion  of  income,  and 
under  the  doctrine  of  the  case  of  Gregg  v.  Metropolitan 
Trust  Co.,  197  U.  S.  183,  25  Sup.  Ct.  415,  49  L.  Ed.  717, 

21  See  this  section,  note  7,  and  quotation  to  which  the  note  is  appended. 


1198  LAW    OF    EECEIVERS. 

and  kindred  cases,  the  power  or  right  of  a  court  of  equity 
to  decree  payment  out  of  the  corpus  of  the  property  of  the 
demand  of  intervener,  in  its  entirety,  in  preference  to 
the  fixed  lien  of  the  mortgage  securing  the  bonds  resting 
thereon,  must  be  denied." 

On  denying  a  rehearing,  based  on  the  contention  that 
the  decision  with  reference  to  the  coal  used  by  the  re- 
ceiver was  directly  contrary  to  the  Gregg  Case,  the  court 
went  a  little  further  into  the  matter.  Of  the  facts  in  the 
Gregg  Case  it  says:'--  ''The  petitioner  Gregg  made  a 
claim  on  the  funds  in  the  hands  of  the  receiver  for  the 
value  of  these  ties  because  he  had  not  been  paid  for  them 
and  they  had  not  been  returned  to  him  by  the  receiver." 
It  quotes  the  Gregg  Case's  statement  of  the  problem  in- 
volved and  the  portions  of  the  opinion  referring  to  the 
two  earlier  Supreme  Court  cases  that  had  approved  of 
the  payment  of  preferred  claims  from  the  corpus  fund. 
It  then  quotes  a  portion  of  the  opinion  in  the  Kneeland 
Case^^  that  deals  with  claims  arising  under  the  receiver. 
It  refers  to  the  approval  in  the  Gregg  Case  of  former 
United  States  Supreme  Court  cases  that  had  acknowl- 
edged the  validity  of  securing  money  for  preferred  claims 
by  restoring  diversions.  It  then  says  :  ' '  This  is  sufficient 
to  show  that  the  majority  opinion  in  the  Gregg  Case 
recognizes  that  there  may  be  cases  wherein  the  payment 
for  labor  rendered  and  supplies  furnished  necessary  to 
keep  the  road  in  operation  and  preserve  its  property  and 
business  from  sacrifice,  deterioration,  or  waste  during 
the  six  months'  period  preceding  the  appointment  of  the 
receivers,  or  thereafter,  may  be  allowed  from  the  corpus 
of  the  property  in  the  hands  of  the  receiver. ' ' 

Nothing  is  anywhere  said  of  the  treatment  accorded  in 
the  Gregg  Case  to  the  fact  that  the  receiver  had  used 
the  ties.    The  court  concludes :    "The  receivers  were  ac- 

22  United     States     &     Mexican  23  Kneeland   v.   American   Loan 

Trust   Co.   V.   Beaty,   243   Fed.   544       &  T.  Co.,   136  U.   S.   89,  34   L.   Ed. 
(on  rehearing),  156  C.  C.  A.  242.  379,  10  Sup.  Ct.  950. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1199 

corclinn-iy  appointed  and  almost  simultaneously  with  their 
appointment  the  92  cars  of  coal  in  question  came  into 
their  custody  or  it  may  be  the  possession  of  the  road; 
but  this  coal  was  received  by  the  receivers  and  used  by 
them  in  the  operation  of  the  road  thereafter  and  they 
were  authorized  under  the  order  of  the  court  appointing 
them  to  pay  therefor.  Even  under  the  majority  opinion 
in  the  Gregg  Case  and  the  cases  cited  therein  with  ap- 
proval we  are  of  opinion  that  the  trial  court  was  clearly 
justified  in  directing  its  receivers,  under  the  special  cir- 
cumstances shown,  to  pay  for  such  coal  from  income  in 
their  hands,  and,  if  none,  then  from  the  proceeds  of  the 
property  arising  from  the  sale  thereof,  as  a  proper  and 
necessary  expense  of  the  receivership,  in  as  much  as  they 
used  the  coal  in  lieu  of  purchasing  other  coal  to  take  its 
place  in  keeping  the  road  in  operation." 

This  last  statement  is  certainly  reminiscent  of  what  tlie 
minority  of  the  court  had  said  in  the  Gregg  Case  and  is 
what  usually  happens  to  a  bare  majority  decision  on  a 
close  point.  The  claim  in  the  Gregg  Case  was  not  based 
on  the  fact  that  the  receiver  had  not  returned  the  supplies 
to  the  claimant ;  it  was  based  on  the  fact  that  he  had  used 
them.  Neither  was  there,  in  the  Gregg  Case  or  this  Beaty 
Case,  any  splitting  of  hairs  as  to  whether  the  deliveries 
were  a  minute  before,  a  minute  after,  or  simultaneous 
with  the  receiver's  taking  hold  ;  in  both  cases  the  admitted 
and  accepted  fact  was  that  the  supplies  w^ere  on  hand 
when  the  receiver  took  hold.  The  fact  is  that  the  court 
treated  the  Beaty  claim  as  one  against  the  receiver,  and 
in  doing  so  took  the  view  that  the  minority,  disagreeing 
with  the  majority,  took  as  to  what  view  should  have  been 
taken  of  the  claim  in  the  Gregg  Case. 

In  speaking  of  the  equities  of  the  matter  the  court  in 
the  Beaty  Case,  said  :  *'It  is  (juite  true  that  the  receivers 
might  have  procured  other  coal  in  lieu  of  this;  but,  had 
they  done  so,  they  would  have  been  compelled  to  pav  for 
the  coal  so  procured,  and  the  result  would  have  been  the 


1200  LAW    OF    RECEIVERS. 

same  to  the  bondholders."  This  statement  ovcrh)oks  the 
proposition  that,  if  the  Gregg  Case  had  been  followed 
and  the  receiver  allowed  to  use  the  coal  without  paying 
for  it,  the  bondholders  would  have  profited  to  the  extent 
of  the  value  of  the  coal.  If  the  receiver  had  not  used  the 
coal,  what  would  have  been  done  with  it?  The  equities 
of  the  matter  would  certainly  not  have  been  altered  by 
the  receiver's  holding  on  to  the  coal  against  a  demand 
for  its  return,  even  though  he  did  not  actually  put  it  to 
beneficial  use.  The  Gregg  Case  does  not  rule  that  the 
dealer  had  the  right  to  take  the  supplies  back  after  the 
receiver  took  hold  but  it  is  stated  that  he  may  have  had 
that  right.  If  he  had,  did  not  the  receiver  have  the  right 
and  the  duty  to  return  them  if  he  did  not  intend  to  pay 
for  them? 

In  both  the  Gregg  and  the  Beaty  cases  the  sales  were 
made  under  executory  contracts.  While  the  company  was 
running  its  own  affairs  the  sale  was  completed  upon  ac- 
ceptance of  delivery.  Thereafter  neither  the  vendor  nor 
the  vendee  could  rescind  the  transaction  without  the  con- 
sent of  the  other.  The  real  meaning  of  the  Gregg  Case 
is  that,  in  equity,  this  rule  survived  the  company  and 
controlled  under  the  receivership,  even  though  the  vendor 
lost  his  claim  entirely.  On  the  other  hand,  a  receiver,  in 
equity,  is  not  bound  by  the  executory  contracts  of  the 
company.2^  He  may  or  may  not  adopt  them.  He  is 
entitled  to  a  reasonable  time  in  which  to  test  his  need  for 
them,  in  the  meantime,  however,  paying  for  such  benefit 
as  he  derives  from  them.  The  real  meaning  of  the 
minority  ruling  in  the  Gregg  Case  and  of  the  ruling  in  the 
Beaty  Case  is  that  this  equity  extends  back  to  supplies  de- 
livered to,  but  not  used  by  the  company ;  the  receiver  may 
return  them  if  he  pleases,  but  if  he  uses  them  he  must  pay 
for  them. 

Since  the  Gregg  Case  the  courts  have  with  practical 

24  See  §  391,  supra. 


RAILROADS — PURLIC    UTILITY    CORPORATIONS. 


1201 


imanimity  held  that  the  ordinary  claim  for  supplies  and 
materials  actually  used  by  the  company  may  not  be  given 
priority  over  the  bondholders  as  to  the  corpus  fund.-^ 

Wliile,  as  we  have  said,  the  mere  service  itself  that 
forms  the  consideration  of  a  claim  does  not  indicate 
whether  or  not  the  claim  may  be  preferred,  an  examin- 
ation of  cases  with  reference  to  the  service  and  the  cir- 
cumstances under  which  it  was  rendered  tends  to  give 
one  an  understanding  of  the  doctrine  of  preferred 
claims. ^*^ 


25  Carbon  Fuel  Co.  v.  Chicago, 
etc.,  R.  Co.,  202  Fed.  172,  120  C.  C. 
A.  460;  United  States  &  Mexican 
Trust  Co.  V.  Beaty,  240  Fed.  592, 
153  C.  C.  A.  396;  Chicago  &  A., 
etc.,  R.  Co.  V.  United  States  & 
Mexican  Trust  Co.,  225  Fed.  940, 
141  C.  C.  A.  64  [claims  for  balances 
of  car  repairs,  loss  and  damage  to 
freight,  and  overcharges  on  freight 
in  interchange  of  traffic  business] ; 
Martin  Metal  Mfg.  Co.  v.  United 
States  &  Mexican  Trust  Co.,  225 
Fed.  961,  141  C.  C.  A.  85;  United 
States  Fidelity,  etc.,  Co.  v.  United 
States  &  Mex.,  etc.,  Co.,  234  Fed. 
238,  148  C.  C.  A.  140,  L.  R.  A. 
1916F,  1067;  International  Trust 
Co.  V.  T.  B.  Townsend,  etc.,  Co.,  95 
Fed.  850,  37  C.  C.  A.  396;  Moore 
V.  Donahoo,  217  Fed.  177,  133  C.  C. 
A.  171;  Spencer  v.  Taylor,  etc., 
Co.,  194  Fed.  635,  114  C.  C.  A.  407; 
Westinghouse  Air,  etc.,  Co.  v.  Kan- 
san,  etc.,  R.  Co.,  137  Fed.  26,  71 
C.  C.  A.  1;  Taylor  v.  Delaware, 
etc.,  R.  Co.,  213  Fed.  622,  130 
C.  C.  A.  214;  Illinois  Trust  &  S. 
Co.  V.  Doud,  105  Fed.  123,  44  C.  C. 
A.  389,  52  L.  R.  A.  481. 

Delay  on  the  part  of  the  mort- 
gagee to  commence  foreclosure 
after  default  does  not  count  as 
laches  to  give  preference  to  a 
II  Rec— 76 


supply  claim  arising  after  default. 
Carbon  Fuel  Co.  v.  Chicago,  etc., 
R.  Co.,  supra;  Spencer,  et  al.  v. 
Taylor,  etc.,  Co.,  194  Fed.  635,  114 
C.  C.  A.  407;  Fosdick  v.  Schall,  99 
U.  S.  235,  25  L.  Ed.  339. 

26  A.  Claims  possessing  both 
essential  characteristics  and  al- 
lowed (see  §  425,  supra) : 

Fees  of  general  attorney,  regu- 
larly employed,  giving  counsel  to 
all  departments  and  supervising 
litigation.  Blair  v.  St.  Louis,  etc., 
R.  Co.,  23  Fed.  521;  Seaboard  Air 
Line  Ry.  v.  Continental  Trust  Co., 
166  Fed.  597. 

Portion  of  work  on  a  bridge  con- 
sidered to  be  necessary  operating 
repairs.  Guaranty  Trust  Co.,  etc. 
V.  Philadelphia  &  L.,  etc.,  Co.,  160 
Fed.  761. 

Excessive  freight  charges  col- 
lected pending  litigation  over  Pub- 
lic Service  Commission's  order 
fixing  rates.  Love  v.  North  Ameri- 
can Co.,  229  Fed.  103,  143  C.  C.  A. 
379;  United  States  &  Mexican 
Trust  Co.  v.  Kansas  City,  etc.,  Co., 
240  Fed.  511. 

Coal  furnished  in  such  quantities 
and  under  such  terms  regarding 
payment  as  to  show  that  it  was  to 
be  used  for  operation  and  to  be 
paid    for   out   of    current   income. 


1202 


LAW   OF    RECEIVERS. 


Virginia  &  A.  Coal  Co.  v.  Central 
R.  R.,  etc.,  Co.,  170  U.  S.  355,  42 
L.  Ed.  1068,  18  Sup.  Ct.  657;  Burn- 
ham  V.  Bowen,  111  U.  S.  776,.  28 
L.  Ed.  596,  4  Sup.  Ct.  675;  United 
States  &  Mexican  Trust  Co.  v. 
Beaty,  240  Fed.  592,  153  C.  C.  A. 
396  (not  paid  because  no  fund,  ex- 
cept corpus  fund,  and  there  had 
been  no  diversions) ;  Pennsylvania 
Steel  Co.  V.  New  York  C.  Ry.  Co., 
208  Fed.  173,  216  Fed.  458,  472,  132 
C.  C.  A.  518;  Taylor  v.  Delaware, 
etc.,  Co.,  213  Fed.  622,  130  C.  C.  A. 
214  (not  allowed  against  corpus 
fund;  no  diversion). 

Accommodations  for  waiting 
rooms,  ticket  offices,  etc.  North- 
ern Pac.  R.  Co.  V.  Lamont,  69  Fed. 
23,  28,  16  C.  C.  A.  364. 

Sand  to  be  sprinkled  on  tracks 
of  electric  street  car  road  to  pre- 
vent cars  from  slipping;  lamps, 
globes,  etc.,  used  in  cars  and 
on  track-work;  lubricating  and 
dynamo  oils  used  in  power  houses; 
shoveling  snow  off  tracks.  Penn- 
sylvania Steel  Co.  V.  New  York 
City  Ry.  Co.,  208  Fed.  173;  216 
Fed.  472,  132  C.  C.  A.  518. 

Labor  on  operating  work.  Union 
Trust  Co.  V.  Illinois  M.,  etc.,  Co., 
117  U.  S.  434,  29  L.  Ed,  963.  6  Sup. 
Ct.  809. 

Steel  rails  in  such  quantities  as 
to  indicate  they  were  to  be  used 
for  operating  repairs.  Southern 
Ry.  Co.  V.  Carnegie  Steel  Co.,  176 
U.  S.  257,  44  L.  Ed,  458,  20  Sup.  Ct. 
347. 

Coupling  links,  pins,  and  tank 
steel  for  daily  use.  Wood  v.  New 
York,  etc.,  R.  Co.,  70  Fed.  741. 

Supplies  to  machinery  room: 
Hale  V.  Frost,  99  U.  S.  389,  25 
L.  Ed.  419. 

Wages  of  flagman  at  crossing 
and      maintenance      of     crossing. 


Missouri,  K.  &  T.  R.  Co.  v.  City 
Trust  Co.,  209  Fed.  45,  126  C.  C.  A. 
187. 

Traffic  balances  and  other  ex- 
penses connected  with  interchange 
of  business  with  connecting  line. 
Miltenberger  v.  Logansport,  etc., 
Ry.  Co.,  106  U.  S.  286,  27  L.  Ed. 
117,  1  Sup.  Ct.  140. 

Loss  and  damage  to  freight,  car 
repairs,  overcharges,  all  growing 
cut  of  interchange  of  business. 
Chicago  &  A.  R.  Co.  v.  United 
States  &  Mexican  Trust  Co.,  225 
Fed.  940.  141  C.  C.  A.  64  (not  al- 
lowed against  corpus  fund;  no  di- 
version). 

B.  Claims  not  allowed  prefer- 
ence because  not  founded  on  oper- 
ating consideration: 

Claims  for  original  construction 
(there  is  no  "going  concern  to  be 
kept  going").  Porter  v.  Pittsburg, 
etc.,  Co.,  120  U.  S.  649,  30  L.  Ed. 
830,  7  Sup.  Ct.  741;  Savings  & 
Trust  Co.  V.  Bear  Valley  Irr.  Co., 
93  Fed.  339. 

New  construction  and  extension. 
Atlantic  Trust  Co.  v.  Woodbridge, 
etc.,  Co.,  86  Fed.  975;  Hale  v. 
Frost,  99  U.  S.  389,  25  L.  Ed.  419. 

Building  a  dock  on  railroad 
property;  regarded  as  new  con- 
struction or  equipment.  Toledo, 
etc.,  R.  Co.  V.  Hamilton,  134  U.  S. 
296,  33  L.  Ed.  905,  10  Sup.  Ct.  546. 

Steel  rails  in  such  quantities  as 
to  indicate  reconstruction,  not 
ordinary  repairs.  Lackawanna 
Iron,  etc.,  Co.  v.  Farmers'  Loan  & 
T.  Co.,  176  U.  S.  298,  44  L.  Ed. 
475,  20  Sup.  Ct.  363. 

Portion  of  work  on  a  bridge  not 
regarded  as  necessary  repairs. 
Guaranty  Trust  Co.  v.  Philadelphia 
&  L.,  etc.,  Co.,  160  Fed.  761. 

Pipe,  wire,  and  other  material 
furnished  a  gas,  electric  light  and 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1203 


pov.'er  company  for  service  exten- 
sions, reconstruction  beyond  ordi- 
nary repairs,  improvements  on 
system,  etc.  Crane  Co.  v.  Fidelity 
Trust  Co.,  238  Fed.  693,  151  C.  C. 
A.  543,  and  John  A.  Roebling's 
Sons  Co.  V.  Idaho  Ry.,  etc.,  Co., 
243  Fed.  527,  156  C.  C.  A.  225.  (See 
dissenting  opinion  in  both  cases.) 
Meters  regarded  as  permanent 
equipment.  Reyburn  v.  Consum- 
ers', etc.,  Co.,  29  Fed.  561. 

Clocks  regarded  as  permanent 
equipment.  United  States  Trust 
Co.  V.  New  York,  W.  S.,  etc.,  R. 
Co.,  25  Fed.  800. 

Claim  of  city  against  street  car 
company  for  street  work  (on  in- 
voluntary indebtedness  for  perma- 
nent maintenance).  Pennsylvania 
Steel  Co.  V.  New  York  C.  Ry.  Co., 
208  Fed.  173,  216  Fed.  472,  132 
C.  C.  A.  518,  119  Fed.  216. 

Breach  of  executory  contract  to 
purchase  operating  material  (did 
not  assist  operation).  Pennsyl- 
vania Steel  Co.  v.  New  York  C. 
Ry.  Co.,  supra. 

Breach  of  contract  to  grant  ex- 
press privileges  over  the  line  (did 
not  necessarily  prevent  public 
from  being  given  the  same  service 
in  some  other  way).  Pennsylvania 
Steel  Co.  V.  New  York  C.  Ry.  Co., 
supra. 

Breach  of  contract  to  gather 
freight  at  particular  place.  Central 
Trust  Co.  V.  Wabash,  etc.,  Co.,  32 
Fed.  566. 

Rations  furnished  to  laborers  on 
construction  work  and  paid  for 
as  part  of  wages  by  company. 
Finance  Company  of  Pennsylvania 
V.  Charleston,  etc.,  R.  Co.,  49  Fed. 

693. 

Advertising  to  attract  business. 
Central  Trust  Co.  v.  East  Tennes- 


see,  etc.,  R.   Co.,  80   Fed.   624,   26 
C.  C.  A.  30. 

Services  of  attorney  in  special 
matter  and  not  connected  with 
operation.  Chadbourne  v.  Equit- 
able Trust  Co.,  225  Fed.  981,  141 
C.  C.  A.  103;  Finance  Co.  v. 
Charleston,  etc.,  R.  Co.,  52  Fed. 
678;  Bound  v.  South  Carolina,  etc., 
Co.,  51  Fed.  58. 

Tort  claims  (such  claims  may  be 
counted  as  part  of  operating  ex- 
pense for  purpose  of  determining 
net  income  for  taxes,  etc.,  but  not 
for  purpose  of  giving  preferred 
status  in  receivership  matter; 
they  do  not  assist  operation  but 
add  to  difficulties).  Pennsylvania 
Steel  Co.  V.  New  York  City  Ry. 
Co.,  165  Fed.  457,  208  Fed.  173, 
216  Fed.  472,  132  C.  C.  A.  518; 
Easton  v.  Houston,  etc.,  R.  Co.,  38 
Fed.  12;  Finance  Company  of 
Pennsylvania  v.  Charleston,  etc., 
R.  Co.,  46  Fed.  508;  Hiles  v.  Case, 
14  Fed.  141,  9  Biss.  549;  St.  Louis 
Trust  Co.  V.  Riley,  70  Fed.  32,  16 
C.  C.  A.  610,  30  L.  R.  A.  456; 
Farmers',  etc.,  Co.  v.  Detroit,  etc., 
R.  Co.,  71  Fed.  29. 

C.  Claims  not  accorded  prefer- 
ence because  not  to  be  paid  from 
current  income: 

Claims  growing  out  of  obliga- 
tions under  leases,  such  as  rent, 
obligation  to  pay  taxes  and  inter- 
est on  bonds,  etc.,  obligation  to 
make  repairs,  etc.  Pennsylvania 
Steel  Co.  V.  New  York  City  Ry. 
Co.,  208  Fed.  173,  216  Fed.  472, 
132  C.  C.  A.  518.  (The  lessor  re- 
lies on  the  personal  credit  of  the 
company  and  the  protection  given 
Ijy  right  of  re-entry  in  case  of  de 
fault.)  Louisville,  etc.,  R.  Co.  v. 
Central  Trust  Co.,  87  Fed.  500,  31 
C.  C.  A.  89;    Gregg  v.  Mercantile 


]204 


LAW   OF    RECEIVERS. 


§  426.    Equitable  Ground  of  the  Doctrine  of  Preferred  Claims. 

On  tbe  first  occasion  on  which  the  Supreme  Court  of 
the  United  States  stated  the  doctrine  of  preferred  claims^ 
it  did  so  for  the  purpose  of  explaining  a  decision  to  the 
effect  that  reasonable  rental  of  cars  for  six  months  prior 
to  the  receivership  could  not  be  paid  out  of  the  proceeds 
of  the  sale  of  the  property,  which  was  the  only  money  in 
the  estate.  It  may  be  noticed  in  passing  that  this  decision 
reversed  an  order  of  the  lower  court  directing  that  such 
payment  be  made.^    The  cars  had  been  in  the  possession 


Trust  Co.,  109  Fed.  220,  48  C.  C.  A. 
318. 

Claims  arising  under  car  trusts; 
these  are  conditional  sales  or 
leases  of  rolling  stock,  title  re- 
maining in  seller  or  lessor,  the 
company  making  periodical  pay- 
ments and  taking  title  when  the 
payments  amount  to  the  price  of 
the  equipment.  The  seller  or 
lessor  is  regarded  as  relying  on 
the  personal  credit  of  the  com- 
pany and  the  fact  that  he  retains 
title.  Fosdick  v.  Schall,  99  U.  S. 
235,  25  L.  Ed.  339;  Kneeland  v. 
American,  etc.,  Co.,  136  U.  S.  89, 
34  L.  Ed.  379,  10  Sup.  Ct.  950; 
Thomas  v.  Western  Car  Co.,  149 
U.  S.  95,  37  L.  Ed.  663,  13  Sup.  Ct. 
824;  Huidekoper  v.  Hinckley  Loco- 
motive Wks.,  99  U.  S.  258;  25 
L.  Ed.  344;  Rodger  Ballast  Car  Co. 
V.  Omaha,  etc.,  Co.,  154  Fed.  629, 
83  C.  C.  A.  403. 

In  these  cases,  of  course,  the 
rolling  stock  is  returned  to  the 
seller. 

In  Fosdick  v.  Southwestern  Car 
Company,  99  U.  S.  256,  25  L.  Ed. 
344,  cars  involved  were  sold  with 
the  mortgaged  property  and  a 
price  agreed  upon  between  the 
vendor  and  the  receiver  was  paid 
out  of  the  proceeds  of  the  sale. 


"Where  a  company  is  operating 
its    own    line    and    a    number    of 
leased   lines   as   a  single   system, 
preferred  claims,  based  upon  obli- 
gations of  the  operating  company, 
are    allowed     against    its     estate 
whether   the   consideration   there- 
fore  inured   to   the   benefit  of  its 
own  or  a  leased  line.   Southern  Ry. 
Co.  V.  Carnegie  Steel  Co.,  176  U.  S. 
257,  44  L.  Ed.  458,  20  Sup.  Ct.  347; 
Pennsylvania    Steel    Co.    v.    New 
York  City  Ry.  Co.,  208  Fed.  173. 
In  order  not  to  embarrass  the 
receiver,  the  court  may  in  its  dis- 
cretion order  receivers'  certificates 
to   be   issued   for  the   purpose   of 
raising    money    to    pay    preferred 
claims  of  laborers  and  supply  men 
and    make    the    certificates    pay- 
able out  of  proper  funds  at  such 
times  as  the  receiver  may  desig- 
nate.   Taylor  v.  Philadelphia  &  R. 
R.  Co.,  7  Fed.  377. 

1  Fosdick  V.  Schall,  99  U.  S.  235, 
25  L.  Ed.  339. 

2  This  case  had  been  begun  in  a 
state  foreclosure  suit  instituted 
by  bondholders,  the  trustee  being 
made  defendant.  A  state  receiver 
was  appointed  and  the  order  ap- 
pointing him  authorized  him  to 
pay— 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1205 

of  the  company  and  used  by  it  for  sometime  under  a  con- 
tract of  purchase  calling  for  monthly  installments  toward 
the  purchase  price  and  leaving  title  in  the  seller  until  the 
price  had  been  fully  paid.  The  federal  receiver  used  the 
cars,  paying  a  monthly  rental  agreed  upon  with  the  seller, 
until  the  property  was  sold.  The  trial  court  then  ordered 
the  receiver  to  return  the  cars  and  pay  the  same  amount 
of  rental  for  the  time  the  state  receiver  had  used  them 
and  for  six  months  prior  to  that  time.  Nothing  is  said  by 
the  Supreme  Court  as  to  any  possible  difference  between 
the  time  the  state  receiver  was  in  charge  and  the  period 
prior  to  that.  The  entire  order  directing  payment  to  the 
seller  was  reversed.  The  mortgage  covered  the  income. 
The  court  reasoned  as  follows : 

The  income  out  of  which  the  mortgagee  is  to  be  paid  is 
the  net  income  obtained  by  deducting  from  the  gross 
income  ''what  is  required  for  necessary  operating  and 
managing  expenses,  proper  equipment,  and  useful  im- 
provements." The  mortgagee  is  not  entitled  to  the  in- 
come until  he  has  a  receiver  appointed.  He  may  stand 
on  his  strict  rights;  but,  if  he  asks  the  assistance  of  a 
court  of  equity,  he  must  do  equity  in  order  to  receive 
equity.^    Terms  might  be  imposed  in  the  order  granting 

(1)  Necessary  expenses  of  federal  court  and  a  federal  re- 
carrying  out  said  trust;  ceiver   appointed,    but    no    special 

(2)  All  debts  now  due  and  order  concerning  payments  by  him 
owing  by  said  railroad  company  was  made.  The  trustee  under  the 
for  labor  and  services  rendered  in  mortgage  began  a  foreclosure  suit 
operating  the  railroad  within  the  in  the  federal  court,  the  receiver- 
last  three  months,  and  all  indebt-  ship  was  extended  to  it,  and  the 
edness  for  engines,  iron,  wood,  bondholders  intervened, 
supplies,  cars,  or  other  property  3  It  may  be  noticed  here  that  it 
purc»iased  within  said  three  has  been  held  that  one  who  has 
months  for  use  of  the  company.  sold    necessary    rails    in    reliance 

(3)  Taxes,  insurance,  and  upon  the  promise  of  the  company's 
charges  of  litigation;  and  officers  that  they  should  be  paid 

(4)  Liability  for  animals  killed  for  out  of  the  earnings  is  entitled, 
by  engines  or  cars  upon  the  line  in  equity,  to  be  paid  out  of  the 
of  the  road.  earnings    in    the    hands    of    a    re- 

The    action    was   moved    to   the      ceiver,  appointed  in  a  foreclosure 


1206  I-'^W    OF    RECEIVERS. 

him  the  relief  of  a  receivership.    But,  even  without  any 
such  terms  in  the  order,  if  it  appears  in  the  progress  of 
the  action  that'' bonded  interest  has  been  paid,  additional 
equipment  provided,  or  lasting  and  valuable  improve- 
ments made  out  of  earnings  which  ought  in  equity  to 
have  been  employed  to  keep  down  debts  for  hibor,  sup- 
plies, and  the  like,  it  is  within  the  power  of  the  court  to 
use  the  income  of  the  receiver  to  discharge  obligations 
which  but  for  the  diversion  of  funds  would  have  been  paid 
in  the  ordinary  course  of  business. ' '    This  proposition  is 
not  because  of  any  lien  that  the  claimant  has  on  the  in- 
come but  because  the  officers  of  the  corporation  are  in  a 
sense  trustees  for  the  creditors  and  stockholders.    There 
is  an  analogy  here  to  the  rule  of  expenditures  under  the 
receiver,  'Svhere  usually  consent  of  the  parties  must  be 
obtained. "    "No  fixed  and  inflexible  rule  can  be  laid  down 
for  the  government  of  courts  in  all  cases.    Each  case  will 
necessarily  have  its  own  peculiarities  which  must  to  a 
greater  or  less  extent  influence  the  court  when  he  comes 
to  act."    If  there  has  been  no  diversion  there  can  be  no 
restoration.     The  amount  of  the  restoration  may  not 
exceed  the  diversion.    "All  depends  on  a  proper  applica- 
tion of  well  settled  rules  of  equity  jurisdiction  to  the 
facts  of  the  case  as  established  by  the  evidence."     Any 
errors  may  be  corrected  on  appeal. 

No  authorities  are  cited  in  connection  with  this  argu- 
ment except  to  the  point  that  the  mortgagee  is  not  entitled 
to  the  income  until  he  has  a  receiver  appointed.  That  is, 
of  course,  a  general  proijosition  that  applies  to  all  fore- 
closure receiverships.^ 

suit  by  the  second  mortgagees,  in  Bound  v.  South  Carolina  R.  Co.,  47 

preference  to  the  latter's  claims.  Fed.  30. 

but    not    to    those    of    first    mort-  It  is  to  be  remembered  also  that 

gagees,  and  other  lienors  superior  there  are  cases  in  which  the  road 

to  the  second  mortgage,  who  have  has  been  sold  subject  to  a  mort- 

only  come  into  equity  by  crossbills  gage. 

after     being     made     defendants.  -i  See  §  247,  supra. 


RAILROADS— PUBLIC    UTILITY    CORPORATIONS.  1207 

The  court's  application  of  this  reasoning  to  tlie  facts 
was  that  Schall  Jiad  no  agreement  for  rent;  none  of  the 
money  on  hand  came  from  the  cars ;  no  income  remained 
to  be  applied  toward  the  bonded  debt;  Schall  had  no 
equity  in  the  fund  on  hand  and  was  simply  a  general 
creditor. 

It  seems  apparent  that  this  explanation  of  the  practice 
of  preferring  certain  claims  in  a  public  utility  receiver- 
ship is  more  or  less  tentative  and  framed  with  reference 
to  the  particular  case,  although  intended  to  be  a  justifi^ 
cation  of  a  general  practice.  As  the  court  itself  remarked, 
the  problems  presented  by  the  foreclosure  of  a  public 
utility  mortgage  were  comparatively  new  to  it.  The  defi- 
nition of  the  net  income  to  which  the  mortgagee  is  entitled 
does  not  seem  to  explain  the  fact  that  none  but  preferred 
claims  are  paid  before  the  mortgage  is  satisfied.^  The 
statement  that  none  of  the  money  on  hand  came  from  the 
cars  does  not  seem  to  be  very  forceful  in  face  of  the  fact 
that  its  converse  is  not  true;  and  that,  in  the  case  of  a 
mortgage  covering  after  acquired  property,  a  very  large 
part  of  the  money  used  to  pay  for  it  may  have  come  from 
extensive  construction,  the  labor  and  material  for  which 
are  left  unpaid.  There  does  not  seem  to  be  in  this  reason- 
ing any  explanation  of  the  fact  that  it  is  not  applied  in 
the  foreclosure  of  every  mortgage  that  covers  income  or 
rents.  In  a  later  case*'  it  is  said :  ''One  holding  a  mort- 
gage debt  upon  a  railroad  has  the  same  right  to  demand 
and  expect  of  the  court  respect  for  his  vested  and  con- 

5  A  judgment  creditor  of  a  rail-  ment  of  such  sum  to  the  receiver 

road  for  damages  for  personal  in-  could     not     have     been     enforced 

juries  acquires  no  superior  equity  against  the  objection  of  the  mort- 

over  a  mortgage  in  funds  paid  by  gagor,  as  the  right  to  make  such 

the  company  to  its  receiver  from  objection  is  personal  to  the  latter, 

earnings  prior  to  his  appointment,  Farmers'  Loan  &  T.  Co.  v.  Detroit, 

where  he  has  acquired  no  lien  and  B.  C.  &  A.  R.  Co.,  71  Fed.  29. 

obtained  no  injunction  before  the  g  Kneeland  v.  American  Loan  & 

commencement  of  the  suit  to  fore-  Trust  Co.,  136  U.  S.  89,  34  L,  Ed. 

close  the  mortgage  although  pay-  379,  10  Sup.  Ct.  950. 


1208  LAW   OF    RECEIVERS. 

tracted  priority  as  the  holder  of  a  mortgage  on  a  fariu 
or  lot."  A  mortgagor  who  leases  his  farm  counts  as  his 
net  rent  the  money  that  is  left  after  he  pays  for  necessary 
repairs  of  its  huildings ;  but  when  a  receiver  is  appointed 
under  a  farm  mortgage  covering  rents  he  does  not  pay 
for  the  material  used  to  put  a  new  roof  on  the  barn  just 
before  his  appointment,  if  the  bill  is  unpaid,  until  after 
the  mortgage  is  satisfied. 

The  real  force  of  the  argument  in  the  Fosdick  Case  is 
contained  in  its  pointing  out  that  there  is  an  analogy  be- 
tween the  pa^Tnent  of  claims  incurred  by  the  receiver 
and  the  payment  of  preferred  claims.  This  point  is  re- 
peated and  emphasized  in  the  Miltenberger  Case,^  in 
which  it  was  held,  going  a  step  beyond  the  Fosdick  Case, 
that  preferred  claims,  of  a  certain  class  at  least,  might 
be  paid  out  of  the  corpus  fund.  It  was  later  said :  ' '  The 
payment  of  such  claims  prima  facie  stands  on  a  different- 
basis  from  the  payment  of  claims  arising  under  the  re- 
ceivership, while  it  may  be  brought  within  the  principle 
of  the  latter  by  special  circumstances.  The  probable  re- 
sults of  nonpayment  should  be  taken  into  consideration, 
together  with  the  interests  and  accommodation  of  the 
traveling  public."  Even  before  the  Fosdick  Case,  it  had 
been  said  by  the  Supreme  Courf^  that  the  principles  and 
rules  that  governed  the  payment  of  claims  against  the  re- 
ceiver had  become  so  well  established  as  to  be  beyond 
question.  In  connection  with  the  payment  of  such  claims 
the  underlying  reason  for  the  differences  between  the  dis- 
tribution of  the  property  in  a  public  utility  receivership 
and  any  other  receivership  has  been  very  clearly  stated. 
It  is  not  any  implied  or  tacit  agreement  on  the  part  of  a 
utility  mortgagee.  It  is  a  matter  of  public  policy — the 
necessity  for  continuing  on  behalf  of  the  public  the  service 
that  the  utility  has  been  giving.     It  is  the  same  public 

7  Miltenberger     v.     Logansport,  s  See    Wallace     v.    Loomis,     91 

etc.,  Ry.  Co.,  106  U.  S.  286,  27   L.      U.  S.  146,  24  L.  Ed.  895. 
Ed.  117,  1  Sup.  Ct.  140. 


RAILROADS— PUBLIC    UTILITY    CORPORATIONS.  1209 

policy  that  furnishes  the  court  with  a  reason  for  appoint- 
ing a  receiver  and  for  adopting,  as  its  method  of  selling 
on  foreclosure  the  process  of  reorganization''  as  the  most 
fair  way  of  closing  the  receivership. 

§427.     Status   of   Preference   as   Dependent   Upon   Estoppel 
Against  Mortgagee. 

Where  the  bondholders,  under  the  mortgage,  through 
their  representatives  were  in  fact  in  control  of  the  rail- 
road and  operating  it  and  applied  the  income  of  the  road 
to  improvements  and  betterments,  the  claim  for  the  price 
of  such  supplies  will  be  entitled  to  a  preference  over  the 
indebtedness  of  the  bondholders.^  The  question  whether 
the  bondholders  have  operated  the  property  during  the 
period  when  the  indebtedness  arose  is  one  of  fact  for  the 
court  to  determine.- 

No  equity  as  against  a  mortgagee  or  in  favor  of  a 
general  creditor  arises  from  the  mere  fact  that  the  mort- 
gagee may  be  under  the  necessity  of  invoking  the  aid  of 
the  courts  to  enforce  his  lien.  The  mortgagee's  lien  is 
such  as  by  fair  implication  he  has  contracted  for,  and  he 
can  not  justly  be  required  to  barter  a  measure  of  his 
rights  for  a  measure  of  the  relief  which  it  is  the  duty  of 
the  courts  to  accord  to  one  in  his  situation.  And  like- 
wise with  the  unsecured  creditor.  Such  equity  as  he  has 
flows  from  the  fact  that  in  the  ordinary  course  of  business 
he  has  performed  labor  or  furnished  necessary  supplies 
to  the  railroad  company  with  the  reasonable  expectation 

0  See  §  378.  earnings  are  used  for  the  benefit 

1  Central  Trust  Co.  v.  Chicago,      ^^  mortgage  creditors  before  cur- 

A    &  N   Ry    Co.,  232  Fed.  936.  ^^"^  ^^^^^^^^^  ^\^  ^^}^'  the  mort- 

"^      ■  gage    security    is    chargeable    m 

In  Burnham  v.  Bowen,  111  U.  S.  equity  with  the  restoration  of  the 

776,  28  L.  Ed.  596,  4  Sup.  Ct.  675,  f^nd  which  has  been  thus  improp- 

Mr.    Chief    Justice    Waite,    in    re-  erly  applied  to  their  use." 

ferring  to  Fosdick  v.  Schall,  said:  o  First  Trust  Co.  v.  Illinois  Cen- 

"All  we  then  decided,  and  all  we  tral  R.  Co.,  252  Fed.  965,  164  C.  C. 

now    decide,    is    that,    if    current  A.  473. 


]210 


LAW    OP    RECEIVERS. 


of  being  paid  therefor  from  certain  funds.  His  power 
to  enforce  his  rights  should  not  be  made  contingent  upon 
the  possibility  that  the  secured  creditor  may  apply  to  a 
court  for  the  appointment  of  a  receiver  or  for  other  equit- 
able relief,  or  circumstance  wholly  fortuitous,  or  at  least 
one  over  which  he  exercised  no  control.^ 

§  428.     Interest  on  Preferred  Claims. 

Usually  the  condition  of  a  receivership  estate  is  such 
that  the  matter  of  allowing  interest  on  claims  does  not 
arise  as  a  practical  question.  When  interest  is  not  allowed 
the  usual  reason  assigned  is  that  delay  in  making  pay- 
ments after  litigation  has  been  begun  is  due  to  the  slow- 
ness of  the  law's  processes  and  that  one  claimant  should 
not  be  allowed  to  profit  by  the  situation  at  the  expense  of 
another.  It  has  been  said^ — though  the  statement  seems 
to  have  been  prompted  by  the  facts  of  the  case  in  which 
it  was  made  and  to  have  been  based  upon  the  usual  prac- 
tice due  to  the  usual  conditions  rather  than  on  any  under- 
lying rule  of  equity — that  the  general  rule  is  not  to  allow 
interest  as  against  the  corpus  fund.  Interest  has  been 
allowed  in  certain  cases  on  the  ground  of  special  equities.- 


3  Moore  v.  Donahoo,  217  Fed. 
177,  133  C.  C.  A.  171. 

1  Thomas  v.  Western  Car  Co., 
149  U.  S.  95,  37  L.  Ed.  663,  13  Sup. 
Ct.  824. 

In  New  England  R.  Co.  v.  Car- 
negie Steel  Co.,  75  Fed.  54,  21 
C.  C.  A.  219,  a  preferred  claim, 
under  special  provisions  of  the  de- 
cree of  foreclosure,  was  ordered 
paid  by  the  purchaser.  Other  pre- 
ferred claims  had  been  paid  on  dis- 
tribution in  the  estate;  but  the 
sale  was  made  before  this  par- 
ticular claim  had  been  settled. 
Interest  was  not  allowed  on  the 
score  that  interest  is  not  allowed 
against  the  corpus. 


Interest  will  not  be  allowed  on 
open  accounts  against  a  receiver 
of  a  railroad  in  the  absence  of 
a  contract  or  course  of  dealing. 
South  Carolina  v.  Port  Royal,  etc., 
R.  Co.,  89  Fed.  565. 

The  general  rule  is  that  where 
property  of  an  insolvent  debtor 
passes  into  the  hands  of  a  re- 
ceiver interest  is  not  ordinarily 
allowed  to  claimants  to  cover  the 
delay  incident  to  the  settlement  of 
the  estate.  Moore  v.  Donahoo,  217 
Fed.  177,  133  C.  C.  A.  171. 

2  Where  in  receivership  proceed- 
ings the  property  of  an  insolvent 
railroad  is  sold  upon  the  condi- 
tion and  upon  their  implied  agree- 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


]2n 


riowever,  the  underlying  equitable  rule  of  distribution  in 
corporation  receivership  cases  is  that  equality  is  equity. 


ment  to  pay  preferred  claims 
against  the  estate  up  to  a  cer- 
tain amount,  incurred  previous  to 
the  receivership,  the  purchaser  is 
liable  for  interest  on  the  claims 
from  the  date  of  his  purchase 
since  the  amount  of  the  claims 
was  part  of  the  purchase  price. 
Moore  v.  Donahoo,  217  Fed.  177, 
133  C.  C.  A.  171. 

In  Love  v.  North  American  Co., 
229  Fed.  103,  143  C.  C.  A.  379,  in- 
terest on  preferred  claims  for  ex- 
cessive freight  rates,  collected 
contrary  to  an  order  of  the  State 
Public  Service  Commission,  was 
allowed  against  the  current  in- 
come fund  because  of  the  special 
equities  of  the  case;  and  in  South- 
ern Ry.  Co.  V.  Carnegie,  etc.,  Co., 
176  U.  S.  257,  44  L.  Ed,  458,  20 
Sup.  Ct.  347,  interest  was  allowed 
as  against  the  restoration  fund  on 
the  ground  that  the  delay  in  pay- 
ment was  due  to  the  diversions 
from  which  the  mortgagee  had 
profited. 

Where  the  payment  of  the  debt 
was  agreed  to,  by  the  receiver  on 
condition  that  interest  be  paid  sub- 
ject to  the  determination  of  the 
court,  the  right  to  recover  it  is  not 
barred.  New  York  Trust  Co.  v. 
Detroit,  etc.,  Ry.  Co.,  251  Fed.  514, 
163  C.  C.  A.  508. 

In  the  above  case  the  Circuit 
Court  of  Appeals,  through  Judge 
Safer,  went  into  the  allowance  of 
interest  quite  exhaustively.  In 
discussing  this  question  he  said: 
"Under  the  general  rule  that  in- 
terest on  debts  of  an  insolvent 
corporation  in  the  hands  of  a  re- 
ceiver will  be  calculated  only  to 
the  date  of  his  appointment,  the 


holders  of  the  six  months'  claims 
are  entitled  to  interest  down  to 
that  time.  Thomas  v.  Western 
Car  Co.,  149  U.  S.  95,  116,  117,  13 
Sup.  Ct.  824,  37  L.  Ed.  6G3;  Grand 
Trunk  Ry.  Co.  v.  Central  Vermont 
R.  Co.  (C.  C),  91  Fed.  569;  Trede- 
gar Co.  v.  Seaboard  Air  Line  Ry. 
Co.,  supra  [183  Fed.  289,  105  C. 
C.  A.  501];  New  York  Security  & 
Trust  Co.  V.  Lombard  Inv.  Co. 
(C.  C),  73  Fed.  537;  Malcomson  v. 
Wappoo  Mills  (C.  C),  99  Fed. 
633;  Thompson,  Corp.  (2nd  ed.), 
§§6446,  6616;  Solomons  v.  Am. 
Bldg.  &  Loan  Ass'n  (C.  C),  116 
Fed.  676;  Huff  v..  Bidwell,  218  Fed. 
6,  9,  133  C.  C.  A.  646  (C.  C.  A.  5); 
Spring  Coal  Co.  v.  Keech,  239  Fed. 
48,  51,  152  C.  C.  A.  98,  L.  R,  A. 
1917D,  1152  (C.  C.  A.  4).  The  rule 
is  analogous  to  that  in  bankruptcy 
which  allows  interest  on  claims 
down  to  the  filing  of  the  petition 
only,  excepting  in  certain  cases 
claims  of  the  highest  dignity. 
Loveland,  Bank.  (4th  ed.)  628-630. 
1110;  Barton  v.  Barbour,  104  U.  S. 
126,  134,  26  L.  Ed.  672;  American 
Iron  &  Steel  Mfg.  Co.  v.  Seaboard 
Air  Line  Ry.  Co.,  233  U.  S.  261,  34 
Sup.  Ct.  502,  58  L.  Ed.  261. 

"The  right  to  payment  of  the 
principal  sum  of  appellants'  claims 
is  conceded  and,  as  we  have  seen, 
the  six  months'  claims  under  the 
general  rule  bear  interest  from 
their  maturity  to  the  date  of  the 
receivers'  appointment;  but  the 
same  rule  disallows  interest  on 
them  after  that  date  and  also  on 
debts  incurred  by  the  receivers,  as 
against  the  fund  arising  from  the 
sale  of  the  insolvent's  property, 
for  the   reason   the   delay   in  dis- 


1212 


LAW   OF    RECEIVERS. 


Under  this  rule,  tlie  general 
interest  on  preferred  claims 

tribution  is  the  act  of  the  law  and 
a  necessary  incident  to  the  settle- 
ment   of    the    estate.     Thomas    v. 
Western  Car  Co.,  149  U.  S.  at  pp. 
116,  117,  13  Sup.  Ct.  824,  37  L.  Ed. 
663.      An    analysis    of    that    case 
shows  that  disposition  was  made 
of   the   question   involved   on   the 
ground  that  the  unsecured  claim 
of  the  car  company  for  car  rentals 
was  against  a  fund  in  the  hands 
of  the  court,  that  the  delay  in  dis- 
tribution was  the  delay  of  the  law, 
and   that   the   fund    brought    into 
court  fell  short  of  paying  the  mort- 
gage debt    (Nashua  &  Lowell  R. 
Corp.  V.  Boston  &  Lowell  R.  Corp., 
61   Fed.   237,   250,   9   C.   C.  A.   468 
[C.  C.  A.  1]),  all  of  which  features 
are  present  in  each  of  the  present 
appeals.     The   general   rule  there 
stated  applies,  however,  only  to  a 
case  where  the  fund  is  insufficient 
to  pay  all  of  the  claims  and  the 
creditors  are  all  of  the  same  rank. 
Richmond  &  I.  Const.  Co.  v.  Rich- 
mond N.  I.  &  B.  R.  Co.,  68   Fed. 
105,  116,  15  C.  C.  A.  289,  34  L.  R.  A. 
625  (C.  C.  A.  6).     Had  there  been 
any    claims    of    the    standing    of 
receivers'    certificates    considered 
in  that  case,  as  in  this,  on  which, 
before    liability    therefor    was    in- 
curred, the  court  had  directed  that 
interest  should  be  paid,  it  would 
doubtless  have  been  allowed.    The 
rule    announced    in    the    Thomas 
Case  still  subsists — American  Iron 
Co.  V.  Seaboard  Air  Line  Ry.,  233 
U.  S.  261,  266,  267,  58  L.  Ed.  949, 
34     Sup.    Ct.    502;     Pennsylvania 
Steel  Co.  V.  New  York   City  Ry. 
Co.,  216  Fed.  458,  471,  132  C.  C.  A. 
518  (C.  C.  A.  2)— and  binds  the  ap- 
pellants unless  they  come  within 


rule  in  regard  to  allowing 
is  that,  if  the  condition  of 

some  exception  to  it.  They  ap- 
peal to  the  announcement  in  Na- 
tional Bank  v.  Mechanics  National 
Bank,  94  U.  S.  437,  439,  24  L.  Ed. 
176,  that  interest  lawfully  accru- 
ing upon  a  claim  is  as  much  a 
part  of  it  as  the  original  debt, 
and  that  a  creditor  has  the  same 
right  to  the  payment  of  the  one 
as  of  the  other.  That  was  a  case 
in  which  the  debts  were  against 
an  insolvent  national  bank  and 
were  all  of  the  same  footing  and 
funds  were  available  for  the  pay- 
ment of  interest.  But  cases  aris- 
ing out  of  the  settlement  of  in- 
solvent national  banks  are  inap- 
plicable. They  have  proceeded  ac- 
cording to  the  construction  placed 
by  the  courts  on  the  national 
banking  act,  and  not  in  accordance 
with  the  general  principles  of 
equity.  Spring  Coal  Co.  v.  Keech, 
239  Fed.  48,  50,  51,  152  C.  C.  A.  98, 
L.  R.  A.  1917D,  1152  (C.  C.  A.  4). 

"It  is  urged,  however,  that  this 
court  is  committed  to  the  allow- 
ance of  interest  on  claims,  such  as 
appellants  have,  by  the  decisions 
rendered  by  it  in  Central  Trust 
Co.  V.  Condon,  67  Fed.  84,  98,  14 
C.  C.  A.  314,  Richmond  &  I.  Const. 
Co.  V.  Richmond  N.  I.  &  B.  R.  Co., 
68  Fed.  105,  114,  15  C.  C.  A.  289, 
34  L.  R.  A.  625,  and  Jourolmon  v. 
Ewing,  85  Fed.  103,  29  C.  C.  A.  41. 
These  cases  on  their  facts  and  in 
the  character  of  the  claims  consid- 
ered in  them  on  which  interest 
was  allowed  are  readily  distin- 
guishable from  the  cases  made  by 
appellants.  Each  of  the  three 
cases  had  been  before  the  court 
on  a  prior  occasion.  An  examina- 
tion  of  the   first   of  the   cases   in 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1213 


the  estate  is  such  that  there  is  sufficient  money  in  any  fund 
on  which  any  class  of  claims  has  the  first  call  to  allow 


connection  with  Central  Trust  Co. 
V.  Bridges,  57  Fed.  753,  6  C.  C.  A. 
539,  and  of  the  second  in  connec- 
tion   with    Central    Trust    Co.    v. 
Richmond   N.   I.   &   B.   R.   Co.,   68 
Fed.  90,  15  C.  C.  A.  273,  41  L.  R.  A. 
458,  discloses  that  in  each  instance 
the    debt   on   which    interest   was 
allowed  was  a  mechanic's  lien  aris- 
ing out  of  the  construction  of  the 
road,  which,  in  the  first  case  un- 
der the  statute  of  Tennessee  and 
in   the    second   under  the    statute 
of  Kentucky,  was  prior  and  supe- 
rior to  that  of  the  mortgage  whose 
foreclosure  was  sought.  Debts  con- 
tracted for  original  construction  do 
not  fall  within  the  same  class  as 
preferential  claims  necessarily  in- 
curred  to  keep  the  road  a  going 
concern — Thompson,  Corp.,  §  6450, 
and  cases  cited;    First  Nat.  Bank 
V.    Ewing,    103    Fed.    168,    186,    43 
C.  C.  A.  130   (C.  C.  A.  5)— and  it 
was    due    to    statutory    provisions 
that  in   the   two   above-mentioned 
cases   priority  was   given  to  con- 
struction    claims     with     interest 
(Cook,  Corp.   [7th  Ed.],  vol.  4,  §§ 
859,  860,  at  page  3260).     The  rule 
applied    in    those    cases    was    ap- 
proved   in    American    Iron    Co.    v. 
Seaboard    Air   Line    Ry.    Co.,    233 
U.   S.   261,   267,   58    L.   Ed.  949,   34 
Sup.  Ct.  502,  and  Spring  Coal  Co. 
V.    Keech,    239    Fed.    50,    62,    152 
C.  C.  A.  98,   L.   R.  A.  1917D,  1152 
(C.  C.  A.  4).    The  notes  on  which 
interest  was  allowed   in  the  Jou- 
rolmon    Case,   the    first   report   of 
which  is  found  in  80  Fed.  604,  ex- 
pressly   called    for    interest    and 
were   secured   by  a  prior  lien  on 
the  premises  sold,  and,  as  appears 
from    Judge    Severens'    statement 


(85  Fed.  at  page  106,  29  C.  C.  A. 
41),  disposition  of  all  three  of  the 
cases  was  made  in  accordance 
with  the  rule  that  where  there  are 
claims  with  liens  of  different  pri- 
orities the  holders  of  such  liers 
are  entitled  to  interest  down  to 
the  date  of  the  decree.  The  lien 
involved  in  each  of  the  three  cases 
on  which  interest  was  allowed  was 
not  merely  an  equitable  priority 
declared  by  the  court,  but  had  an 
absolute  priority  over  other  exist- 
ing liens. 

"It  was  said  in  Redfield  v. 
Ystalyfera  Iron  Co.,  110  U.  S.  176, 
28  L.  Ed.  109,  3  Sup.  Ct.  570,  that 
the  allowance  of  Interest  as  dam- 
ages is  often  a  matter  of  discre- 
tion, and  in  Jourolmon  v.  Ewing, 
80  Fed.  604,  607,  26  C.  C.  A.  23,  27, 
Judge  Severens,  speaking  for  this 
court  regarding  the  rule  that  in- 
terest, when  not  stipulated,  will 
generally  be  allowed  as  damages, 
said: 

"  'The  rule  has  its  exceptions, 
and  as  in  other  cases  where  there 
are  reasons  founded  on  the  con- 
duct of  the  plaintiff,  or  other  spe- 
cial circumstances  existing  In  the 
case,  and  the  justice  of  the  situa- 
tion requires  it,  interest  will  be 
denied.' 

"See,  also.  New  Orleans  v. 
Fibber,  180  U.  S.  185,  198,  45  L.  Ed. 
485,  21  Sup.  Ct.  347. 

"The  property  of  the  insolvent 
railway  company  passed  into  and 
was  retained  in  the  hands  of  the 
court's  receivers  until  it  could  be 
converted  into  cash  to  satisfy  the 
debts  whose  equitable  priority  was 
recognized,  and  when  so  converted 
the  proceeds  of  the  sale  were  insuf- 


1214 


LAW   OF   RECEIVERS. 


interest  on  all  claims  in  the  class,  interest  Avill  be  allowed, 
no  matter  what  the  effect  may  be  upon  inferior  claims; 
otherwise  interest  will  not  be  allowed.^ 


ficient  to  pay  any  part  of  the  mort- 
gage debt.  The  strong  equity  men- 
tioned in  Nashua  &  Lowell  R. 
Corp.  V.  Boston  &  Lowell  R.  Corp., 
61  Fed.  251,  9  C.  C.  A.  468,  which 
will  stop  the  running  of  interest 
in  exceptional  cases,  even  where 
it  is  ordinarily  given  as  a  matter 
of  right,  was  present." 

3  Pennsylvania  Steel  Co.  v.  New 
York  City  Ry.  Co.,  216  Fed.  458, 
132  C.  C.  A.  518.  In  American 
Iron,  etc.,  Mfg.  Co.  v.  Seaboard  Air 
Line  Ry.,  233  U.  S.  261,  58  L.  Ed. 
949,  34  Sup.  Ct.  502,  Mr.  Justice 
Lamar,  in  stating  the  reasons  for 
the  general  rule  and  also  its  ex- 
ceptions, said:  "In  the  discussion 
as  to  the  answer  which  should  be 
given  that  question,  the  railway 
company  insists  that,  whether 
treated  as  part  of  the  debt  or  al- 
lowed as  damages,  interest  can 
only  be  charged  against  the  rail- 
way because  of  delay  due  to  its 
own  fault,  while  here  the  failure 
to  pay  was  due  to  the  act  of  the 
law  in  taking  its  property  into  cus- 
tody and  operating  the  same  by 
receivers  in  order  to  prevent  the 
disruption  of  a  great  public  utility. 
And  it  is  true,  as  held  in  Tredegar 
Co.  V.  Seaboard  Air  Line  R.  Co., 
183  Fed.  290,  105  C.  C.  A.  501,  that 
as  a  general  rule,  after  property 
of  an  insolvent  is  in  custodia  legis, 
interest  thereafter  accruing  is  not 
allowed  on  debts  payable  out  of 
the  fund  realized  by  a  sale  of  the 
property.  But  that  is  not  because 
the  claims  had  lost  their  interest- 
bearing  quality  during  that  period, 
but  is   a  necessary   and   enforced 


rule  of  distribution,  due  to  the  fact 
that  in  case  of  receiverships  the 
assets  are  generally  insufficient  to 
pay  debts  in  full.  If  all  claims 
were  of  equal  dignity  and  all  bore 
the  same  rate  of  interest  from  the 
date  of  the  receivership  to  the  date 
of  final  distribution,  it  would  be 
immaterial  whether  the  dividend 
was  calculated  on  the  basis  of  the 
principal  alone  or  of  principal  and 
interest  combined.  But  some  of 
the  debts  might  carry  a  high  rate 
and  some  a  low  rate,  and  hence 
inequality  would  result  in  the  pay- 
ment of  interest  which  accrued 
during  the  delay  incident  to  col- 
lecting and  distributing  the  funds. 
As  this  delay  was  the  act  of  the 
law,  no  one  should  thereby  gain 
an  advantage  or  suffer  a  loss.  For 
that  and  like  reasons,  in  case 
funds  are  not  sufficient  to  pay 
claims  of  equal  dignity,  the  dis- 
tribution is  made  only  on  the  basis 
of  the  principal  of  the  debt.  But 
that  rule  did  not  prevent  the  run- 
ning of  interest  during  the  re- 
ceivership; and  if,  as  a  result  of 
good  fortune  or  good  management, 
the  estate  proved  sufficient  to  dis- 
charge the  claims  in  full,  interest 
as  well  as  principal  should  be  paid. 
Even  in  bankruptcy,  and  in  the 
face  of  the  argument  that  the 
debtor's  liability  on  the  debt  and 
its  incidents  terminated  at  the 
date  of  adjudication,  and  as  a  fixed 
liability  was  transferred  to  the 
fund,  it  has  been  held,  in  the  rare 
instances  where  the  assets  ulti- 
mately proved  sufficient  for  the 
purpose,  that  creditors  were  enti- 


RAILROADS— PUBLIC    UTILITY    CORPORATIONS. 


1215 


§  429.    Effect  of  Provisio--  Concerning  Payment  of  Preferred 
Claims  in  Order  Appointing  the  Receiver. 

It  is  the  usual  practice  for  the  court  to  incorporate  in 
the  order  appointing  the  receiver,  provisions  authorizing 
him  to  make  certain  classes  of  payments,  usually  includ- 
ing payments  of  preferred  claims,  without  further  order. ^ 
The  order  usually  also  fixed  the  period  within  which 
prior  to  the  receivership  a  claim  must  have  accrued  to 
be  preferred.  The  orders  are  usually  in  the  form  of  an 
authorization;  but  whatever  their  form  they  are  not 
mandatory  in  effect.  They  do  not  fix  nor  create  any 
right  which  the  claimant  would  not  have  without  the 
order.  The  order  is  not  necessary  to  establish  any  claim 
or  class  of  claims  as  preferred.  "Insertion  of  such  pro- 
visions is  not  to  be  regarded  as  the  condition  upon  which 
such  claims  are  allowed  preference  or  as  an  exercise  of 


tied  to  interest  accruing  after  ad- 
judication. 2  Bl.  Com.  488;  Cf. 
.lolinson  V.  Norris,  190  Fed.  460, 
L.  R.  A.  1915B,  884,  111  C.  C.  A. 
291. 

"The  principle  is  not  limited  to 
cases     of     technical     bankruptcy, 
where  the  assets  ultimately  proved 
sufficient  to  pay  all  debts  in  full, 
but  principal  as  well  as  interest, 
accruing  during  a  receivership,  is 
paid  on  debts  of  the  highest  dig- 
nity, even  though  what  remains  is 
not  sufficient  to  pay  claims   of  a 
lower  rank  in  full.     Central  Trust 
Co.    V.    Condon,    67    Fed.    84,    14 
C.   C.   A.   314,   31   U.   S.  App.   387; 
Richmond  &  I.  Constr.  Co.  v.  Rich- 
mond, N.  I.  &  B.  R.  Co.,  68  Fed. 
116,   34    L.   R.   A.   625,   15  C.  C.  A. 
289,  31  U.  S.  App.  704;   First  Nat. 
Bank  v.   Ewing,   103   Fed.   190,  43 
C.  C.  A.  150." 

1  The  order  in  the  case  of  Gregg 
V.  Metropolitan,  etc.,  Co.,  197  U.  S. 


183,  49  L.  Ed.  717,  25  Sup.  Ct.  415, 
was  as  follows:  "To  pay  em- 
ployees, officials,  and  other  per- 
sons having  claims  for  wages,  ser- 
vices, materials,  and  supplies  due 
and  to  become  due  and  unpaid 
growing  out  of  the  operation  of 
the  railroad  of  the  defendant,  in- 
cluding current  and  unpaid  vouch- 
ers; to  settle  accounts  incurred 
in  the  operation  of  the  railroad 
of  the  defendant  company;  to  pay 
any  and  all  obligations  accrued 
or  accruing  upon  any  equipment 
trust  made  by  defendant  company, 
and  for  such  purpose,  as  well  as 
for  the  purpose  of  meeting  the  ob- 
ligations of  the  pay  rolls,  in  his 
discretion,  to  borrow  sucn  sum 
of  money  as  may  be  necessary 
for  such  purpose  not  exceeding 
$35,000.  But  said  receiver  will  pay 
no  claims  against  the  said  rail- 
road company  which  have  accrued 
more  than  six  months  prior  to  the 
date  of  this  order." 


1216  LAW    OF    RECEIVERS. 

discretion,  but  as  a  recognition  of  a  preexisting  right 
given  without  regard  to  such  a  discretion.  "^  If  a  re- 
ceiver pays  a  claim  that  comes  within  the  terms  of  the 
order  he  is  protected  by  the  order  even  though  the  cUiim 
may  not  be  entitled  to  preference.  But  he  need  not  pay 
a  claim  even  though  it  does  not  come  within  the  terras  of 
the  order  and  may  leave  the  question  of  the  proper  status 
of  the  claim  to  be  determined  by  the  court.^  The  fact 
that  the  receiver  has  without  objection  paid  certain  claims 
under  the  order  does  not  make  it  necessary  that  other 
claims  should  be  paid  out  of  a  fund  in  which  they  have 
not  equitable  preference.* 

7.   Receivers  of  Public  Utility  Corporations  Appointed 
by  State  Courts. 

§  430.     General  Extent  of  the  Powers  and  Duties  of  Receivers 
Appointed  by  State  Courts. 

The  foregoing  consideration  of  the  powers  and  duties 
of  receivers  over  the  property  of  public  utility  corpora- 

2  Pennsylvania  Steel  Co.  v.  New  order  denied  such  a  petition 
York  City  Ry.  Co.,  208  Fed.  180.  showed  that  the  order  was  in- 
See,  also,  Fosdick  v.  Schall,  supra;  tended  not  to  be  mandatory.  Love- 
Wood  V.  New  York,  etc.,  R.  Co.,  land  &  Himjan  Co.  v.  Blair,  222 
70  Fed.  741.  Fed.  207,  137  C.  C.  A.  521. 

3  Carbon  Fuel  Co.  v.  Chicago  C,  A  purchaser  who  has  bought  the 
etc.,  Co.,  202  Fed.  172,  120  C.  C.  A.  property  of  the  company  on  a  fore- 
460.  A  petition  for  the  payment  closure  sale  under  a  decree  im- 
of  a  judgment  against  the  com-  posing  on  the  purchaser  the  ob- 
pany  for  damages  on  account  of  ligation  of  paying  preferred  claims 
loss  of  freight,  which  does  not  set  not  settled  in  the  estate  may  con- 
forth  any  facts  to  show  that  the  test  the  status  of  any  claim  pro- 
claim is  entitled  to  preference  and  sented  for  settlement.  Fordyce  v. 
is  based  solely  on  the  fact  that  Omaha,  etc.,  R.  Co.,  145  Fed.  544. 
the  order  authorized  the  receivers  See,  also,  Pennsylvania  Steel  Co. 
"to  pay  such  loss  and  damage  v.  New  York  City  Ry.  Co.,  208 
freight    claims    arising    from    the  Fed.  173. 

previous  operation  of  said  road  as  4  Gregg  v.  Metropolitan  T.  Co., 

in  their  judgment  on  examination  197   U.   S.   183,   49    L.    Ed.   717,   25 

may  properly  be  paid  as  expenses  Sup.  Ct.  415;   Taylor  v.  Delaware, 

of  operation,"  will  be  denied.    The  etc.,    R.    Co.,    213    Fed.    622,    130 

fact  that  the  court  that  made  the  C.  C.  A.  214. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1217 

tions  has  been  based  upon  the  methods  of  our  federal 
courts  in  administering  the  estates  of  such  corporations 
when  they  have  assumed  control  thereof  for  the  purpose 
of  continuing,  in  the  interest  of  the  public,  a  service  that 
was  in  imminent  danger  of  being  interrupted  because  of 
the  insolvency,  or  practical  insolvency,  of  the  companies. 
There  are,  however,  numerous  cases  in  which  state  courts 
have  appointed  general  receivers  over  such  institutions, 
that  is  receivers  who  have  taken  possession  of  all  of  the 
assets  of  the  corporation  to  administer  them  in  behalf 
of  all  those  interested  in  the  estates.  Even  a  foreclosure 
receivership  has  the  practical  effect  of  bringing  all  of 
the  assets  of  the  company  under  the  control  of  the  court 
because  utility  mortgages  usually  cover  at  least  all  of  the 
operative  property.  Questions  as  to  the  powers  and  duties 
of  the  receivers  in  these  state  cases  of  course  arise.  It  is 
to  be  remembered  however  that  these  state  cases  are 
usually  instituted  under  statutory  provisions  and  are,  of 
course,  controlled  by  them.  Inasmuch  as  the  statutes 
can  not,  or  at  least,  very  frequently  do  not,  cover  all  of 
the  details  of  the  administration  of  these  estates,  the 
courts,  as  we  have  seen  in  another  connection,^  have  to 
rely  on  the  broad  principles  of  equity  where  the  statutes 
are  silent.  It  may  be  said  generally,  however,  that  even 
where  they  are  at  liberty  to  rely  on  purely  equity  prin- 
ciples, the  state  courts  do  not  assume  the  extensive 
authority  that  has  been  exercised  with  such  beneficial 
results  by  the  federal  courts.  It  may  be  said,  too,  that  as 
a  general  rule,  the  decisions  of  state  courts  are  of  much 
more  limited  use  as  authority,  or  precedent,  than  are  the 
federal  decisions  on  account  of  the  existence  of  many 
statutory  limitations  upon  the  exercise  of  their  powers. 
Such  general  rules  as  that  the  receiver  is  an  officer  of 
the  court,^  under  its  control,  and  possessed  only  of  such 

1  See   §  311,  supra.  Am,  St.  Rep.  822,  38  L.  R.  A.  424, 

2  Farmers'  Loan  &  T.  Co.  v.  Ore-      48   Pac.    706. 
gon,  etc.,  R.  Co.,   31  Ore.  237,  65 

II  Rec— 77 


1218 


LAW   OF    RECEIVERS. 


authority  as  the  court  may  give  him;^  that  the  court  has 
wide  discretion  in  selecting  the  person  appointed;^  that 
the  court  will  protect  its  receiver  against  unwarranted 
interference^ — in  fact,  all  such  general  rules  as  are  re- 
ferred to  in  a  previous  section**  above  apply  to  state  util- 
ity receivers,  even  though  statutory,  as  they  do  to  federal 
utility  receivers  and  receivers  generally.  However,  a  stat- 
utory receiver,  unlike  an  equity  receiver,  may  be  the 
assignee  of  the  corporation's  title,'^  and  if  so  naturally 
has  certain  powers  which  a  chancery  receiver  does  not 
possess. 


3  Central  Trust  Co.  v.  Pittsburg 
S.  &  N.  R.  Co.,  223  N.  Y.  347,  119 
N.  E.  565. 

The  receiver  may  not  agree  that 
any  claim  may  have  priority  over 
any  other.  State  v.  Eastline,  etc., 
R.  Co.,  (Tex.  Dist.  Ct.)  48  Am.  & 
Eng.  R.  Cases  656. 

The  receiver  and  the  court  are 
bound  by  the  company's  charter 
and  have  no  authority  beyond 
what  that  gives  the  company.  Saf- 
ford  V.  People,  85  111.  558.  See 
also,  Ratcliff  v.  Adler,  71  Ark. 
269,  72  S.  W.  896. 

4  Houston  v.  Redwine,  85  Ga. 
130,  11  S.  E.  662. 

5  Smith  V.  Texas  &  N.  O.  R.  Co., 
(Tex.    Civ.   App.)    127   S.   W.   866. 

6  See  §  387,  supra. 

7  Whether  or  not  the  receiver 
is  the  assignee  of  the  company 
determines  such  questions  as  to 
whether  or  not  he  may  sue  in  his 
own  name,  or  be  sued  in  his  own 
name  with  reference  to  matters 
affecting  the  estate.  City  of  New 
York  V.  Montague,  145  App.  Dlv. 
172,  129  N.  Y.  Supp.  1084;  City 
of  Seattle  v.  Seattle  R.,  etc.,  Co., 
83  Wash.  94,  145  Pac.  54,  1167; 
Alabama  Terminal  R.  Co.  v.  Benns, 


189  Ala.  590,  66  So.  589;  Jackson 
v.  Dines,  13  Colo.  90,  21  Pac.  918; 
Morrison  v.  Forman,  177  111.  427, 
53  N.  E.  73;  Jeffery  v.  Osborne, 
145  Wis.  351,  129  N.  W.  931. 

The  franchises  of  the  company 
are  at  least  practically  transferred 
to  the  receiver.  People  v.  New 
York  City  Ry.  Co.,  107  N.  Y.  Supp. 
247;  Brooklyn  v.  Jourdan,  7  Abb. 
N.  C.  (N.  Y.)  23. 

Since  the  receiver  stands  in  the 
place  of  the  company,  existing 
rights  of  third  parties  are  not 
affected  by  his  appointment.  Bush 
V.  State,  128,  Ark.  448,  194  S.  W. 
857. 

When  a  railroad  company  takes 
a  right-of-way  subject  to  a  ven- 
dor's lien,  the  company's  title 
remains  subject  to  the  lien  until 
that  is  satisfied  and  if  the  prop- 
erty passes  under  a  receivership 
the  lien  is  prior  to  that  of  certifi- 
cates issued  to  cover  the  receiver's 
indebtedness.  Hubbell  v.  Texas 
S.  Ry.  Co.,  59  Tex.  Civ.  185,  126 
S.  W.  313. 

The  rights  of  a  lessee  under  a 
lease  made  prior  to  the  making 
of  a  trust  deed  are  not  affected 
by  a  provision  in  the  trust  deed 


RAILROADS — PUBLIC   UTILITY   CORPORATIONS. 


1219 


§431.    Operation  of  Public  Utility  by  Receiver. 

In  almost  any  case  a  state  court  might  be  called  upon  to 
operate  the  utility,  pendente  lite.^    If  the  property-  is  to 


to  the  effect  that  a  receiver  may 
be  appointed  on  default.  Louis- 
ville and  N.  R.  Co.  v.  Eakins,  100 
Ky.  745,  39  S.  W.  416. 

In  Radebaugh  v.  Tacoma  &  P. 
R.  Co.,  8  Wash.  570,  36  Pac.  460, 
it  is  held  that,  under  the  laws  of 
Washington  (Gen.  Stat.  1646  et 
seq.),  a  mortgage  upon  the  real 
estate  of  a  railroad  and  purporting 
to  cover  the  rolling  stock  also  does 
not  bind  the  latter  class  of  prop- 
erty when  the  instrument  is  exe- 
cuted and  recorded  as  a  real  estate 
mortgage  and  does  not  comply 
with  the  formalities  in  the  execu- 
tion of  a  chattel  mortgage.  It  is 
also  held  that  the  appointment  of 
a  receiver  of  a  railroad  corpora- 
tion has  the  same  effect  in  law  as 
though  the  creditors  whom  he 
represents  had  taken  possession 
of  the  rolling  stock  under  legal 
proceedings  and  the  right  of  the 
mortgagee  to  take  possession  of 
the  rolling  stock  does  not  give  the 
mortgagee  any  priority  over  cred- 
itors when  its  right  of  possession 
accrues  subsequent  to  the  appoint- 
ment of  the  receiver. 

1  Though,  in  a  foreclosure  suit, 
it  might  be  necessary,  to  prevent 
loss,  to  sell  the  property  before 
final  decree,  it  would  not  be  proper 
to  do  so  where  an  opportunity 
to  have  it  operated  by  a  lessee 
without  loss  to  the  estate  offered 
itself.  Webber  v.  Genesee  Circuit 
Judge  (Miner)  184  Mich.  112,  150 
N.  W.  305,  306. 

Even  in  a  dissolution  proceeding 
the    receiver   may    be    authorized 


to  execute  and  carry  out  existing 
contracts  of  the  corporation,  oi  to 
enter  into  and  carry  out  new  ones. 
Florence  Gas,  etc.,  Co.  v,  Hanby, 
101  Ala.  15,  13  So.  343. 

2  Receivers  appointed  in  a  fore- 
closure action  at  the  instance  of 
a  mortgagee  and,  with  his  consent, 
given  general  authority  to  carry 
out  or  renew  existing  contracts, 
have  power  to  renew  car  leases. 
Mercantile  Trust,  etc.,  Co.  v. 
Southern  Iron  Car  Line,  113  Ala. 
543,  21  So.  373. 

A  receiver,  under  a  general 
order,  may  make  special  rates  of 
transportation.  Bayles  v.  Kansas 
P.  Ry.  Co.,  13  Colo.  181,  5  L.  R.  A. 
480,  22  Pac.  341. 

A  receiver  may  make  necessary 
repairs.  Henry  v.  Prendergast. 
(Ind.  App.)   94  N.  E.  1015. 

A  receiver  may  make  reason- 
able orders  regulating  the  man- 
ner of  performing  their  duties  by 
employees.  Morley  v.  Saginaw 
Circuit  Judge  (Snow),  117  Mich. 
246,  41  L.  R.  A.  817,  75  N.  W.  466. 

He  may  contract  for  the  use  of 
necessary  equipment  for  a  special 
shipment  of  freight.  San  Antonio, 
etc.,  Ry.  Co.  v.  Barnett,  (Tex.  Civ.) 
44  S.  W.  20. 

In  a  foreclosure  action  a  court 
of  equity  is  authorized  to  do  every- 
thing within  the  corporate  power 
to  preserve  the  property  and  make 
it  of  greater  value.  Gibert  v.  Wash- 
ington City,  etc.,  R.  Co.,  33  Graft. 
(Va.)  586. 

Contracts  of  a  receiver  for  labor 
and  supplies  are  not  binding  upon 


1220  LAW   OP    RECEIVERS. 

be  operated  the  court  has  power  to  authorize  the  receiver 
to  do  so  by  general  orders,  giving  him  discretion  to  do 
whatever  the  company  itself  might  do  in  the  ordinary 
course  of  its  business.  Only  a  manifest  abuse  of  author- 
ity, or  fraud  would  warrant  the  review  by  the  court  of 
the  conduct  of  a  receiver  acting  under  such  a  general 
order.^ 

§  432,    Preferred  Claims  Under  State  Statutes  or  in  State  Re- 
ceivership Cases. 

The  doctrine  of  preferred  claims  is  one  that  has  been 
developed  peculiarly  by  federal  courts,  exercising  the 
inherent  powers  of  equity,  in  the  great  volume  of  public 
utility  receivership  cases  that  have  come  before  them  in 
comparatively  recent  years.  We  find,  however,  a  practice 
of  preferring  claims  in  receivership  cases  before  state 
courts.  This  practice  is  largely  controlled  by  statute, 
though  it  may  be  that  occasionally  a  preference  is  allowed 
on  purely  equitable  considerations,  especially  where  the 
payment  of  some  particular  claim  is  imposed  as  a  con- 
dition of  the  appointment  of  a  receiver.^   For  the  most 

his  successor.  Lehigh  Coal,  etc.,  operation  of  the  road  within  a 
Co.  V.  Central  R.  Co.,  41  N.  J.  Eq.  limited  time,  usually  fixed  six 
167    3  Atl.  134.  months  before  the  receivership,  to 

the  claims  of  bondholders.  Shu- 
gart  &  Barnes  Bros.  V.  Atlantic 
N.  &  S.  Ry.  Co.,  161  Iowa  351, 
143  N.  W.  90. 

1  The  right  to  object  to  the  im-  Claims  of  a  connecting  railroad 

position  of  a  condition  to  the  ap-  jjne  which  have  arisen  out  of 
pointment  of  a  receiver  to  the  current  business  incidental  to 
effect  that  a  judgment  be  paid  out  through  freight  traffic,  where  the 
of  the  proceeds  of  the  property  defendant  company  had  diverted 
may  be  lost  through  acquiescence.  certain  operating  income  to  the 
Union  Trust  Co.  v.  Atchison  T.,  payment  of  bonds,  are  entitled  to 
etc.,  Co.,  8  N.  M.  159,  42  Pac.  89.  priority  to  such  amount  over  the 
On  foreclosure  of  a  railroad  claims  of  bondholders  in  the  ad- 
mortgage  a  court  of  equity  may  ministration  of  the  insolvent's 
prefer  unpaid  current  expense  property  in  receivership  proceed- 
claims    accruing   in   the   ordinary      ings.    Shugart  &  Barnes  Bros.  v. 


3  Morley  v.  Saginaw  Circuit 
Judge  (Snow),  117  Mich.  246,  41 
L.   R.  A.  817,  75  N.  W.  466. 


RVILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1221 


part  the  state  statutes  relate  to  corporations  generally 
and  not  to  public  utility  corporations  in  particular.^  Of 
course  the  statutes  define  in  a  very  general  way  the  claims 
that  may  be  preferred  and  most  of  the  controversies  have 
revolved  around  the  question  as  to  whether  or  not  certain 
claims  come  within  the  statutory  definitions.^  The  stat- 
utes are  strictly  construed.  For  the  most  part  the  statutes 


Atlantic  N.  &  S.  Ry.  Co.,  161  Iowa 
351,  143  N.  W.  90. 

If  labor  and  material  furnished 
to  keep  a  water  and  light  com- 
pany a  going  concern  were  not  to 
be  paid  when  furnished,  but  until 
they  could  be  made  from  earnings, 
the  lapse  of  more  than  six  months 
before  the  appointment  of  a  re- 
ceiver will  not  defeat  a  right  to 
priority  of  claims  growing  out  of 
them  over  an  existing  mortgage, 
if  earnings  were  diverted  to  better- 
ments. Citizens'  Trust  Co.  v.  Na- 
tional Equipment  &  S.  Co.,  178 
Ind.  167,  41  L.  R.  A.  (N.  S.)  695, 
98  N.  E.  865. 

See  also  Central  Sav.  Bank  v. 
Newton,  59  Colo.  150,  147  Pac.  690. 

A  final  judgment  against  the  re- 
ceiver of  a  railroad  company  for 
damages  growing  out  of  a  freight 
shipment  is  sufficient  proof  of  the 
correctness  of  the  amount  to  au- 
thorize the  court  to  approve  and 
classify  it  in  directing  a  general 
distribution  of  the  assets.  St. 
Louis  Union  Trust  Co.  v.  Missouri 
Pac.  Ry.  Co.  (Tex.  Civ,),  146 
S.  W.  346. 

A  committee  appointed  by  bond- 
holders, stockholders,  and  unse- 
cured creditors  of  railroad  corpo- 
ration is  authorized  to  employ 
counsel  and  burden  the  railroact 
property  with  a  lien  for  their  ser- 


vices which  is  entitled  to  priority 
over  the  claims  of  the  bondholders 
in  a  subsequent  receivership. 
Dolph  V.  Cincinnati,  B.  &  C.  R.  Co., 
56  Ind.  App.  137,  103  N.  E.  13. 

The  fact  that  the  federal  court, 
which  appointed  a  receiver  of  the 
property  of  a  railroad  company, 
reserved  jurisdiction  over  claims 
presented,  on  discharge  of  the  re- 
ceiver doss  not  give  it  jurisdiction 
over  claims  not  presented.  Kansas 
City,  M.  &  O.  Ry.  Co.  of  Texas  v. 
Latham,  (Tex.  Civ.)  182  S.  W.  717. 

Where  the  court  takes  charge  of 
quasi  public  corporations,  operat- 
ing them  through  a  receiver,  it 
may  make  the  necessary  debts  of 
operation  a  prior  lien  upon  the  in- 
come or  the  property  itself.  Craver 
V.  Greer,  107  Tex.  356,  179  S.  W. 
862. 

Since  receivers  can  only  bind 
the  property  in  their  hands  by 
acts  which  the  court  may  author- 
ize or  approve,  in  order  to  charge 
the  property  after  its  redelivery 
by  receivers,  a  claimant  must 
prove  the  authority  of  the  re 
ceivers.  Kansas  City,  M.  &  O.  Ry 
Co.  of  Texas  v.  Weaver,  (Tex 
Civ.)  191  S.  W.  591. 

2  See  §§  244  and  310  et  seq. 
supra.  See,  also,  petition  of  Wal 
ker  (Tenn.),  209  S.  W.  739. 

3  See  the  statutes  of  the  various 
states. 


3222 


LAW  OF  re(.l:ivers. 


fix  a  period  anterior  to  the  receivership  during  wliich 
claims  must  have  accrued  to  be  entitled  to  preference  and 
the  courts  are  not  at  liberty  to  extend  or  shorten  the 
period.  A  statute  may  have  the  effect  of  enhancing  the 
equity  jurisdiction  of  federal  courts,  though  they  can  not 
restrict  it,  and  we  occasionally  find  a  preference  given  in 
a  federal  court  under  the  provisions  of  some  state  stat- 
ute,^ It  is  to  be  remembered  that,  in  this,  as  in  other 
instances,  state  decisions  are  to  be  read  in  the  light  of 
the  statutes  and  are  not  to  be  taken  as  of  general  appli- 
cation.^ 


4  See  Farmers'  Loan,  etc.,  Co.  v. 
Central  R.  Co.,  17  Fed.  758,  5  Mc- 
Crary  421, 

A  federal  court  may  be  gov- 
erned by  a  state  statute  with 
reference  to  preferred  claims. 
Thus  a  telegraph  company  render- 
ing services  to  a  railroad  company 
in  operating  a  line  along  its  road 
is  a  laborer  within  the  Virginia 
statute  giving  laborers'  claims 
priority  over  mortgages  upon  prop- 
erty in  the  hands  of  receivers. 
Newgass  v.  Atlantic,  etc.,  R.  Co., 
72  Fed.  712. 

Where  the  only  property  of  an 
insolvent  railroad  company  con- 
sists of  a  leasehold  interest  in 
a  line  of  road  extending  into  or 
through  several  states,  and  the 
rolling  stock  used  in  its  operating, 
and  creditors'  suits  are  com 
menced  in  the  federal  courts  in 
the  different  jurisdictions  through 
which  the  line  runs  and  judgment 
creditors  are,  by  the  local  statutes, 
given  a  priority  of  lien  on  certain 
of  the  property  of  the  company, 
in  the  distribution  of  assets  the 
proceeds  of  such  property,  either 
of  rolling  stock  or  leasehold  or 
both,  will  be  apportioned  accord- 


ing to  the  mileage  in  each  state, 
and  the  judgments  in  the  differ- 
ent states  will  be  given  priority 
as  to  the  respective  portions. 
Thomas  v.  Cincinnati,  N.  O.  &  T. 
P.  Ry.  Co.,  91  Fed.  195. 

f)  Claims  for  work  done  in  the 
original  construction  of  a  plant 
of  a  water  company  that  has  never 
been  operated  are  not  entitled  to 
preference  over  bondholders.  Mar- 
tin v.  Blytheville,  etc.,  Co.,  115 
Ark.  230,  170  S.  W.  1019. 

To  entitle  claims  to  preference 
there  must  be  evidence  that  they 
are  valid  obligations  and  against 
a  public  corporation.  A  railroad 
is  not  necessarily  a  public  utility. 
Central  Savings  Bank  v.  Newton, 
59  Colo.  150,  147  Pac.  690. 

Only  those  supply  creditors  who 
established  their  liens  in  the  man- 
ner provided  in  the  statute  may 
have  a  preference  over  a  vendor 
whose  lien  attached  before  the 
supply  claims  accrued.  Gulf  Pipe 
Line  Co.  v.  Lasater,  (Tex.  Civ. 
App.)  193  S.  W.  773. 

To  be  entitled  to  preference 
over  a  railroad  mortgage  a  claim 
must  have  accrued  within  six 
months  prior  to  the  receivership. 


RAILROADS-  —PUBLIC    UTILITY    CORPORATIONS. 


1223 


The  rules  concerning  the  rank  of  various  claims  on  dis- 
tribution set  forth  in  subdivision  six  of  this  chapter  re- 


Helm  V.  Smith,  62  Colo.  203,  162 
Pac.  143. 

An  unpaid  judgment  based  on  a 
tort  committed  by  a  railroad  com- 
pany has  priority  over  a  mort- 
gage covering  income  when  a 
foreclosure  receiver  has  been  ap- 
pointed and  the  income  may  not 
be  diverted  by  the  court  for  im- 
provements to  the  disadvantage 
of  the  judgment  creditor.  Green 
V.  Coast  Line  R.  Co.,  97  Ga.  15, 
54  Am.  St.  Rep.  379,  33  L.  R.  A. 
806,  24  S.  E.  814. 

Court  held  not  to  have  erred  in 
postponing  adjudication  of  prior- 
ities between  creditors  of  insol- 
vent railroad  corporation  until  the 
time  for  distribution  of  the  pro- 
ceeds of  a  sale  of  its  property. 
Determination  of  priorities  among 
creditors  of  a  railroad  corporation 
may  be  postponed  until  the  pro- 
ceeds of  the  sale  of  its  property 
are  about  to  be  distributed.  Union 
Trust  Co.  of  Indianapolis  v.  Curtis, 
182  Ind.  61,  L.  R.  A.  1915A,  699, 
105  N.   E.   562. 

Where  current  earnings  have 
been  diverted  to  betterments,  the 
giving  of  preference  to  current 
operating  claims  may  be  made  a 
condition  of  the  appointment  ot 
a  foreclosure  receiver  even  where 
the  mortgage  covers  the  income. 
Citizens'  Trust  Co.  v.  National 
Equipment  &  Supply  Co.,  178  Ind. 
167,  41  L.  R.  A.  (N.  S.)  695,  98 
N.  E.  865. 

Preference  of  a  claim  for  re- 
pairs to  the  plant  of  a  quasi  pub- 
lic corporation  over  the  prior  mort- 
gage where  current  income  has 
been    diverted    to    improvements, 


is  not  waived  by  the  filing  of  a 
mechanic's  lien  notice  since  the 
statute  declares  claims,  for  which 
there  may  be  mechanic's  liens,  are 
to  be  preferred  debts,  whether  or 
not  notice  of  lien  has  been  filed. 
Citizens'  Trust  Co.  v.  National 
Equipment  &  Supply  Co.,  supra. 

The  debts  for  current  supplies, 
materials,  and  operating  expenses 
of  a  quasi  public  corporation  need 
not  have  been  contracted  within 
six  months  before  appointment  of 
a  receiver,  that  they  may  be  given 
preference  over  a  prior  mortgage, 
where  current  income  has  been 
diverted  to  betterments. 

Where  current  income  has  been 
diverted  for  betterments  the  six 
months  limitation  as  to  prefer- 
ence of  current  operating  ex- 
penses does  not  apply.  Citizens* 
Trust  Co.  v.  National  Equipment 
&  Supply  Co..  178  Ind.  167,  41 
L.  R.  A.  (N.  S.)  695,  98  N.  E.  865. 

A  public  utility  mortgagee  who 
intervenes  in  a  receivership  pro- 
ceeding and  forecloses,  has,  as  to 
a  deficiency  judgment,  the  stand- 
ing of  a  general  creditor  with 
reference  to  the  income  prior  to 
intervention.  Homer  v.  Baltimore 
Refrigerating  &  Heating  Co.,  117 
Md.  411,  84  Atl.  176. 

A  claim  for  the  remainder  due 
on  a  locomotive  sold  to  a  railroad 
company  more  than  six  months 
prior  to  the  receivership  is  to  be 
classed  with  the  general  corpo- 
rate indebtedness.  Manchester  Lo- 
comotive Works  V.  Truesdale,  44 
Minn.  115,  9  L.  R.  A.  140,  46  N.  W. 
301. 

One  who  in  a  public  utility  fore- 


1224 


LAW   OF   RECEIVERS. 


lating  to  general  equity  receiversliips  of  public  utilities 
are  applicable  so  far  as  the  administration  of  the  estate 


closure  receivership  contends  that 
there  have  been  diversions  of  cur- 
rent income  to  the  benefit  of  the 
mortgage  and  that  the  amount  so 
diverted  should  be  restored  in 
order  that  his  current  operating 
claim  might  be  paid  has  the  bur- 
den of  proving  that  there  have 
been  such  diversions.  Lincoln 
Trust  Co.  V.  Missouri  Water,  etc., 
Co.,  151  Mo.  App.  322,  131  S.  W. 
889. 

A  claim  growing  out  of  an  inter- 
change of  traffic  agreement  and 
accruing  prior  to  the  receivership 
is  not  entitled  to  preference  at 
the  hands  of  the  receiver.  Massey 
V.  Camden  &  T.  Ry.  Co.,  79  N.  J. 
Eq.  652,  82  Atl.  917. 

A  direction  contained  in  an 
order  appointing  a  foreclosure  re- 
ceiver for  a  street  railroad  to  pay 
"all  current  expenses  incident  to 
the  administration  of  his  trust, 
and  to  the  condition  and  opera- 
tion of  said  business,  from  time-  to 
time,  as  the  same  arises  and  ac- 
crues," does  not  relate  to  the  pay- 
ment of  any  debt  that  accrued 
prior  to  his  appointment.  McCor- 
nack  v.  Salem  Ry.  Co.,  34  Ore.  543, 
56  Pac.  1022,  denying  rehearing, 
34  Ore.  543,  56  Pac.  518. 

In  a  railroad  receivership  pro- 
ceeding a  mortgagee  has  the  right 
to  contest  the  allowance  of, 
and  giving  preference  to  claim 
which  on  distribution  will  have  a 
prior  right  to  the  mortgage  as  far 
as  income  is  concerned.  United 
States  &  Mexican  Trust  Co.  v. 
Western,  etc.,  Mfg.  Co.,  (Tex. 
Civ.)   109  S.  W.  377. 

In  the  absence  of  a  statute  au- 


thorizing it  to  do  so,  a  court  can 
not  give  preference  in  distribution 
of  the  corpus  fund  to  operating 
claims  accruing  before  the  re- 
ceivership unless  the  current  in- 
come has  been  diverted  to  the 
advantage  of  the  mortgagee. 
Waters-Pierce  Oil  Co.  v.  United 
States  &  Mexican  Trust  Co.,  44 
Tex.  Civ.  397,  99  S.  W.  212. 

In  a  railroad  receivership,  labor- 
ers' claims  accruing  prior  to  the 
receivership  are  under  the  stat- 
ute superior  to  and  material  claims 
are  inferior  to  a  vendor's  lien  on 
part  of  the  right  of  way,  including 
an  attorney's  fee  secured  by  the 
lien.  Hubbell  v.  Texas  St.  Ry.  Co., 
59  Tex.  Civ.  185,  126  S.  W.  313. 

One  furnishing  current  supplies 
to  an  irrigation  company,  is  en- 
titled to  priority  over  other  unse- 
cured creditors  in  funds  in  re- 
ceiver's hands  earned  before 
receivership.  First  Nat.  Bank  v. 
Campbell  (Tex.  Civ.),  193  S.  W. 
197. 

Laborers  and  other  creditors 
who  have  been  cut  off  from  en- 
forcing statutory  liens  upon  rail- 
road property  by  the  appointment 
of  a  receiver  are  entitled  to  an 
equitable  priority  in  the  income 
derived  during  the  receivership, 
and  if  that  income  has  been  de- 
pleted by  expenditure  for  interest 
and  betterments  the  court  will 
make  restoration  from  the  pro- 
ceeds of  the  property.  Mcllhenny 
v.  Binz,  80  Tex.  1,  26  Am.  St.  Rep. 
705,  13  S.  W.  655. 

Unless  the  claimant  otherwise 
to  be  preferred  has  been  guilty  of 
laches    his    claim    need   not   have 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1225 


gives  opportunity  for  tlieir  application.  The  receivers 
own  claims  for  compensation,  etc.,  have  priority  on  gen- 
eral receivership  principles*'  as  well  as  the  claims  aris- 
ing from  the  cost  of  operation.'^    If  the  receiver  operates 


accrued  within  the  period  fixed 
in  the  appointing  order  of  the 
court  as  the  time  within  which 
claims  must  have  accrued  to  be 
entitled  to  preference.    Idem. 

Though  construction  claims  are 
not  usually  given  preference, 
claims  for  construction  work  and 
materials  in  completing  a  road 
after  a  mortgage  evidently  in* 
tended  to  secure  money  furnished 
for  the  completing  work  has  been 
given,  should  be  allowed  a  prefer- 
ence in  the  income  earned  during 
the  receivership  together  with 
money  from  the  corpus  fund  to  re- 
place diversions  for  the  benefit  of 
the  mortgagee.     Idem. 

Operating  employees'  claims  ac- 
cruing within  ninety  days  of  a 
receivership  over  a  railroad  are 
entitled  to  preference  over  a  mort- 
gage upon  the  road.  Litzenberger 
V.  Jarvis-Conklin  Trust  Co.,  8  Utah 
15,  28  Pac.  871. 

As  a  condition  of  the  appoint 
ment  the  court  In  a  foreclosure 
proceeding  may  order  the  receiver 
to  pay  such  outstanding  debts  for 
labor,  supplies,  equipments,  and 
permanent  improvements  as  are 
reasonable.  Central  Trust  Co.  v. 
Utah  C.  R.  Co.,  16  Utah  12,  50 
Pac.  813. 

Only  amounts  actually  expended 
by  the  receiver  for  operating  pur- 
poses may  be  deducted  from  his 
gross  income  to  determine  the  net 
income  to  which  preferred  claims 
attach.  Bell  v.  St.  Johnsbury  &  L, 
C.  R.  Co.,  76  Vt.  42,  56  Atl.  105, 


If  during  the  company's  man- 
agement there  have  been  diver- 
sions from  the  current  revenue 
for  improvements  of  the  road, 
labor  and  material  claims  to  the 
amount  of  these  diversions  may 
be  paid  from  the  proceeds  of  the 
property.  Williamson's  Adm'r  v. 
Washington  City,  etc.,  R.  Co.,  33 
Gratt.  (Va.)  624;  Douglas  v.  Cline, 
12  Bush  (Ky.)  608;  Ellis  v.  Boston, 
etc.,  R.  Co.,  107  Mass.  1;  Mcll- 
henny  v.  Binz,  80  Tex.  1,  26  Am. 
St.   Rep.  705,  13  S.  W.  655. 

Under  a  statute  (Rev.  St.  1911, 
art.  2135),  giving  a  preference  to 
certain  claims  out  of  moneys  com- 
ing into  the  hands  of  the  receiver 
by  way  of  earnings  of  the  prop- 
erty, gives  no  preference  lien  over 
prior  liens  on  the  corpus  of  the 
property,  where  there  were  no 
earnings.  Gulf  Pipe  Line  Co.  v. 
Lasater,  (Tex.  Civ.)  193  S.  W.  773. 

Under  the  statute  (Rev.  St.  1908, 
§§6998-7000,  first  enacted  by  Laws 
1903,  p.  143),  laborers'  claims  do 
not  take  precedence  over  a  mort- 
gage for  a  debt  existing  before  the 
labor  was  performed.  Central  Sav- 
ings Bank  v.  Newton,  59  Colo.  150, 
147  Pac.  690. 

6  Jeffers  v.  New  Jersey,  etc.,  R. 
Co.,  86  N.  J.  Eq.  68,  97  Atl.  32; 
affirmed  on  this  point,  86  N.  J.  Eq. 
402,  99  Atl.   189. 

7  See  §  416,  supra. 

It  has  been  held  that  statutory 
authority  is  necessary  for  the  rec- 
ognition of  a  class  of  preferred 
claims    in    a    utility    receivership. 


1226 


LAW    OF    RECEIVERS. 


the  utility,  operating  claims  against  liim  are  preferred 
as  above  stated.  This  rule  is  based,  not  on  any  con- 
tractual relation  between  the  receiver  and  the  claimant, 
but  on  the  fact  that  the  obligations  are  incurred  under 
the  order  of  the  court.^  The  corpus  fund  is  resorted  to 
last  for  the  payment  of  claims  other  than  the  mortgage 


Metropolitan  Trust  Co.  v.  Tona- 
wanda,  etc.,  R.  Co.,  103  N.  Y.  245, 
8  N.  E.  488. 

8  Langdon  v.  Vermont,  etc.,  R. 
Co.,  54  Vt.  593.  See  also,  McLane 
V.  Placerville,  etc.,  R.  Co.,  66  Cal. 
606,  6  Pac.  748;  International 
Trust  Co.  V.  United  Coal  Co.,  27 
Colo.  246,  83  Am.  St.  Rep.  59,  60 
Pac.  621;  Hoover  v,  Montclair,  etc., 
R.  Co.,  29  N.  J.  Eq.  4;  Lehigh  Coal 
&  Nav.  Co.  V.  Central  R.  Co.,  41 
N.  J.  Eq.  167,  3  Atl.  134;  Wood- 
ruff V.  Erie  R.  Co.,  93  N.  Y.  609; 
Mcllhenny  v.  Binz,  80  Tex.  1,  26 
Am.  St.  Rep.  705,  13  S.  W.  655; 
Graver  v.  Greer,  107  Tex.  356,  179 
S.  W.  862;  Gulf  Pipe  Line  Co.  v. 
Lasater,  (Tex.  Civ.  App.)  193  S.  W. 
773. 

Where  all  of  the  property  of  a 
railroad  corporation  is  temporarily 
in  the  immediate  control  of  a  court 
of  general  jurisdiction  and  in  the 
possession  of  a  receiver,  and  it 
appears  necessary  to  expend 
money  not  then  available,  to 
reasonably  maintain  the  property 
in  its  integrity  as  a  railroad,  the 
court  may  not  only  authorize  the 
receiver  to  borrow  the  money  for 
such  expenditure  but  exercise  its 
equity  power  to  make  the  certifi- 
cates of  indebtedness  a  lien  on  the 
property.  Central  Trust  Co.  v. 
Pittsburg  S.  &  N.  R.  Co.,  223  N.  Y. 
347,  119  N.  E.  565. 


A  chattel  mortgagee  of  rolling 
stock  of  a  railroad  intervened  in 
the  railroad  receivership  proceed- 
ings, and  obtained  a  judgment  for 
the  amount  of  his  debt  with  the 
right  to  foreclose  his  mortgage. 
The  final  decree  of  foreclosure  in 
the  receivership  which  arose  over 
a  mortgage  foreclosure  decreed 
the  sale  of  all  the  railroad  prop- 
erty subject  to  the  lien  of  the  chat- 
tel mortgage.  The  sale,  however, 
failed  and  the  court  operated  the 
railroad.  Subsequently  the  chat- 
tel mortgagee  applied  for  the  pay- 
ment of  his  judgment,  and  the 
court  having  found  that  the  rolling 
stock  had  been  used  by  the  re- 
ceiver and  was  necessary  in  the 
operation  of  the  road,  ordered  that 
the  judgment  should  be  classed 
as  court  costs  and  expenses  of 
operation  by  the  receiver  and  di- 
rected its  payment  in  installments, 
but  reserved  jurisdiction  to  clas- 
sify the  judgment  as  against  the 
corpus  of  the  property.  The  rol- 
ling stock  passed  to  the  receiver- 
ship assets,  and  was  sold  with  all 
the  receivership  property  in  bulk 
before  the  payment  of  the  judg- 
ment in  full.  It  was  held,  that 
the  balance  due  on  the  judgment 
was  properly  classified  by  the 
court  as  an  obligation  of  the  re- 
ceivership. St.  Louis  Union  Trust 
Co.  V.  Texas  Southern  Ry.  Co.,  59 
Tex.  Civ.  App.  176,  126  S.  W.  306. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS. 


1227 


debt.^  There  is  great  reluctance  to  order  expenditures 
without  the  consent  of  creditors,  especially  lien  cred- 
itors,^® and  where  some  claims  are  paid  which  might  be 
objectionable  it  may  be  that  such  claims  were  incurred 
with  the  consent  of  lien  claimants.  The  order  in  which 
claims  are  presented  to  the  court  or  settled  does  not  affect 
their  rank  on  distribution.^^  Generally,  as  in  all  receiver- 
ship cases,  the  rank  of  certificates  issued  by  a  receiver 
depends  upon  the  terms  of  the  order  authorizing  their 


9  Central  Trust  &  Savings  Co. 
V.  Chester  County  Electric  Co.,  9 
Del.  Ch.  247,  80  Atl.  801. 

Philadelphia  Trust  Co.  v.  North- 
umberland County  Traction  Co., 
258  Pa.  St.  152,  101  Atl.  970; 
Hand  v.  Savannah,  etc.,  R.  Co.,  17 
S.  C.  219;  St.  Louis  Union  Trust 
Co.  V.  Texas  Southern  Ry.  Co.,  59 
Tex.  Civ.  157,  126  S.  W.  296. 

10  Meyer  v.  Johnston,  53  Ala. 
237;  Knickerbocker  Trust  Co.  v. 
Tarrytown,  W.  P.  &  M.  Ry.  Co., 
133  App.  Div.  285,  117  N.  Y.  Supp. 
871;  Ex  parte  Mitchell,  12  S.  C. 
83;  State  v.  Port  Royal,  etc.,  Ry. 
Co.,  45  S.  C.  464,  23  S.  E.  380. 

See  Jeffers  v.  New  Jersey,  etc., 
R.  Co.,  86  N.  J.  Eq.  68,  97  Atl.  32. 

A  receiver's  petition  for  permis- 
sion to  build  additional  line  of 
railroad,  based  on  the  suggestion 
that  to  do  so  within  a  limited 
time  was  necessary  under  the  law 
to  prevent  forfeiture  of  the  fran- 
chise was  denied  in  view  of  the 
opposition  of  the  mortgagee  and  of 
the  possibility  that  a  sale  could 
be  made  in  time  to  permit  the 
purchaser  to  comply  with  the  law. 
Pueblo  Traction,  etc.,  Co.  v.  Alli- 
son, 30  Colo.  337,  70  Pac.  424. 

Only    expenditures   that   are   di- 


rectly beneficial  to  the  mortgagee 
may  be  paid  out  of  the  proceeds 
of  the  sale  of  the  property.  Cen- 
tral Trust,  etc.,  Co.  v.  Chester, 
etc.,  E.  Co.,  9  Del.  Ch.  247,  80  Atl. 
801. 

A  trustee  for  bondholders  may 
be  estopped  by  conduct  from  deny- 
ing the  priority  of  a  receiver's 
debt  over  the  mortgage.  Lane  v. 
Macon,  etc.,  Ry,  Co.,  96  Ga.  630, 
24  S.  E.  157. 

An  order  authorizing  a  receiver 
to  incur  indebtedness  can  not  be 
collaterally  attached  and  if  not 
appealed  from  becomes  binding 
upon  a  mortgagee.  Knickerbocker 
Trust  Co.  V.  Tarrytown,  etc.,  Ry. 
Co.,  133  App.  Div.  285,  117  N.  Y. 
Supp.  871. 

Where  the  trustee  and  receiver 
agree  with  the  approval  of  the 
court  that  the  receiver  may  incur 
indebtedness  for  operation  only  up 
to  a  certain  specified  amount  with 
priority  over  the  mortgage  the 
agreement  is  binding  upon  the  re- 
ceiver. Knickerbocker  Trust  Co.  v. 
Oneonta,  etc.,  R.  Co.,  138  App.  Div. 
687,   123  N.  Y.   Supp.  822. 

11  St.  Louis  Union  Trust  Co.  v. 
Texas  Southern  Ry.  Co.,  59  Tex. 
Civ.  157,  126  S.  W.  296. 


1228 


LAW   OF    RECEIVERS. 


issuance.^-  State  courts  have  recognized  the  fact  that 
the  court's  power  to  authorize  receiver's  expenditures  at 
the  cost  of  lien  creditors  is  greater  in  public  utility  cor- 
poration cases  than  in  others. ^^ 


i2Jeffers  v.  New  Jersey,  etc., 
R.  Co.,  86  N.  J.  Eq.  402,  99  Atl. 
189,  modifying  86  N.  J.  Eq.  68, 
97  Atl.  32. 

An  order  directing  the  issuance 
of  certificates  may  be  modified 
nunc  pro  tunc  to  remedy  the  in- 
advertent omission  of  certain 
claims  to  which  it  was.  intended 
they  should  have  priority.  Cen- 
tral Trust  Co.  V.  Pittsburg,  S.  & 
N.  R.  Co.,  93  Misc.  Rep.  194,  156 
N.   Y.   Supp.   1033. 

The  subject  of  Receiver's  Cer- 
tificates will  be  treated  special  in 
a  subdivision  by  itself. 

13  Knickerbocker  Trust  Co.  v. 
Green  Bay  Phosphate  Co.,  62  Fla. 
519,  56  So.  699. 

Traffic  balances  against  a  re- 
ceiver are  allowed  as  receiver's 
operating  expenses.  Woodruff  v. 
Erie  R.  Co.,  93  N.  Y.  609;  Langdon 
V.  Vermont,  etc.,  R.  Co.,  54  Vt.  593; 
although  it  is  held  that  the  tolls 
collected  on  interchange  of  traffic 
do  not  constitute  a  trust  fund  out 
of  which  the  other  party  is  bound 
to  be  paid.  East  Tennessee  Tel. 
Co.  V.  Watson,  147  Ky.  462,  144 
S.  W.  375. 

Tort  claims  arising  under  the  re- 
ceiver are  counted  as  receiver's 
operating  expenses.  Kloepher  v. 
Osborne,  177  111.  App.  384;  Texas 
Pac.  Ry.  Co.  v.  Johnson,  76  Tex. 
421,  18  Am.  St.  Rep.  60,  13  S.  W. 
463. 

A  judgment  decreeing  that  cer- 
tain  funds    used    by   the    receiver 


to  pay  operating  expenses  be- 
longed specially  to  certain  indi- 
viduals and  not  to  the  company 
or  general  estate  must  be  paid  as 
receiver's  operating  expenses.  St. 
Louis  Union  Trust  Co.  v.  Texas 
So.  Ry.  Co.,  59  Tex.  Civ.  157,  126 
S.  W.  296. 

When  a  receiver  subleases 
leased  cars,  rental  therefor  must 
be  paid  as  operating  expenses  of 
the  receiver,  if  the  sublessee  does 
not  pay  the  rent.  Mercantile  Trust, 
etc.,  Co.  V.  Southern  Iron  Car  Line, 
113  Ala.  543,  21  So.  373. 

Where  equipment  subject  to  a 
chattel  mortgage  is  used  by  the  re- 
ceiver and  sold  as  part  of  the 
mortgaged  property  the  court  may 
order  the  chattel  mortgage  to  be 
satisfied  out  of  the  proceeds  of 
the  sale.  St.  Louis  Union  Trust 
Co.  V.  Texas  S.  Ry.  Co.,  59  Tex. 
Civ.  176,  126  S.  W.  306. 

An  order  allowing  the  receiver 
to  employ  the  president  of  the 
utility  to  assist  in  certain  details 
of  administering  the  estate,  at  a 
fixed  compensation,  does  not  war- 
rant the  president's  employing  as- 
sistance at  an  additional  compen- 
sation to  be  paid  out  of  the  estate. 
St.  Louis  Union  Trust  Co.  v.  New- 
comb,   (Tex.  Civ.)   146  S.  W.  1196. 

A  mortgagee  is  not  liable  for 
any  excess  of  the  receiver's  oper- 
ating expenses  over  the  proceeds 
of  the  sale.-  Farmers'  Loan  &" 
Trust  Co.  v.  Oregon,  etc.,  R.  Co., 
31  Ore.  237,  65  Am.  St.  Rep.  822, 
38  L.  R.  A.  424,  48  Pac.  706. 


RAILROADS — PUBLIC    UTILITY    CORPORATIONS.  1229 

§433.     Status  of  the  Executory  Contracts  Belonging  to  Re- 
ceivership. 

A  receiver  over  a  public  utility  corporation,  even 
though  by  statute  made  successor  to  the  title  of  the  com- 
pany is  not  the  assignee  of,  and  compelled  to  perform  the 
company's  executory  contracts.  He  may  reject  them  if 
business  necessity  or  advantage  so  dictates.^  If  the  con- 
tract is  one  for  the  rental  of  equipment  and  the  lessor 
is  entitled  to  take  back  the  property  on  default  in  pay- 
ment of  a  stipulated  sum  periodically,  the  lessor  may  re- 
cover the  property  from  a  receiver  in  default,  although, 
by  the  payment  of  a  small  sum,  title,  under  the  contract, 
would  pass  to  the  estate,  when  the  receiver  fails  to  show 
urgent  need  for  the  equipment  in  operating  the  road  and 
some  equitable  excuse  for  not  making  the  payment.^  If 
a  receiver  rejects  an  executory  contract,  the  other  party, 
providing  he  is  ready  to  perform  his  part,^  is  entitled  to 
a  claim  for  damages.''  If  a  receiver  adopts  an  executory 
contract  he  is  bound  by  its  terms.^  If  the  obligation  of  a 

1  Spencer  v.  Brooks,  97  Ga.  681,  In  re  Brown,  3  Edw.  Ch.   (N.  Y.) 

25  S.  E. -480;  Maxwell  v.  Missouri  384. 

Valley,  etc.,  Storage  Co.,  181  Iowa  2  Central     Locomotive,     etc 

108,  164  N.  W.  329.  Works    v.    Smith,    27    Colo.'    App! 

Brown  v.  Warner,  78   Tex,   543,  449,  150  Pac.  241. 

22   Am.   St.    Rep.   67,   11    L.    R.  A.  3  Diamond  State  Iron  Co.  v    San 

394,  14  S.  W.  1032.  Antonio,  etc.,  Ry.  Co.,  11  Tex.  Civ. 

This   case   concerned   an   agree-  App.  587,  33  S.  W.  987. 

ment  of  the  company  to  pick  up  4  Brown  v.  Warner,  78  Tex.  543 

freight  on  a  certain  switch.    The  22   Am.   St.    Rep.   67,' 11    L.    R.    A.' 

court   said:  394,  14  s.  W.  1032. 

"The  duty  of  the  receivers  was  5  Mercantile  Trust  Co.  v.  South- 
to  hold  and  operate,  and  they  em  Iron  Car  Line,  113  Ala.  543, 
were  no  more  bound  to  carry  out  21  So.  373;  Seibert  v.  Minneapolis] 
the  company's  contract  to  main-  etc.,  Ry.  Co.,  58  Minn.  53,  59  N.  W.' 
tain  the  switch,  than  they  were  879;  Woodruff  v.  Erie  R.  Co.,  93 
to  discharge  its  obligations  to  pay  N.  Y.  609. 
money."  A    contract   concerning   express 

See  Ellis  v.  Boston,  etc.,  R.  Co.,  privileges  made   with  a   group  of 

107    Mass.    1;     Commonwealth    v.  railroads    operated    as    a    system, 

Franklin  Ins.  Co.,  115  Mass.  278;  whereby   an   express    company   in 


]2;30 


LAW   OF   RECEIVERS. 


contract  runs  with  the  land,  the  receiver  can  not  keep 
the  land  and  refuse  to  perform  the  obligation.® 


consideration  of  express  privileges 
over  the  system  agrees  to  pay  a 
certain  sum  periodically  which  is 
divided  among  the  roads  by  an 
agreement  among  themselves,  is 
an  indivisible  contract;  and  when 
the  system  is  disorganized  by  sep- 
arate receiverships   over   various 


of  its  companies,  the  receiver  of 
one  can  not  maintain  the  right  to 
continue  the  contract  as  to  his 
line  at  the  amount  it  had  been  re- 
ceiving under  the  contract.  Smith 
V.  Wells,  Fargo  &  Co.,  96  Fed.  375, 
6  Howe  V.  Harding,  76  Tex.  17, 
18  Am.  St.  Rep.  17,  13  S.  W.  41. 


R.AK^ 


lOS  ANGELA 


OF '    .  ,^ 


LAW  LIBRARY 

UNIVERSITY  0F  CALIFORNIA 
LOS  ANGELES 


AA    000  820  415    8 


UNIVERSITY  OF  CAUFORNIA  LIBRARY 

Los  Angeles 

This  book  is  DUE  on  the  last  date  stamped  below. 


APR  2  3  1979 


PSD  1916     8/77 


